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, 1996.

[ ]  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
 incorporation or organization)                             Identification No.)

                   301 REMINGTON, FORT COLLINS, COLORADO 80524
                ----------------------------------------------
               (Address of principal executive offices) (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                             REDEEMABLE WARRANTS
 --------------------------                             -------------------
     (Title of class)                                     (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, 1996 were $8,033,000.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the issuer as of March 14, 1997 was $15,841,839.

     As of March 14, 1997, the issuer had outstanding 3,400,000 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 1997
Annual Meeting of Shareholders.

     Transitional Small Business Disclosure Format (Check one):

                              Yes [ ]   No [X]

     This document  consists of a total of 36 pages  including the Exhibit Index
beginning on page 34.

<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 10.


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.

     On June 29, 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 Units  separated  on  December  7, 1994 and began
trading  separately on the NASDAQ National Market on that date. The net proceeds
from the IPO, totaling  approximately  $4,382,300,  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.  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 has been further  extended to
April 30, 1997.

     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  consists  of:  criminal  records,  workers'
compensation  histories,  driving records,  reference checks,  credit histories,
social security number use, and education and credential  validation.  Avert has
also developed employment application forms for sale to customers.

     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  7,500 customers located throughout the United States.
During 1996, sales were made in 50 states, with approximately 64% of total sales
having been made in 11 states (California, Colorado, Florida, Georgia, Illinois,
Kansas, Missouri, North Carolina,  Oregon,  Tennessee, and Texas), with Colorado
sales  representing  approximately  15% of total sales.  The Company's  business
strategy is to accelerate  market presence  throughout the United States.  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.






                                       2

<PAGE>


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; 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.

     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.

     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 from 30
states  statewide  or  from  all  3,300  counties  in  the  United  States  on a
county-by-county  basis.  The  remaining  20  states  do not  have  a  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.



                                       3

<PAGE>


          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.

          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  and all  Canadian  provinces.  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. 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.

     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 1,050 such
customers through December 31, 1996.



                                       4

<PAGE>


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:

   Accelerated Market Presence.  Avert intends to accelerate its market presence
     throughout  the United States by 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 sales  representatives;  (4) public
     relations; (5) participation in trade shows and seminar; (6) advertising in
     trade  publications;  (7)  maintaining a web page on the Internet;  and (8)
     mailing of quarterly news release to existing  customers and to prospective
     customers.
     See "Marketing and Sales" below in this Item 1.

   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  have 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  intends  to seek  strategic  relationships  with  companies  in other
     industries. See "Marketing and Sales" below in this Item 1.

   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,  psychological  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) daily monitor its larger
     customers and (3) contact each of its customers on a bi-annual basis.

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.

   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 spent approximately $450,000 during 1996, and
     expects to spend an  additional  $1,050,000  to develop  new  software  and
     upgrade its existing software. See "Management's Discussion and Analysis or
     Plan of  Operation-Liquidity  and Capital  Resources",  in Part II, Item 6,
     below. A total of approximately $1,800 was spent in 1995.




                                       5

<PAGE>



   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

     Avert currently contracts with independent sales representatives  supported
by members of the Company's  marketing  team.  The Company's  marketing  program
consists  of direct  marketing  activities,  advertising,  exhibitions  at trade
shows, the Internet,  public relations activities and in-house telemarketing.  A
portion of customer leads generated by these  marketing  activities are referred
to the  independent  sales  representatives  for a 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 12 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 an indirect sales channel to 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  179
resellers and eleven independent sale representatives

     As part of a plan to increase the number of national  accounts,  a National
Accounts Manager was employed in the fourth quarter of 1995. During 1996 several
new national  accounts were added and revenues from existing  national  accounts
grew by more than 43% from  1995.  Management  expects  to expand  the  national
accounts program during 1997.

     In December,  1996, the Company entered into an agreement with an affiliate
of Ameritech  Corporation  to provide  pre-employment  screening  information to
Ameritech's customer base through Ameritech's on-line service,  CivicLink. There
have been no revenues from this agreement.


Customers

     The Company currently has approximately  7,500 customers located throughout
the  United  States.  During  1996,  sales  were  made  in all 50  states,  with
approximately  64% of total  sales  having  been made in 11 states  (California,
Colorado,  Florida, Georgia, Illinois, Kansas, Missouri, North Carolina, Oregon,
Tennessee,  and Texas),  with Colorado sales  representing  approximately 15% of
total sales.  No single  customer of Avert  accounted  for more than 8% of total
Avert sales during 1996 or 1995.

     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.





                                       6

<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 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, or (2) the report is to be used for employment purposes for which the
consumer has not  specifically  applied.  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.

