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, 1998

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 FOR THE TRANSITION PERIOD FROM          TO 
                                            --------    --------
                         Commission File Number 0-23952
                                   AVERT, INC.
                 (Name of small business issuer in its charter)

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

                   301 REMINGTON, FORT COLLINS, COLORADO 80524

               (Address of principal executive 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
                                (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, 1998 were $9,961,800.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the issuer as of March 19, 1999 was $11,444,984.

     As of March 19, 1999, the issuer had outstanding 3,323,025 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 1999
Annual Meeting of Shareholders.

     Transitional Small Business Disclosure Format (Check one):

                                 Yes [ ]  No [X]


<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. In June, 1994, the Company  completed an initial public offering
("IPO") of Units,  each unit  consisting  of one share of the  Company's  Common
Stock and one  Redeemable  Warrant.  The  Company  received  total net  proceeds
received  from  the  IPO  and  the  exercise  of  the  Redeemable   Warrants  of
approximately $4,955,000.  The net proceeds are currently intended to be used to
acquire other companies,  assets, and/or product lines that either complement or
expand  the  Company's  existing  business.  None of the net  proceeds  has been
expended to date. For additional information concerning the IPO, see "Market for
Common  Equity" and related  Stockholder  Matters,  " in Part II, Item 5, below.
Avert is an  information  service  bureau  engaged  primarily in the business of
verifying job applicant  background  information  for employers.  The background
checks are made through the use of databases and a national  network of couriers
(engaged on an independent  contractor basis) developed by the Company since its
incorporation  in June, 1986. The background  information  products and services
currently  provided  by the  Company  consist  of:  criminal  records,  workers'
compensation  histories,  driving records,  reference checks,  credit histories,
social  security  number  use,  and  education  and  credential  validation  and
employment  application  forms. The self-screen drug testing kit piloted in 1997
was not added to the Avert product line.

     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 10,260 customers located throughout the United States.
During 1998,  sales were made in 50 states,  the  District of  Columbia,  Puerto
Rico,  and  Virgin  Islands.  Approximately  64% of total  sales were made in 10
states (Colorado, Texas, Illinois, Oregon, Missouri, California, North Carolina,
Minnesota,  Florida, and Kansas), with Colorado sales representing approximately
16% of total  sales,  and Texas sales  representing  approximately  13% 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.


Markets

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

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

o    Physically demanding jobs;



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o    Employees with access to goods and cash of employers;

o    High employee turnover; and

     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 Internet,  telephone,  mail or by facsimile.
This network is available 24 hours per day, seven days a week.  Avert customizes
its Internet service for larger customers on a for fee basis. Avert products and
services  may be  ordered  by  telephone,  mail or by  facsimile,  or by using a
modem-equipped  personal  computer or terminal to access the  Company's  on-line
network.  This network is available 24 hours per day,  seven days a week.  Avert
does not sell or license software to its customers.

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

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

     During 1996 the Company budgeted  approximately $1.5 million to develop new
software and upgrade its existing software, of which approximately  $450,000 was
expended  in  1996,   approximately   $1,181,000   was  expended  in  1997,  and
approximately $191,000 was expended in 1998. The upgrade was completed in April,
1998.  The total  cost of the  upgrade  was  approximately  $1.82  million,  and
exceeded  the $1.5  million  budget by  $322,000.  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.

     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.  In first quarter of 1999, the Company began the test phase of
an on-line vendor management system to aid in managing of its courier network.


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

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

          Workers'  Compensation  Histories--Used to confirm on-the-job injuries
in compliance  with the Americans  with  Disabilities  Act of 1990  (referred to
herein  as  the  "ADA").   Avert  has  been  collecting  and  storing   workers'
compensation  data since the  Company's  inception.  The Company  currently  has
approximately  6.3 million workers'  compensation  records in its database,  and


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<PAGE>

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,
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 a standard reference check confirming dates
of employment,  salary,  duties and title  information,  with the ability to add
custom  questions in order to meet specific  customer  needs.  The product gives
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,  all Canadian  provinces,  and Puerto Rico.
This same information  could be obtained directly by the Company from the source
or from other nonaffiliated third parties.  These reports and the credit reports
discussed below are the only two products for which Avert serves as a broker.

          Credit  Link--Confirms  certain credit  information.  This  background
information  is a  special  form  of  a  common  "credit  report"  designed  for
employment  purposes  only. The report  complies with current  provisions of the
Fair Credit  Reporting Act, as amended  ("FCRA").  See  "Government  Regulation"
below in this Item 1.  Avert  serves as a broker  for this  information  for all
three of the major credit bureaus  (Equifax,  TRW and  TransUnion) and retrieves
the information  from these credit bureaus through  software  purchased by Avert
from a nonaffiliated  third party.  Avert customers may order any combination of
the three credit bureaus.  In 1998, Avert began offering an Instant Credit Link,
which is a Credit Link described above, available instantly.

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

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

          Instant Address  Link--Through  its links with the service bureaus the
company  offers an address  locator  service that  identifies  up to three known
addresses for an applicant, based on social security number usage. Customers can
match the  findings of the report with  information  provided by the  applicant.
Additionally,  Instant  Address  Link  "builds" a ready to go order for criminal
records  searches that match the addresses  identified.  Customers can order the
criminal records on-line with just a click of the mouse.

          Adverse  Action--As a  result of changes to the FCRA in 1997 and 1998,
employers are required to notify  applicants of any information  obtained from a
consumer  reporting agency that may adversely  affect the applicants  employment
potential with the employer.  Further, the applicant must be informed of his/her
rights and be provided a copy of the  findings.  Avert will provide this Adverse
Action service on a fee per applicant basis.

          AvertSelect--In  1998  the Company  contracted with Interactive  Voice
Technology  for the purpose of  providing  screening  services  that do not fall
under the FCRA regulations.  AvertSelect is an automated applicant  registration
and interview system to pre-screen potential applicants.  AvertSelect was tested
for market acceptance in 1998 and announced as a new product offering. Currently
the Company has one large  customer  using the system and several  prospects for
additional users.

     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

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<PAGE>


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.

     Subscription Program

     In July 1996,  the Company began  offering  customers  the Avert  Advantage
customer  subscription  service.  This service  provides  access to a library of
Human Resources  documents  including hiring processes and forms,  access to the
Knowledgelink   Help  Desk  for   consulting   assistance   and  unlimited  free
FirstChecks.  Additionally,  this  service  provides  instant  access  to hiring
process  information.  Advantage  customers also receive a discount based on the
number of months they have been a customer.  A $10.00  monthly fee is  collected
for each Advantage customer.  The Company has obtained  approximately 2,180 such
customers through December 31, 1998.


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:

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

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

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

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

o          Quality  Customer  Service and Support.  In order to offer  customers
     quality  service and  support,  Avert has  developed  and will  continue to
     enhance a client  service  and  support  program  which  includes:  (1) the
     availability of a customer service representative twelve hours a day Monday
     through   Friday;   (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.

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     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.

o          Technological.  Avert will  continue  to  monitor  its  computer  and
     delivery  systems for  enhancements  for quality of service to, and ease of
     use by, Avert customers. For 1998, the Company completed development of new
     software and upgraded its existing  software.  See "Products and Services -
     General," below in this Item 1. A total of approximately $450,000 was spent
     in 1996, $1,181,000 was spent in 1997, and approximately $191,000 was spent
     in 1998.

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

o          Distribution   Partnerships.   Distribution  partnerships  have  been
     established with several large providers of human resource  software and/or
     services. In January, 1998 the Company announced such an agreement with the
     Restrac Software Company.  Distribution  partners  introduce Avert to their
     customer base and encourage the use of Avert products and services  through
     an easy to use Internet  connection.  Partners also prepay for certain base
     level  services on behalf of their  customers.  Avert and the  Distribution
     partner share  revenues  (varying  percentages)  from the partner  customer
     base.



Marketing and Sales

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

     Avert  employs  a direct  marketing  model for lead  generation,  marketing
communication  and market  development.  There are 19 employees at the Company's
headquarters in Fort Collins, Colorado, who are involved in marketing activities
and are managed by a Director  of  Marketing  and  Planning.  Additionally,  the
Company has established a reseller  distribution  channel to develop and convert
leads to sales and to implement territory development programs.

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

     In 1998 the  Company  increased  its  focus  on  sales  to large  corporate
($100,000  potential) accounts that match the Company's profile for a "targeted"
customer.  A "targeted"  customer is served through Internet workflow management
of its  internal  hiring  process.  Avert has several  such  customers  that use
AvertNet to this  advantage and believes that there is a rapidly  growing number
of large customers that meet this requirement. During the fourth quarter of 1998
a national sales manager was hired to staff and direct these activities.

     The indirect sales channel includes  resellers who value-add to and private
label  Avert  products  and are paid  commissions  for selling  Avert  products.
Currently there are approximately 427 resellers.


Customers

     The Company currently has approximately 10,260 customers located throughout
the United  States.  During  1998,  sales were made in 50  states,  District  of
Columbia, Puerto Rico, and Virgin Islands. Approximately 64% of total sales were
made in 10 states (Colorado,  Texas,  Illinois,  Oregon,  Missouri,  California,
North  Carolina,   Minnesota,   Florida,   and  Kansas),   with  Colorado  sales
representing  approximately  16% of total  sales,  and Texas sales  representing
approximately  13%  of  total  sales.  The  Company's  business  strategy  is to
accelerate  market  presence  throughout the United  States.  The single largest
customer of Avert accounted for more than 9.0% of total Avert sales during 1998.
If this customer were lost, Avert's revenues would be materially affected.



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     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.


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 Consumer Reporting  Employment  Clarification Act
of 1998 ("CRECA") amended the FCRA, among other things, to extend the definition
of obsolete  information for criminal  convictions.  Criminal convictions may be
reported for an indefinite number of years.

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

     The Consumer Credit Reporting Reform Act ("CCRRA") of 1996 amended the FCRA
and added new requirements on consumer  reporting  agencies  providing  consumer
reports for employment  purposes,  and persons who regularly furnish information
to the consumer reporting agency. The requirements include:  providing customers
with  a  notification  of  their  responsibilities  under  the  FCRA;  obtaining
certifications  from customers that they are performing certain specific actions
as required by the FCRA, providing the subject of the report with a free copy of
the report if adverse action is taken by an employer based on information in the
consumer report, and providing a copy of a Summary of Your Rights under the Fair
Credit  Reporting  Act with each  consumer  report.  The CCRRA also  prohibits a
person from  procuring  a consumer  report,  or causing a consumer  report to be
procured,  on a  consumer  for  employment  purposes  unless:  (a) a  clear  and
conspicuous  written  disclosure has been made to the consumer before the report
is procured or caused to be procured,  in a document that consists solely of the
disclosure,  that a consumer report may be obtained for employment purposes; and
(b) the consumer has authorized in writing the procurement of the report by that
person.

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

     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.  Note:  This was done by the  CRECA.  The CRECA  also  provides  that
consumers who apply for employment by mail, telephone, computer or other similar
means,  must be provided by oral,  written or  electronic  means,  notice that a
consumer report may be obtained for employment purposes and provided with a copy
of a Summary of Your Rights Under the Fair Credit Reporting Act.