     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




                                       7

<PAGE>


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 four states of the 50 states in which
the  Company  sold its  products  and  services  during  1996  require  consumer
reporting agencies, such as the Company, to obtain a license to conduce business
within those states.  The Company has obtained the necessary licenses in each of
those four states.  In addition,  several other states may require  licensing of
the Company's  business.  Although the Company  believes that it will be able to
obtain the licenses from these other states, if required, 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.

     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 and
the ADA. 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.

     The Company does not currently maintain liability insurance to cover claims
by the  customers or the subject of reports for alleged  inaccurate or misuse of
information.  Avert has explored the  possibility  and  feasibility of liability
insurance  for this  purpose.  However,  because of the nature of the  Company's
business, claims at least from subjects of reports prepared by the Company would
be based at least in part on  discrimination.  Based on the Company's  research,
losses  from which  claims  are  either  uninsurable  or the  insurance  that is
available is so limited in coverage that it is not economically practicable. The
Company  intends to continue its efforts to obtain  insurance  coverage for such
claims.  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.





                                       8


<PAGE>


     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.  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 56  employees,  of which seven are part-time and
49 are full  full-time  employees.  Of these 56 employees,  12 full-time and two
part-time  employees  are  involved  in  sales  and  marketing,  five  full-time
employees and one part-time employee are involved in finance and administration,
six full-time  employees are involved in  programming/information  system and 26
full-time   employees  and  four  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.


Independent Sales Representatives

     Avert also contracts with independent sales representatives to follow up on
and generate  sales leads,  obtain the  documentation  (including  executed User
Agreements)  needed to open new  customer  accounts,  and develop 11  geographic
territories.  These independent sales  representatives  are paid on a commission
basis.



Item 2.   Description of Property.

     In order to meet its need for  additional  office space and to  accommodate
anticipated  growth,  the Company has  constructed an approximate  14,600 square
foot  office  building  on a 29,400  square  foot  parcel  of  undeveloped  land
purchased  by it in November  1994.  The  building  is located in downtown  Fort
Collins, Colorado.  Construction costs of the office building were approximately
$1.2 million. Construction was completed in March 1996. The cost of the land, as
well as the construction costs for the office building,  were paid entirely from
internal  funds of the Company.  No portion of the proceeds of the Company's IPO
was used for these  purposes.  The Company is the sole occupant of the building.
The Company was partially released from its leased office facility in March 1996
and  totally  released  from the  office  facility  at the end of May 1996.  The
Company had no further  obligations  with respect to the leased office  facility
after May 1996.





                                       9

<PAGE>


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:

     Proposed Expansion of Company  Operations;  Associated Risks. The Company's
sales have grown  significantly since inception.  Historically,  the Company has
developed its products and services  internally and, until January 1995, when it
expanded  its  sales  force  in  four  regions  of the  country,  conducted  its
operations  from a single office in Colorado.  As part of its continuing  growth
strategy,  the Company  intends to accelerate  market  presence  throughout  the
United States,  which  includes,  among other things,  engagement of independent
commission-based  sales  representatives  located in  geographic  regions of the
country, employment of sales representatives at the Company's headquarters,  and
arrangements   with  resellers  of  the  Company's   products  and  may  include
establishing  relationships with certain strategic partners.  Avert also intends
to use the net proceeds of the IPO and any proceeds  received  from the exercise
of the Redeemable Warrants sold as a part of the IPO 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.

     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  four  states  require  companies  engaged  in the type of
business  conducted  by the Company to be licensed in order to conduct  business



                                       10

<PAGE>



within those states.  The Company has obtained the necessary  license in each of
those four states.  In addition,  several other states may require  licensing of
the Company's business.  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 four states of
the 50 states in which the Company sold its  products  and services  during 1996
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 each of those states.  Several other states may require licensing of
the Company's  business.  Although the Company  believes that it will be able to
obtain the licenses from these other states, if required, 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.
However,  because of the nature of the Company's business,  claims at least from
subjects of reports  prepared by the Company  would be based at least in part on
discrimination.  Based on the  Company's  research,  losses from such claims are
either  uninsurable or the insurance that is available is so limited in coverage
that it is not  economically  practicable.  The Company  intends to continue its
efforts to obtain insurance  coverage for such claims.  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.

     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 two of the Company's  eight existing  products is purchased
from other companies.  As more companies enter the market, and if larger, direct



                                       11
<PAGE>

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.

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

                                     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:

                                                            High          Low
                                                            ----          ---
  1995:

    First quarter....................................    $  7-1/2     $   4
    Second quarter...................................       9-5/8         5-3/8
    Third quarter....................................       6-7/8         5-7/8
    Fourth quarter...................................       6-1/12        4-1/8

  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

     From June 22, 1994 until December 7, 1994,  the Company's  Common Stock and
Redeemable  Warrants traded as Units,  with each Unit consisting of one share of
Common Stock and one Redeemable  Warrant.  The Units  separated,  and the Common
Stock and the Redeemable  Warrants  traded  separately  beginning on December 7,
1994.  There was no public market for the  Company's  Common Stock prior to June
22, 1994.