     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.


                                       7
<PAGE>

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

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

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

     To the  Company's  knowledge,  at least 10 states of the 50 states in which
the  Company  sold its  products  and  services  during  1998  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 eight of
those states,  and is in the process of obtaining  licenses in the remaining two
states. In addition,  Avert presently is reviewing the laws of four other states
to  determine if licensing  is  required.  The Company  also  conducts  periodic
reviews of state licensing  requirements.  Though  requirements can change,  the
Company  believes  that  the  remaining  36  states  do  not  have  a  licensing
requirement for the Company.  Although the Company believes that it will be able
to obtain  licenses in other states if  necessary,  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, the
ADA, and all other applicable  federal and state laws and regulations  including
federal  and  state  equal  opportunity  laws and  regulations.  Avert  also has
internal  checks in place  regarding  access and  release  of such  information.
Additionally,  Avert requires that all employees  sign a written  acknowledgment
covering the proper procedures for handling confidential information.

     In 1998 Avert  obtained  errors and omissions  insurance to cover claims by
the  customers  or the subject of reports for  alleged  inaccurate  or misuse of
information.  Previously,  the  Company has not had this type of  insurance.  To
date,  the  Company  has been named as a  co-defendant  in only  three  lawsuits
alleging violations of the FCRA, all of which have been dismissed by the court.


                                       8
<PAGE>


Competition

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

     Direct  Competition.  There are a large number of companies  engaged in the
sale of one or more of the background checking products sold by the Company, and
the Company  believes that this number will  increase.  A significant  number of
these  competitors are small  companies  operating on a local or regional basis;
while some are large  companies  operating on a national scale. To the Company's
knowledge,  the  background  checking  portion of the  businesses  of its larger
direct  competitors  is currently a small portion of their  overall  operations.
Unlike many of its direct  competitors,  the Company serves as a broker for only
two if its products,  credit  reports and motor  vehicle  driving  records,  and
obtains the data for the remainder of its products from the source.  The Company
believes  that this helps to give it a  competitive  advantage as to price.  The
Company  also  believes  that it has a  competitive  advantage  over many of its
competitors  because  of the  wide  variety  of  products  that it can  offer to
customers,  and because of it's newly  developed  internet  electronic  commerce
capabilities.  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 78  employees,  of  which  69 are  full-time
employees and 9 are  part-time  employes.  Of these 78  employees,  19 full-time
employees are involved in sales and marketing, eight full-time employees and two
part-time employees are involved in finance and administration,  seven full-time
employees  are  involved in  programming/information  system,  and 35  full-time
employees and seven 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.


Item 2. Description of Property.

     The Company owns and is sole occupant of an approximate  14,600 square foot
office  building,  located in downtown  Fort  Collins,  Colorado.  The building,
located on a 29,400  square-foot  parcel of land, was constructed by the Company
in March,  1996 at a total  cost of  approximately  $1.2  million.  The land and
construction  costs were paid entirely from  internal  funds of the Company.  No
portion of the proceeds of the Company's IPO was used for these purposes.


Item 3. Legal Proceedings.

     None.


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

     None.



                                       9
<PAGE>

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


             CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"

       PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Avert 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,  Avert.  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,  Avert.  Where any such  forward-looking  statement  includes a
statement of the assumptions or bases underlying such forward-looking statement,
Avert  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, Avert, 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
Avert:


     Avert's  Business  Strategy  to Acquire  Other  Companies,  Assets,  and/or
Product Lines Could Divert Management Time and Avert's  Financial  Resources and
Adversely Impact Avert's Growth Rate. A business strategy of Avert is to use the
net proceeds of the IPO and the exercise of the  Redeemable  Warrants to acquire
other  companies,  assets and/or product lines that either  complement or expand
its existing business. Implementation of these strategies could involve a number
of risks, including diversion of management time and Avert's financial resources
to  increased   marketing   efforts,   review  of  acquisition   candidates  and
assimilation of the acquired  intangible  assets. The impact of these strategies
on Avert's  operations,  both long-term and  short-term,  remains  unknown,  but
because of the foregoing factors, among others, Avert'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  Avert  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 on the Use of Personal  Information  Could Adversely
Impact  Avert's  Financial  Condition  and  Operations.  Avert  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 ADA does not
directly regulate Avert's business, Avert's customers use of certain information
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  that have laws  similar  to the FCRA,  and some  states  that have human
rights  laws more strict than the ADA. In  addition,  to Avert's  knowledge,  at
least  ten  states  require  companies  engaged  in the type of  business  to be
licensed  in order to conduct  business  within  those  states.  See  "Licensing
Requirements," below in this section. A large number of states also regulate the
type of  information  which can be made  available to the public  and/or  impose
conditions  to the  release of the  information.  For  example,  some state laws
prohibit access to certain types of information,  such as workers'  compensation
histories or criminal  histories,  while others restrict access without a signed
release from the subject of the report.  In addition,  many privacy and consumer
advocates and federal regulators have become increasingly concerned with the use
of personal  information,  particularly credit reports.  Attempts have been made
and will continue to be made by these groups to adopt new or additional  federal
and state  legislation  to  regulate  the use of personal  information.  Federal
and/or  state  laws  relating  to access  and use of  personal  information,  in
particular,  and privacy and civil rights, in general, amended or enacted in the
future could materially adversely impact Avert's operations.


     Avert's  Inability to Obtain Any Necessary  Licenses From States Could Have
an Adverse  Impact on Avert's  Financial  Condition and  Operations.  To Avert's
knowledge, at least ten states of the 50 states in which Avert sold its products
and services during 1998 require consumer reporting agencies,  such as Avert, to
obtain a license to conduct business within those states. Avert has obtained the
necessary  licenses in eight of those states, and is in the process of obtaining
licenses in the remaining two states. In addition,  Avert presently is reviewing
the laws of four other states to  determine  if  licensing  is  required.  Avert
conducts periodic reviews of state licensing  requirements.  Though requirements
can change, Avert  believes that the remaining 36 states do not have a licensing





                                       10
<PAGE>


requirement for Avert. The inability to obtain any necessary licenses from other
states  could have an  adverse  impact on Avert'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.


     Liability  for  Inaccurate  Information  or  Misuse  of  Information  Could
Adversely Impact Avert's Financial Condition and Operations. Under general legal
concepts and, in some instances,  by specific state and federal  statute,  Avert
could be held  liable to  customers  and/or to the  subjects  of Avert  prepared
background  checking  reports  for  inaccurate  information  or  misuse  of  the
information.  Avert  maintains  internal  policies  designed to help ensure that
background  information it retrieves is accurate and that it otherwise  complies
with the  provisions  of the FCRA.  In  addition,  Avert  maintains  errors  and
omissions  liability  insurance  to cover claims by customers or the subjects of
reports. 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  Avert in the future
can be  successfully  defended.  Uninsured  losses from claims  could  adversely
impact the operations and financial condition of Avert.


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


     Competition in the Industry Could Have a Material Adverse Impact on Avert's
Financial  Condition  and  Operations.  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).  Avert 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.  Avert also believes that there are a
number of indirect competitors, with most of them operating on a national basis.
Many of Avert's competitors have financial and personnel resources substantially
greater than those of Avert. As more companies enter the market,  and if larger,
direct  competitors place more emphasis on the employment  background segment of
their operations and/or indirect  competitors expand their businesses to include
background  checking products and services,  the competition within the industry
could become more  intense.  Accordingly,  no assurance  can be given that Avert
will be able to continue to compete favorably in this industry.


     Uncertainties  Regarding Year 2000 Issues Could Materially Adversely Impact
Avert's Financial  Condition and Operations.  Given the numerous and significant
uncertainties  involved,  there can be no assurance  that Avert's  estimates and
anticipated  results and beliefs regarding the Year 2000 issue will be achieved,
and actual results could vary  materially.  The failure of Avert to identify and
correct all relevant computer codes and embedded chips and otherwise obtain Year
2000 readiness,  or the failure of Avert's  vendors,  customers,  or other third
parties  with which Avert  transacts  business to achieve  Year 2000  readiness,
could have a material adverse impact on Avert's business,  financial  condition,
and operations.



                                     PART II

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

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




                                       11
<PAGE>


                                                              High        Low
                                                              ----        ---
   1997:

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

   1998:
         First quarter....................................... 9-1/4      7-1/2
         Second quarter...................................... 8          5-1/2
         Third quarter....................................... 7-1/8      3-3/4
         Fourth quarter...................................... 6-1/4      3-1/2

     There  were  approximately  191  holders  of  record  (approximately  1,029
beneficial holders) of the Company's Common Stock on March 15, 1999.

     On February 23, 1999,  Avert  declared a special cash dividend of $0.12 per
common share  payable on March 24, 1999 to  shareholders  of record on March 15,
1999. The Company paid a $0.10 per common share cash dividend on March 23, 1998.
Avert has not paid any other cash  dividends  since the year ended  December 31,
1993.  Avert generally  intends to retain its earnings to support the operations
and growth of its  businesses.  Any other future cash dividends  would depend on
future earnings, capital requirements, the Avert's financial condition and other
factors the Board of Directors deems relevant.

     The  following   subparagraphs  set  forth  information  concerning  equity
securities sold during 1998 that were not registered under the Securities Act of
1933, as amended (the "Securities Act"):

     (a)  During May and June, 1998, options to purchase a total of 3,000
          shares  (1,000  shares  each)  of  Avert'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 Avert's directors.
          The exercise price for the 1,000 shares  underlying the options
          granted to Mr. Joyce is $6.63 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 $6.875 per share,
          for a total  exercise  price under these options of $20,380.00.
          The options  have a five-year  term and vest one year after the
          dates of the respective  grants. No underwriter was involved in
          the transactions,  and no sales  commissions,  fees, or similar
          compensation  were paid to any  person in  connection  with the
          grant of the  options.  Avert  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 Avert
          and is able to fend for himself with access to information upon
          which an investment decision can be made.

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

     Two Redeemable Warrants entitled the holder to purchase one share of Common
Stock at a price of $6.50  per  share.  The  expiration  date of the  Redeemable
Warrants was  initially  December 22, 1995,  but was extended to April 30, 1996,
and further  extended to April 30, 1997, at which date they expired.  A total of
176,250 Redeemable  Warrants were exercised  resulting in the issuance of 88,125
shares of Common  Stock and receipt of gross  proceeds  totalling  approximately
$572,800.  The total  expenses  incurred by Avert for its account in  connection
with the issuance and  distribution of the Units sold in the IPO and pursuant to
the exercise of the Redeemable Warrants,  including  underwriting  discounts and
commissions,  expenses paid to or for the Underwriters and other expenses,  were
approximately $909,200 ($867,900 for the IPO and $41,300 for the exercise of the
Redeemable Warrants).  None of such expenses were paid directly or indirectly to
directors or officers of Avert or any of their associates, to persons owning 10%
or more of any class of security  of Avert or to  affiliates  of Avert.  The net




                                       12
<PAGE>


proceeds  from the IPO and the exercise of the  Redeemable  Warrants (a total of
$4,913,600  ($4,382,100  from  the IPO and  $531,500  from the  exercise  of the
Redeemable  Warrants))  are  currently  intended  to be  used to  acquire  other
companies,  assets and/or product lines that either complement or expand Avert's
existing business. None of the net proceeds has been expended to date.