     The above quotations reflect inter-dealer  prices,  without retail mark-up,
marked-down or commission and may not represent actual transactions.

     There  were  approximately  191  holders  of  record  (approximately  1,019
beneficial holders) of the Company's Common Stock on March 14, 1997.

     The Company has not paid any cash dividends since the two-year period ended
December  31,  1993.  Avert does not intend to pay any further  dividends in the
foreseeable  future.  The  Company  instead  intends to retain its  earnings  to
support the operations and growth of its  businesses.  Any 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) During  January,  June,  July and December 1996,  options to purchase a
total of 134,000  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 four key  employees  of the  Company.  The  exercise  price for 60,000
shares  underlying the options is $5.00 per share, the exercise price for 34,000
shares underlying the options is $5.75 per share, and the exercise price for the
remaining  40,000 shares  underlying the options is $6.50 per share, for a total
exercise price under these options of $755,500. 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,  each of the  optionees  is a key employee of the
Company  and is able to fend for himself or herself  with access to  information
upon which an investment decision can be made.

                                       12

<PAGE>


     (b) During May and June, 1996,  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 $5.00 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 $5.25 per share,  for a total  exercise price under these options of
$15,500.  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.


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 10.


Results of Operations

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)
                                        --------  --------   --------     --------  ------------------
Products:

<S>                                    <C>          <C>      <C>            <C>          <C>
   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>

                                       13
<PAGE>

     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.

     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.  Start-up fee income  increased from $33,600 in 1995 to $84,300
in 1996. 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.



                                       14
<PAGE>


     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.

     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.



                                       15
<PAGE>


Comparison of years ended December 31, 1995 and December 31, 1994

     Net revenues  increased  from  $4,704,800  in 1994 to $6,064,600 in 1995 or
29%.  This  increase was due to the  continued  overall  growth of the Company's
customer base and interest earned on the net proceeds received from the IPO. 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, 1995       December 31, 1994
                                       --------------------    ---------------------
                                                     % of                     % of        Percent of
                                       Revenues    Revenues    Revenues     Revenues   Increase/(Decrease)
                                       --------    --------    --------     --------   ------------------
Products:

<S>                                   <C>            <C>      <C>              <C>           <C>
   Workers' compensation
         histories ................   $1,256,300     20.7%    $1,290,500       27.4%         (2.7)%
   Criminal history reports .......   $2,929,400     48.3%    $2,041,200       43.4%         43.5%
   Previous employment/
         credit reports ...........   $  554,900      9.1%    $  388,500        8.3%         42.8%
   Motor vehicle driving records ..   $  762,200     12.6%    $  650,600       13.8%         17.2%
   Other products: ................   $  279,500      4.6%    $  220,100        4.7%         27.0%
       Education/credential
         verification
       Social security number check
       Name Link
       Employment application forms

   Interest income ................   $  369,300      6.1%    $  158,900        3.4%        132.4%

Net Revenues ......................   $6,064,600              $4,704,800                     28.9%
</TABLE>

     Moderate to strong  growth  continued  during  1995 on all  products of the
Company with one exception,  workers'  compensation  reports.  Although sales of
workers'   compensation   histories   remained   flat,   it  still   represented
approximately 21% of total net revenues in 1995. Sales of workers'  compensation
histories were expected to continue to be a viable product as the Company enters
new markets, but will decrease as a percentage of total revenues.

     In total dollars,  criminal history reports  contributed the largest amount
of the increase in 1995 representing  approximately  48.3% of total net revenues
as compared  to  approximately  43.4% of total net revenue in 1994.  The Company
believed  there  to  be a  continuing  trend  nationwide  to  check  prospective
employees'  criminal  records.  To take  advantage  of this  trend,  the Company
completed its expansion of the criminal  history product line to include felony,
misdemeanor, civil and federal court records in 1995.

     There  were  also  increased  revenues  generated  in the area of  previous
employment/credit  reports  from  approximately  $388,500 in 1994 to $554,900 in
1995, due to the overall company  growth.  The increase in motor vehicle driving
records of  approximately  $111,600 from 1994 to 1995 represented an approximate
17.2% increase in net revenues for this product line.