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

     This Item 6 contains  forward-looking  statements that are made pursuant to
the "safe harbor" provisions of the Private Securities  Litigation Reform Act of
1995. These  statements  include,  without  limitation,  statements  relating to
growth in sales,  liquidity,  Avert  expectations  regarding  new  software  and
software  upgrades and related  funding,  impact of inflation on operations  and
other such matters. The words "expected,"  "believes,"  "expects" or "estimates"
and similar expressions identify  forward-looking  statements.  The Company does
not  undertake  to  update,   revise  or  correct  any  of  the  forward-looking
information.  Readers are cautioned that such forward-looking  statements should
be read in  conjunction  with  the  Company's  disclosures  under  the  heading:
"Cautionary  Statement  for  Purposes  of the 'Safe  Harbor'  Provisions  of the
Private Securities Litigation Reform Act of 1995" beginning on page 10.


Results of Operations

Comparison of years ended December 31, 1998 and December 31, 1997

     Net revenues  increased  from  $9,490,800  in 1997 to $9,961,800 in 1998 or
approximately  5.0%.  This increase was  primarily due to the continued  overall
growth  of the  customer  base  and its use of  criminal  history  records.  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, 1998              December 31, 1997
                                                ----------------------        ------------------------
                                                                  % of                            % of        Percent of
                                                Revenues      Revenues        Revenues        Revenues    Increase/(Decrease)
                                                --------      --------        --------        --------    ------------------
<S>                                           <C>               <C>          <C>                <C>             <C>    
Products:

   Workers' compensation
         histories .......................    $  940,200        9.4%         $1,114,200         11.7%           (15.6%)
   Criminal history reports ..............    $5,569,900       55.9%         $4,754,300         50.1%            17.2%
   Reference Checking/credit
         reports .........................    $1,181,600       11.9%         $1,223,800         12.9%            (3.4%)
   Motor vehicle driving records .........    $  988,300        9.9%         $1,000,000         10.5%            (1.2%)
   Other products/services: ..............    $  979,300        9.8%         $  986,900         10.4%             (.8%)
         Education/Credential
             verification
         Social security number
             check
         Name Link
         Employment application
             forms
   Service sales

Interest income ..........................    $  319,100        3.2%         $  315,200          3.9%             1.2%

Net Revenues .............................    $9,961,800                     $9,490,800                           5.0%

</TABLE>



                                       13
<PAGE>


     Avert, Inc. experienced relatively flat growth during 1998 on most products
and services offered. Management considered 1998 a year of building, transition,
and change. It was a year that had negative  financial  impact,  but a year that
represented much technological improvement.  It is believed, that the activities
Avert  performed in 1998 were  necessary in order to leverage its technology for
improved  future  efficiencies  and financial  condition.  The  following  three
factors contributed to Avert's financial performance in 1998:

     1)   INCREASED CUSTOMER CREDITS: Avert records customer credits as a direct
          reduction  in  the  appropriate   sales  category,   rather  than  one
          separate"credits  given" line. During the implementation period of the
          new  computer  system and months that  followed,  Avert  enacted a "no
          questions asked" credit policy for any problems customers experienced,
          or perceived  they  experienced,  due to the  conversion.  This policy
          resulted in a significant amount of credits of approximately  $553,900
          or 5.6% of total net  revenues in 1998,  as compared to  approximately
          $248,900  or 2.6%  of  total  net  revenues  in  1997.  This  increase
          dramatically  impacted  average selling prices and revenues as a whole
          for the year.

     2)   VOLUME DISCOUNTS  RESULTING IN REDUCED MARGINS:  Avert provides volume
          discounts,  which  resulted in reduced  margins and revenues.  Avert's
          largest  customer,  accounting for approximately 9% of total revenues,
          grew  approximately  30%,  while the Company's  overall  business grew
          approximately  5%. Due to their  discounted  pricing,  this negatively
          affected Avert's overall revenue growth for 1998.


     3)   CRIMINAL HISTORY  PRICING:  Prior to the conversion to the new system,
          Avert provided combination felony/misdemeanor criminal records for one
          combined  price  (2-for-1).  Once  converted,  the  Company  split the
          products  and  attempted to charge for both parts  separately.  Due to
          backlash from large  customers for this decision,  Avert was forced to
          give  misdemeanors  free until new prices  could be  negotiated.  This
          greatly affected Criminal History revenues for 1998.

     In  total  dollars,  criminal  history  reports  contributed  the  most net
revenues,  representing  approximately  $5,569,900  in net revenues in 1998,  as
compared to $4,754,300  in net revenues in 1997.  The criminal  history  reports
product  line has  increased  to  represent  approximately  55.9%  of total  net
revenues in 1998,  as compared to  approximately  50.1% of total net revenues in
1997. The Company  believes there is a continuing trend  nationwide,  as well as
increased  regulation for mandatory  checking of criminal  records.  The Company
continues to focus on obtaining quick and accurate data, by increased leveraging
of internal improvements gained from the recent computer system implementation.

     Net revenues  generated in the area of  reference  checking/credit  reports
decreased  slightly  from  approximately  $1,223,800  in 1997  to  approximately
$1,181,600 in 1998. These products represented  approximately 11.9% of total net
revenues in 1998,  as compared to  approximately  12.9% of total net revenues in
1997.