                                       16
<PAGE>

     Income before income taxes  decreased from $1,505,500 in 1994 to $1,370,900
in 1995, or approximately 9% and represented approximately 23% of net revenue in
1995 compared to  approximately  32% in 1994.  The decrease from 1994 to 1995 in
the percentage of income before income taxes to total net revenues was primarily
attributable  to: (1) marketing  expenses  doubling,  with costs associated with
additional  personnel and lead  generating  activities;  (2) a change in product
mix, with a larger  percentage of revenue  generated from lower margin products;
(3)  costs  associated  with  the  extension  of the  Redeemable  Warrants;  (4)
additional  personnel in all areas of the  organization;  and (5) the  Company's
customer base changing to a higher percentage of large customers which generally
received volume discounts. A breakdown of expenses is as follows:

<TABLE>
<CAPTION>
                                      Years Ended                Years Ended
                                     December 31, 1995     December 31, 1994        Increase (Decrease)
                                     ------------------    -----------------        ------------------
                                            % of                       % of             % of Revenue
                               Expenses   Revenues    Expenses    Revenues            1995 over 1994
                               --------   --------    --------    --------            --------------

<S>                          <C>            <C>      <C>            <C>                <C>
Search and product .......   $2,522,700     41.6%    $1,643,500     34.9%              6.7%
Marketing ................      890,600     14.7%       453,600      9.7%              5.0%
General and administrative      930,600     15.3%       823,500     17.5%             (2.2%)
Software development .....      245,500      4.0%       180,200      3.8%              0.3%
Depreciation and
   amortization ..........      104,300      1.7%        98,500      2.1%             (0.4%)
                             ----------     ----      ---------     ----               ---
Expenses .................   $4,693,700     77.4%    $3,199,300     68.0%              9.4%
                             ==========     ====      =========     ====               ===
</TABLE>

     As mentioned  above,  a large portion of the increase in total expenses for
1995 was attributable to search and product and marketing costs.

     The  increase in 1995 over 1994 of search and product  fees as a percentage
of total net revenue was due to the larger  percentage of revenue generated from
criminal histories, a lower margin product, along with increases in labor costs.

     Marketing  expenses as a percentage  of total net revenues  increased  from
approximately  9.7% in 1994 to  approximately  14.7%  in 1995 due to  hiring  of
marketing  personnel in late 1994 and on-going costs to manage the four regional
sales  offices  opened by the  Company.  In  November  1994 the  Company  set up
one-person regional sales offices in Chicago, St. Louis/Kansas City,  Dallas/Ft.
Worth and  Portland/Seattle.  These offices opened and were operating by January
1, 1995 in an attempt by the Company to take  advantage of the  increasing  need
and desire of businesses to check  employee  backgrounds.  However,  the Company
experienced  unacceptable costs per sale, and in summary the offices were not as
successful  as desired and the offices  were  closed as of  December  31,  1995.
Changes were made to the original  marketing  plan in late 1995 and the increase
in marketing  expenses was expected to continue or even increase as a percentage
of net revenues in order to implement these changes.

     All other  expenses in 1995 as a percentage of total net revenues  remained
relatively  stable except  general and  administrative  expenses  which actually
decreased as a percentage of total net revenues from approximately 17.5% in 1994
to  approximately  15.3% in 1995,  despite  $24,400  of  costs  expensed  in the
extension of the Redeemable Warrants.  The main areas of decrease in general and
administrative expenses were that of bonus and legal. Pursuant to the employment
agreement  with the  President of the Company,  bonus is accrued at 6% of income
before taxes and bonus,  after deducting  investment income. Due to the decrease
in net income, bonus expense also decreased.

     The  combined  federal and state  income tax rate for 1995 and 1994 was 37%
and 36%, respectively,  resulting in net income in 1995 of $857,200 or $0.25 per
share on 3,450,000  (weighted average) shares for 1994 as compared to net income
of $969,800 or $0.33 per share on 2,971,017 (weighted average) shares for 1994.


                                       17
<PAGE>

Liquidity and Capital Resources

     The Company's financial position at December 31, 1996, remained strong with
working  capital at that date of  $6,375,000  compared to $6,426,900 at December
31,  1995.  Cash and cash  equivalents  at December  31, 1996 were  $360,000 and
increased from $159,700 at December 31, 1995. Net cash provided from  operations
for the year ended December 31, 1996, was $1,715,000, and consisted primarily of
net income of $1,065,500 less a $390,000 decrease in trading investments,  and a
$211,000  net  increase  in  accounts   receivable.   The  Company  had  capital
expenditures  of $1,317,000 for the year ended December 31, 1996, as compared to
$1,005,800  for 1995.  The  majority  of this  increase  in the  prior  year was
attributable  to the  construction  of an approximate  14,600 square feet office
building  for  use  as its  headquarters.  The  total  construction  costs  were
approximately $1.2 million.  Construction was financed by current available cash
derived from past operations.  Completion was March,  1996. In the current year,
capital  expenditures  consisted  of $673,000 in computer  hardware and software
development  in  addition to $375,000 of  furniture  and  equipment  for the new
facility.