     Net revenues from workers' compensation histories continue to decrease as a
percentage  of total net  revenues,  and has  slipped  to  represent  the fourth
largest product line, approximately 9.4% of total net revenues in 1998. Sales of
workers' compensation histories are expected to continue to decline in total net
revenues  due to  regulation  and  necessity  of  releases  from the  respective
applicant to process the product.

     Other  Products and Services  revenue  remained flat when comparing 1998 to
1997. The product  contributing the most revenue in this category was Name Link,
a product  linking names,  addresses and social security  numbers,  representing
$192,700 in 1998 as compared to $203,800 in 1997.  Service sales,  which are not
itemized  in the chart  above,  increased  from  $520,100 in 1997 to $559,900 in
1997,  representing  an  approximate  7.7% growth.  Service  sales include Avert
Advantage   membership,   start-up  fees,   extended   criminal   history  fees,
miscellaneous research fees, and order entry fees charged to clients.

     All expense  categories  increased  as a  percentage  of total net revenues
except  Marketing.  As mentioned  above,  Avert's 1998 focus was to complete the
computer conversion project,  which resulted in additional indirect expenditures
in order to meet that objective. A breakdown of expenses is as follows:



                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                       Year Ended                          Year Ended
                                                    December 31, 1998                   December 31, 1997
                                                ---------------------------        ------------------------    Increase (Decrease)
                                                                       % of                            % of       % of Revenue
                                                Expenses            Revenue        Expenses         Revenue      1998 over 1997
                                                --------            -------        --------         -------    ------------------

<S>                                            <C>                   <C>          <C>                 <C>            <C>  
Search and product ..................          $4,644,100            46.6%        $4,182,100          44.1%          2.5 %
Marketing ...........................           1,492,700            15.0%         1,435,800          15.1%         (0.1)%
General and administrative ..........           1,467,400            14.7%         1,246,300          13.1%          1.6%
Software development and
   maintenance ......................             581,900             5.8%           364,100           3.8%          2.0%
Depreciation and
         amortization ...............             564,000             5.7%           404,500           4.3%          1.4%
                                               ----------            ----         ----------          ----           ---
   Expenses .........................          $8,750,100            87.8%        $7,632,800          80.4%          7.4%

</TABLE>

     The  increase in 1998 over 1997 of search and product  fees as a percentage
of total net revenues,  was a result of increased  personnel and temporary costs
due  to  the  additional   training  and  overtime  required  for  the  computer
conversion.  In addition, there were additional direct costs associated with the
reference checking and name link product groups.

     Marketing expenses,  as a percentage of total net revenues,  decreased from
approximately  15.1%  in  1997 to  approximately  15.0%  in  1998.  There  was a
decreased in personnel related expenses,  but an increase in lead generation and
advertising  costs.  Avert has an on-going marketing campaign designed to target
lead generation, marketing communication and market development for both current
customers  and new  customers,  via  in-house  marketing  personnel  and partner
relationships.

     As predicted, there was an increase in software development and maintenance
expenses expressed as a percentage of total net revenues from approximately 3.8%
in 1997 to  approximately  5.8% in 1998.  The primary reason for the increase is
that personnel costs directly associated with the development and implementation
of the computer system were  capitalized  with the software  project in 1997 and
the first three months of 1998,  but all costs are being  expensed  since April,
1998. In addition,  after  implementation  of the computer  system,  payments of
approximately  $100,000 were made to third parties to troubleshoot  problems and
other  minor  software  development,  which were  expensed  in  operations.  See
"Liquidity and capital  Resources" below in this Item. The Company  continues to
focus on making  technology its strategic  advantage in its  relationships  with
customers, partners and suppliers.

     There was an  increase  in  depreciation  and  amortization  expenses  when
expressed as a percentage of total net revenues, from approximately 4.3% in 1997
to approximately 5.7% in 1998. The increase was due to the increased capitalized
costs  associated  with  the  software  development  project  which  were  fully
amortized prior to April,  1998.  Depreciation  expense will increase in 1999 as
1998 included only nine months of depreciation related to this project.

     Income before income taxes  decreased from $1,858,000 in 1997 to $1,211,700
or approximately  34.8% and represented  approximately  19.6% of net revenues in
1997 compared to approximately 12.2% in 1998.

     The  combined  federal and state  income tax rate for 1998 and 1997 was 39%
and 34%, respectively, resulting in net income of $1,218,000, or $.35 per share,
on 3,488,000  (weighted average shares plus common stock  equivalents) for 1997,
as compared to net income of $739,800 or $0.22 per share, on 3,440,000 (weighted
average shares plus common stock  equivalents)  for 1998.  This tax increase was
primarily  a result of state  (enterprise  zone) tax  credits  received in 1997,
which effectively reduced the prior year rate.


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

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





                                       15
<PAGE>

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

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

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

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

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

     Search  and  product  expenses,   depreciation  expenses  and  general  and
administrative  expenses increased as a percentage of total net revenues,  while
marketing and software  development  expenses decreased as a percentage of total
net revenues. A breakdown of expenses is as follows:
<TABLE>
<CAPTION>
                                                      Year Ended                       Year Ended
                                                   December 31, 1997                December 31, 1996
                                              --------------------------       ----------------------------    Increase (Decrease)
                                                                    % of                               % of       % of Revenue
                                              Expenses           Revenue       Expenses             Revenue      1997 over 1996
                                              --------           -------       --------             -------    ------------------
<S>                                         <C>                   <C>          <C>                   <C>              <C> 
Search and product ....................     $4,182,100            44.1%        $3,292,700            41.0%            3.1%
Marketing .............................      1,435,800            15.1%         1,318,900            16.4%           (1.3)%
General and administrative ............      1,246,300            13.1%         1,109,800            13.8%           (0.7)%
Software development and
    maintenance .......................        364,100             3.8%           352,800             4.4%           (0.6)%
Depreciation and
         amortization .................        404,500             4.3%           185,200             2.3%            2.0%
                                            ----------            ----         ----------            ----             ---
   Expenses ...........................     $7,632,800            80.4%        $6,259,400            77.9%            2.5%
</TABLE>

                                       16
<PAGE>


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

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

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

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

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

     The  combined  federal and state  income tax rate for 1997 and 1996 was 34%
and 40%, respectively, resulting in net income of $1,218,000, or $.35 per share,
on 3,488,000  (weighted average shares plus common stock  equivalents) for 1997,
as  compared  to net  income of  $1,065,600  or $0.31 per  share,  on  3,461,000
(weighted  average  shares plus common  stock  equivalents)  for 1996.  This tax
decrease was primarily a result of state enterprise zone tax credits realized in
the current year.



Liquidity and Capital Resources

     Avert's  financial  position  at  December  31,1998,  remained  strong with
working  capital at that date of  $7,349,000  compared to $7,543,000 at December
31,  1997.  Cash and cash  equivalents  at December  31, 1997 were  $580,000 and
decreased to $531,000 at December 31, 1998.  Net cash provided  from  operations
for the year ended December 31, 1998, was $1,420,000, and consisted primarily of
net income of  $740,000  plus a $107,000  decrease  in  trading  investments,  a
$120,000  net  decrease  in  prepaid  expenses,  and a  depreciation  expense of
$564,000.  Net cash provided  from  operations  for the year ended  December 31,
1997, was $988,000,  and consisted  primarily of net income of $1,218,000 plus a
$536,000  increase  in trading  investments,  and a  $378,000  net  increase  in
accounts  receivable.  Avert had capital  expenditures  of $305,000 for the year
ended December 31, 1998, as compared to $1,299,000 for 1997. The majority of the
expenses were  attributable to costs  associated  with the software  development
project described below. During 1998, Avert used cash in financing activities to
purchase  $814,000  of its  Common  shares  outstanding,  and to pay a  $350,000
dividend. During 1997, Avert received $531,000 from financing activities derived
from warrant  proceeds.  Avert has declared an approximate  $400,000 dividend in
1999.

     Avert  completed  its  Internet-based  information  technology  development
project  first  quarter,  1998,  and 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  was  financed  by  available  cash  derived  from  past  or  continued
operations.  Total  costs  associated  with the project  were  $450,000 in 1996,
$1,181,000 in 1997, and $191,000 in 1998.





                                       17
<PAGE>

Inflation

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

Year 2000 Issue

     The Year 2000 problem is a result of computer  programs being written using
two digits,  rather than four, to define the applicable  year. Any programs that
have time  sensitive  data may  recognize  a date  using  "00" as the year 1900,
rather  than the year  2000.  The Year 2000  problems  may cause  computers  and
computer-controlled  systems to malfunction  or incorrectly  process data as the
year 2000  approaches  and once the year 2000 arrives.  Because of the potential
adverse impact of these Year 2000 problems on Avert's business,  operations, and
financial  condition,  Avert has been addressing  internal and third-party  Year
2000 issues in the following areas: (a) Avert's  technology  systems,  including
internally  developed  software,  vendor  provided  software,  and  computer and
peripheral hardware used in Avert's operations;  (b) electronic data interchange
systems; (c) non-information technology systems (embedded technology), including
heating  and air  conditioning  and other  building  systems;  and (d) Year 2000
compliance of entities or persons from which Avert retrieves or receives data or
products  (including  states and  counties  and other  vendors)  and other third
parties with which Avert has a material relationship.

     In general,  Avert's Year 2000  program may be separated  into four phases.
The phases and status of such phase are as follows:

     1.   The first  phase is to  determine  whether  Avert's  internal  systems
          (including  vendor provided  software) are Year 2000  compliant.  This
          phase has been  completed and Avert  believes that the Year 2000 issue
          will not pose any significant operational problem for Avert's internal
          computer  systems.  In 1998,  Avert  complete an  18-month  project to
          convert  all  of  its  systems  to  a  new  Oracle  based   processing
          environment.  See "Products and  Services-General" in Item I above. As
          part of this project,  Avert  identified the critical,  date-sensitive
          requirements  associated  with its services and addressed  them in the
          conversion project. Avert's new Oracle system became fully operational
          in  April,  1998.  As part of the  project,  a series  of  tests  were
          conducted  for  year  2000  compliance.   No  significant  operational
          problems were encountered  during these tests.  Avert also has been in
          contact  with its  telecommunications service  provider  to assess the
          provider's  state of Year 2000  readiness  and was  informed  that the
          provider will be Year 2000 compliant.

     2.   The  second  phase of the  program  is to contact  all  external  data
          sources,  vendors,  and major  customers to determine  their Year 2000
          readiness,  to develop  contingency  plans, and, for data sources that
          are not Year 2000  compliant,  to locate  alternative  sources  of the
          data.  Avert  has sent  questionnaires  to most of its  external  data
          sources  and  vendors  regarding  their  Year 2000  readiness  and has
          received only a few complete  responses.  Avert plans to follow-up  on
          these  questionnaires  and  send  the  remaining  questionnaires,  and
          questionnaires to its major customers, in the near future.

     3.   The third phase of the program involves  testing external  interfaces.
          Beginning in the third quarter of 1999, Avert plans to run a series of
          tests on the external interfaces to verify their Year 2000 compliance.