     The Company expects to spend up to $1.5 million to develop new software and
upgrade its existing software,  of which approximately  $450,000 was incurred in
1996 in connection  with this  project.  The majority of these are costs paid to
independent consultants. 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 late  1997 or early  1998,  with  scheduled  software  releases
occurring prior to that time.

Inflation

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

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 1997 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.


                                       18
<PAGE>


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.

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 Registrant. (2)
4.1       Excerpt from Articles of  Incorporation  of the  Registrant  Regarding
          Common Stock and Preferred Stock (2)
4.2       Warrant Agreement,  including form of Redeemable Warrant  Certificate,
          Subscription Form and Form of Assignment. (6)
4.3       Form of Representative's Warrant Agreement,  including form of Warrant
          Certificate, Purchase Form, and Assignment Form. (4)
10.1      Indenture  of Lease dated  September 3, 1991 re:  Registrant's  office
          facility. (1)
10.1.1    Agreement to Alter Lease dated November 22, 1995. (8)
10.2      Form of Consumer Report User Agreement between Registrant and customer
          of Registrant. (1)
10.3      Employment  Agreement  dated  as  of  January  1,  1994,  between  the
          Registrant and Dean A. Suposs. (2)
10.4      Consulting Agreement dated January 1, 1994, between the Registrant and
          Michael D. DeWitt. (2)
10.4.1    Amendment  No. 1  to Consulting  Agreement  between the Registrant and
          Michael D. DeWitt, daJune 20, 1994. (4)
10.5      Form of Commission  Agreement  between the Registrant and  Independent
          Sales Representative. (1)
10.6      Employer Report Subscriber  Agreement,  dated March 29, 1991,  between
          the Registrant and TRW, Inc.(1)
10.7      Credit Bureau  Service  Agreement,  dated March 30, 1992,  between the
          Registrant and TransUnion (1)
10.9      Amended and Restated 1994 Stock Incentive Plan.(3)
10.10     Non-Employee Directors' Stock Option Plan. (2)
10.11     Vacant  Land/Farm and Ranch Contract to Buy and Sell Real Estate dated
          September 26, 1994. (5)
10.12     Abbreviated  Form of  Agreement  Between  Owner  and  architect  dated
          October 9, 1994.(5)
10.13     Letter   Agreements,   Dated  March  24,   1995,   with  Ace  Hardware
          Corporation  and Loss  Prevention  Services  relating  to sales of the
          Registrant's Products.(7)
10.14     Consulting Agreement with Neidiger/Tucker/Bruner, Inc.(6)
10.15     Employment  Agreement dated January 1, 1996,  between Leonard Koch and
          the Registrant.(8)
10.15.1   Amended  and  Restated  1994  Stock  Incentive  Plan  Incentive  Stock
          Option Agreement between Leonard Koch and the Registrant.(8)
10.16     Employment  Agreement,  dated June 10, 1996, between Jerry Thurber and
          the Registrant. (8)
10.16.1   Amended  and  Restated  1994  Stock  Incentive  Plan  Incentive  Stock
          Option Agreement,  dated June 10, 1996,  between Jerry Thurber and the
          Registrant. (9)
10.17     Employment  Agreement,  dated July 1, 1996,  between  Jamie Burgat and
          the Registrant. (9)

                                       19
<PAGE>


10.17.1   Amendment  to  the  Employment Agreement,  dated July 1, 1996, between
          Jamie Burgat and the Registrant. (9)
10.17.2   Amended  and  Restated  1994  Stock  Incentive  Plan  Incentive  Stock
          Option  Agreement,  dated July 1, 1996,  between  Jamie Burgat and the
          Registrant. (9)

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

     (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 Amendment No. 4 to the  Registration  Statement
          (File  No.   33-76726-D)   filed  with  the  Securities  and  Exchange
          Commission on June 21, 1994.
     (5)  Filed as an Exhibit  to the  Quarterly  Report on Form  10-QSB for the
          quarterly  period ended September 30, 1994,  filed with the Securities
          and Exchange Commission on November 11, 1994.
     (6)  Filed as an Exhibit to Form  10-KSB  for the year ended  December  31,
          1994,  filed with the Securities and Exchange  Commission on March 13,
          1995.
     (7)  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.
     (8)  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.
     (9)  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.

(b)      Reports on Form 8-K.

     The Registrant  filed the following  report on Form 8-K with the Securities
and Exchange Commission during the fourth quarter of 1996:

          (i)  Form 8-K dated  October 28, 1996,  reporting  issuance of a press
               release  announcing  financial  results for the third quarter and
               nine month period (Item 5).






                                       20
<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 28, 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 28, 1997.


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


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

/s/ Michael D. DeWitt                       Secretary and Director
-----------------------------------
     Michael D. DeWitt

/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                        Director
-----------------------------------
     Stephen D. Joyce





                                       21
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS



                                                                           Page

     Report of Independent Accountants..................................    F-2

     Financial Statements:

                  Balance Sheet.........................................    F-3
                  Statements of Income .................................    F-4
                  Statement of Shareholders' Equity.....................    F-5
                  Statements of Cash Flows..................... ........    F-6
                  Notes to Financial Statements.........................    F-7






                                      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,
1996, and the related state ments of income, shareholders' equity and cash flows
for the years ended December 31, 1995 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 disclo sures 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,
1996,  and the results of its  operations and its cash flows for the years ended
December 31, 1995 and 1996, in conformity  with  generally  accepted  accounting
principles.



/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP


Denver, Colorado
February 21, 1997



                                      F-2

<PAGE>

<TABLE>
<CAPTION>


                                   AVERT, INC.

                                  BALANCE SHEET
                                DECEMBER 31, 1996

                                     ASSETS

<S>                                                               <C>
CURRENT ASSETS:
   Cash and cash equivalents .................................... $   360,000
   Marketable securities ........................................   5,577,000
   Accounts receivable, net of allowance of $75,000 .............     788,000
   Prepaid expenses and other ...................................     259,000
                                                                    ---------
            Total current assets ................................   6,984,000

PROPERTY AND EQUIPMENT, net .....................................   2,511,000
                                                                    ---------
TOTAL ASSETS .................................................... $ 9,495,000
                                                                    =========
                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable ............................................. $   453,000
   Accrued expenses .............................................     156,000
                                                                    ---------
            Total current liabilities ...........................     609,000

DEFERRED INCOME TAXES ...........................................     200,000

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;
       3,400,000 shares issued and outstanding ..................   4,745,000
   Retained earnings ............................................   3,941,000
                                                                    ---------
           Total shareholders' equity ...........................   8,686,000
                                                                    ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................... $ 9,495,000
                                                                    =========
</TABLE>



              See accompanying notes to these financial statements.



                                      F-3

<PAGE>

<TABLE>
<CAPTION>
                                   AVERT, INC.

                              STATEMENTS OF INCOME
                                                                    FOR THE YEARS ENDED
                                                                        DECEMBER 31,
                                                                 -----------------------
                                                                    1996           1995
                                                                    ----           ----
<S>                                                            <C>            <C>
NET REVENUES:
      Search and product fees ..............................   $ 7,698,000    $ 5,691,000
      Interest and other income ............................       335,000        374,000
                                                                ----------      ---------
                                                                 8,033,000      6,065,000
EXPENSES:
    Search and product costs ...............................     3,293,000      2,523,000
    Marketing ..............................................     1,319,000        891,000
    General and administrative .............................     1,109,000        931,000
    Software development ...................................       353,000        245,000
    Depreciation ...........................................       185,000        104,000
                                                                ----------      ---------
                                                                 6,259,000      4,694,000
                                                                ----------      ----------
INCOME BEFORE INCOME TAXES .................................     1,774,000      1,371,000

   Income tax expense ......................................      (708,000)      (514,000)
                                                                ----------      ---------
NET INCOME .................................................   $ 1,066,000    $   857,000
                                                                ==========      =========
NET INCOME PER COMMON SHARE ................................   $       .31    $       .25
                                                                ==========      =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .................     3,450,000      3,450,000
                                                                ==========      =========

</TABLE>



              See accompanying notes to these financial statements.



                                      F-4

<PAGE>

<TABLE>
<CAPTION>


                                   AVERT INC.

                        STATEMENT OF SHAREHOLDERS' EQUITY
                 FROM JANUARY 1, 1995 THROUGH DECEMBER 31, 1996

                                                        COMMON STOCK                           TOTAL
                                                   -----------------------      RETAINED    SHAREHOLDERS'
                                                   SHARES         AMOUNT        EARNINGS       EQUITY
                                                   ------         ------        --------    ------------

<S>                                               <C>          <C>            <C>           <C>
BALANCES, January 1, 1995 ...................     3,442,000    $ 4,960,000    $ 2,018,000   $ 6,978,000

  Net income ................................          --             --          857,000       857,000
                                                  ---------      ---------      ---------     ---------

BALANCES, December 31, 1995 .................     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
                                                  =========      =========      =========     =========
</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,
                                                                                --------------------------
                                                                                  1996             1995
                                                                                  ----             ----
<S>                                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income ............................................................     $ 1,066,000      $   857,000
  Adjustments to reconcile net income to net cash
      provided by operating activities:
           Depreciation .................................................         185,000          104,000
           Bad debt expense .............................................          31,000           42,000
           Deferred income taxes ........................................         192,000           49,000
           Loss (gain) on sale of asset .................................          (8,000)           1,000
           Changes in operating assets and liabilities:
                (Increase) decrease in:
                     Trading investments, net ...........................         390,000         (460,000)
                     Accounts receivable ................................        (211,000)        (118,000)
                     Prepaid expenses and other current assets ..........          24,000          (62,000)
                     Other assets .......................................           3,000           23,000
                Increase (decrease) in:
                     Accounts payable ...................................         (56,000)         270,000
                     Accrued expenses ...................................         175,000          (51,000)
                     Income taxes payable ...............................         (17,000)        (184,000)
                     Deferred revenue and deposits ......................         (59,000)         (47,000)
                                                                                ---------         --------
           Net cash provided by operating activities ....................       1,715,000          424,000

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment .................................      (1,317,000)      (1,006,000)
     Proceeds from sale of property and equipment .......................          17,000            4,000
                                                                                ---------         --------
                   Net cash used in investing activities ................      (1,300,000)      (1,002,000)

CASH FLOWS FROM FINANCING ACTIVITY -
     Purchase of shares outstanding .....................................        (215,000)            --
                                                                                ---------         --------

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ........................         200,000         (578,000)

CASH AND CASH EQUIVALENTS, beginning of year ............................         160,000          738,000
                                                                                ---------         --------

CASH AND CASH EQUIVALENTS, end of year ..................................     $   360,000      $   160,000
                                                                                =========         ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
         Income taxes paid ..............................................     $   533,000      $   735,000
                                                                                =========         ========
</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, 1996.

     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,  1996,  approximately  $427,000 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, 1996.

     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 1996, the Company  capitalized  $450,000 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 late 1997.

     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

                                      F-7

<PAGE>
                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS


     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, 1996 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  computed  based upon the
     weighted average number of shares outstanding during the periods, including
     common stock equivalents outstanding during the periods.

     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.

     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.





                                      F-8

<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS


2.   PROPERTY AND EQUIPMENT:

     Property and equipment consist of the following at December 31, 1996:


                 Land ...................................   $   210,000
                 Building ...............................     1,211,000
                 Computer hardware and software .........     1,120,000
                 Furniture and equipment ................       540,000
                                                            -----------
                                                              3,081,000
                 Less accumulated depreciation ..........      (570,000)
                                                            -----------
                                                            $ 2,511,000
                                                            ===========

3.   INCOME TAXES:

     Income tax expense (benefit) consists of the following:

                                                           December 31,
                                                      -------------------
                                                        1996        1995
                                                        ----        ----

                 Current ..........................   $516,000   $465,000
                 Deferred .........................    192,000     49,000
                                                       --------   --------

                 Total income tax expense ..........  $708,000   $514,000
                                                       ========   ========

     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 the effect of state income taxes.

     Temporary  differences between the financial statement carrying amounts and
     tax basis of assets and lia bilities 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.
     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.


                                      F-9

<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS


     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, 1996,  the Company had granted  options
     under the plan to purchase 364,000 shares (including  200,000 shares to the
     Company's  President) of which  122,499  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, 1996 have  exercise  prices that
     range from $5.00 to $6.50.

     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, 1996 range from $5.25 to $6.25.

    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>            <C>
OPTIONS OUTSTANDING, January 1, 1995 .........     230,000         2,000          $ 5.25

   Options granted ...........................        --           3,000          $ 6.17
                                                   -------       -------            ----

OPTIONS OUTSTANDING, December 31, 1995 .......     230,000         5,000          $ 5.26

  Options granted ............................     134,000         3,000          $ 5.64
                                                   -------       -------            ----

OPTIONS OUTSTANDING, December 31, 1996 .......     364,000         8,000          $ 5.40
                                                   =======       =======            ====
</TABLE>

     For all options  granted during 1996 and 1995, 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,
     1996 was approximately 9.9 years. At December 31, 1996, options for 127,499
     shares  were  exercisable  and  options  for the  remaining  shares  became
     exercisable  pro rata through 2001. If not  previously  exercised,  options
     outstanding at December 31, 1996, will expire as follows:


                                      F-10

<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

         1999 .......................    2,000       $ 5.25
         2000 .......................    3,000       $ 6.17
         2001 .......................    3,000       $ 5.58
         2004 .......................  230,000       $ 5.25
         2006 .......................   60,000       $ 5.00
         2007 .......................   74,000       $ 6.17
                                       -------
                                       372,000
                                       =======

     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,
                                                        -----------------------
                                                           1996         1995
                                                           ----         ----
      Net income applicable to common stockholders:
             As reported ...........................   $ 1,066,000   $  857,000
             Pro forma .............................   $   965,000   $  854,000
      Net income per common share:
             As reported ...........................   $       .31   $      .25
             Pro forma .............................   $       .28   $      .25



                                      F-11

<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS


     The fair value of each employee option and warrant granted in 1996 and 1995
     was estimated on the date of grant using the  Black-Scholes  option-pricing
     model with the following weighted average assumptions:

                                             Year Ended December 31,
                                             ----------------------
                                                  1996     1995
                                                  ----     ----

           Expected volatility ..............     55.0%   70.0%
           Risk-free interest rate ..........      6.5%    6.5%
           Expected dividends ...............       --      --
           Expected terms (in years) ........      9.9     5.0

     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.
     No redeemable warrants have been exercised as of December 31, 1996.

     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 1996 and 1995 was  approximately  $93,000  and  $64,000,
     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 1996 and 1995 was insignificant.



                                      F-12

<PAGE>
                                 EXHIBIT INDEX

Exhibit
Number    Document Description
-------   --------------------
3.1       Articles of Incorporation, as amended, of the Registrant.(2)
3.2       Bylaws, as amended, of the Registrant. (2)
4.1       Excerpt from Articles of  Incorporation  of the  Registrant  Regarding
          Common Stock and Preferred Stock (2)
4.2       Warrant Agreement,  including form of Redeemable Warrant  Certificate,
          Subscription Form and Form of Assignment. (6)
4.3       Form of Representative's Warrant Agreement,  including form of Warrant
          Certificate, Purchase Form, and Assignment Form. (4)
10.1      Indenture  of Lease dated  September 3, 1991 re:  Registrant's  office
          facility. (1)
10.1.1    Agreement to Alter Lease dated November 22, 1995. (8)
10.2      Form of Consumer Report User Agreement between Registrant and customer
          of Registrant. (1)
10.3      Employment  Agreement  dated  as  of  January  1,  1994,  between  the
          Registrant and Dean A. Suposs. (2)
10.4      Consulting Agreement dated January 1, 1994, between the Registrant and
          Michael D. DeWitt. (2)
10.4.1    Amendment  No. 1  to Consulting  Agreement  between the Registrant and
          Michael D. DeWitt, daJune 20, 1994. (4)
10.5      Form of Commission  Agreement  between the Registrant and  Independent
          Sales Representative. (1)
10.6      Employer Report Subscriber  Agreement,  dated March 29, 1991,  between
          the Registrant and TRW, Inc.(1)
10.7      Credit Bureau  Service  Agreement,  dated March 30, 1992,  between the
          Registrant and TransUnion (1)
10.9      Amended and Restated 1994 Stock Incentive Plan.(3)
10.10     Non-Employee Directors' Stock Option Plan. (2)
10.11     Vacant  Land/Farm and Ranch Contract to Buy and Sell Real Estate dated
          September 26, 1994. (5)
10.12     Abbreviated  Form of  Agreement  Between  Owner  and  architect  dated
          October 9, 1994.(5)
10.13     Letter   Agreements,   Dated  March  24,   1995,   with  Ace  Hardware
          Corporation  and Loss  Prevention  Services  relating  to sales of the
          Registrant's Products.(7)
10.14     Consulting Agreement with Neidiger/Tucker/Bruner, Inc.(6)
10.15     Employment  Agreement dated January 1, 1996,  between Leonard Koch and
          the Registrant.(8)
10.15.1   Amended  and  Restated  1994  Stock  Incentive  Plan  Incentive  Stock
          Option Agreement between Leonard Koch and the Registrant.(8)
10.16     Employment  Agreement,  dated June 10, 1996, between Jerry Thurber and
          the Registrant. (8)
10.16.1   Amended  and  Restated  1994  Stock  Incentive  Plan  Incentive  Stock
          Option Agreement,  dated June 10, 1996,  between Jerry Thurber and the
          Registrant. (9)
10.17     Employment  Agreement,  dated July 1, 1996,  between  Jamie Burgat and
          the Registrant. (9)
10.17.1   Amendment  to  the  Employment Agreement,  dated July 1, 1996, between
          Jamie Burgat and the Registrant. (9)
10.17.2   Amended  and  Restated  1994  Stock  Incentive  Plan  Incentive  Stock
          Option  Agreement,  dated July 1, 1996,  between  Jamie Burgat and the
          Registrant. (9)

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

     (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.
<PAGE>


Exhibit
Number    Document Description
-------   --------------------
     (4)  Filed as an Exhibit to Amendment No. 4 to the  Registration  Statement
          (File  No.   33-76726-D)   filed  with  the  Securities  and  Exchange
          Commission on June 21, 1994.
     (5)  Filed as an Exhibit  to the  Quarterly  Report on Form  10-QSB for the
          quarterly  period ended September 30, 1994,  filed with the Securities
          and Exchange Commission on November 11, 1994.
     (6)  Filed as an Exhibit to Form  10-KSB  for the year ended  December  31,
          1994,  filed with the Securities and Exchange  Commission on March 13,
          1995.
     (7)  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.
     (8)  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.
     (9)  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.