     4.   The fourth phase  involves  verification  of Year 2000  compliance  of
          Avert's non-information  technology systems, including heating and air
          conditioning and other building systems. Avert does not have a back-up
          power  system and has  contacted  its  utility  provider to assess its
          state of Year 2000  readiness.  The  provider  informed  Avert that it
          believes it will be Year 2000 ready.

     The costs of Avert's Year 2000 program has been immaterial. The cost of the
project to convert Avert's system to an Oracle based system is not considered as
a cost of  Avert's  Year  2000  program  because  the  project  would  have been
completed even if the Year 2000 issue did not exist. Software programs that were
written would have been written in any event and were simply  written using four
digits to define a year,  rather than two  digits.  In  addition,  the Year 2000
issue did not accelerate the commencement of the project.

     Although  Avert  believes that it's own internal  systems will be Year 2000
compliant, no assurance can be given that the systems of the external sources of
Avert's data,  vendors,  telephone and utility providers,  customers,  and other
third  parties  with which Avert has a material  relationship  will be Year 2000
compliant.  Avert will be  continuing  to contact  these  entities in the second
quarter of 1999 to assess their state of Year 2000 readiness and to determine or
locate alternative  sources of data and plan other changes that may be necessary
in Avert's data collection processes. If necessary,  Avert will manually collect
data it  currently  collects  electronically.  This would  increase the costs of



                                       18
<PAGE>


retrieving  data and thus reduce  Avert's  gross  margins,  at least on products
(such  as   criminal  histories)   that   presently   contain   data   retrieved
electronically,  and may reduce the volume of products that Avert could deliver.
Depending upon the length of time the contingency plans remained in effect, they
could  have a  material  adverse  effect on Avert's  business,  operations,  and
financial condition.

     Avert  believes  that it has and will  continue  to  devote  the  resources
necessary to achieve Year 2000 readiness in a timely manner.  However, there can
be no assurance  that Avert's  internal systems,  the systems of others on which
Avert relies,  or the systems of Avert's  customers will be Year 2000 ready in a
timely  and  appropriate  manner  or  that  Avert's  contingency  plans  or  the
contingency  plans of others on which Avert relies will  mitigate the effects of
the Year 2000  problem.  Currently,  Avert  believes  the most likely worse case
scenario would be a sustained,  concurrent  falure of multiple  critical systems
(internal and external) that support  Avert's  operations.  While Avert does not
expect such scenario to occur,  if such scenario does occur,  it could result in
the reduction or suspension of a material portion of Avert's operations, despite
the successful  execution of Avert's business  continuty and contingency  plans,
and accordingly, have a material adverse effect on Avert's business, operations,
and financial condition.


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 1999 Annual
Meeting of Shareholders  (the "Proxy  Statement")  pursuant to Regulation 14A of
the Securities Exchange Act of 1934 not later than 120 days after the end of the
fiscal year covered by this Form  10-KSB.  Certain  information  included in the
aforementioned definitive Proxy Statement is incorporated herein by reference.



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

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


Item 10. Executive Compensation.

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


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

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

Item 12. Certain Relationships and Related Transactions.


                                       19
<PAGE>


     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 Registration. (2)
3.3    Excerpt from Articles of Incorporation of the Registrant Regarding Common
       Stock and Preferred Stock. (2)
10.1   Amendment  to Consumer  Report User  Agreement  between  Registrant  and
       customer of Registrant for changes in FCRA dated September, 1997.
10.1.2 Form of Consumer Report User Agreement-Employment  between Registrant and
       customer of Registrant.
10.1.3 Form of Consumer Report User Agreement-Non  Employment between Registrant
       and customer of Registrant. (7)
10.2   Employment  Agreement dated as of January 1, 1994, between the Registrant
       and Dean A. Suposs. (2)
10.3   Employer Report Subscriber  Agreement,  dated March 29, 1991, between the
       Registrant and TRW, Inc. (1)
10.3.1 Reseller  Service  Agreement,  dated  September  25,  1997,  between  the
       Registrant and TRW, Inc. (2)
10.3.2 Experian (formerly TRW, Inc.) Reseller  Certification of Compliance dated
       May 4, 1998.
10.4   Credit  Bureau  Service  Agreement,  dated  March 30,  1992,  between the
       Registrant And TransUnion. (1)
10.4.1 TransUnion Amendment to Service Agreement dated May 5, 1998.
10.5   Amended and Restated 1994 Stock Incentive Plan.(3)
10.6   Non-Employee Directors' Stock Option Plan. (2)
10.7   Letter  Agreements,  Dated March 24, 1995, with Ace Hardware  Corporation
       and Loss Prevention  Services  relating  to  sales  of  the  Registrant's
       Products.(4)
10.8   Amended and Restated 1994 Stock Incentive Plan and Incentive Stock Option
       Agreement between Leonard Koch and the Registrant.(6)
10.9   Amended and Restated 1994 Stock  Incentive  Plan  Incentive  Stock Option
       Agreement, dated June 10, 1996, between Jerry Thurber and the Registrant.
       (6)
10.10  Amended and Restated 1994 Stock  Incentive  Plan  Incentive  Stock Option
       Agreement,  dated July  1, 1996, between Jamie Burgat and the Registrant.
       (6)
10.11  Restrac/Avert  Avertnet Reseller  Agreement dated January 4, 1999 between
       Registrant and Registrant.

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



                                       20
<PAGE>

     (6)  Filed  as  an  Exhibit  to  Post-Effective  Amendment  No.  2  to  the
          Registration Statement (File No. 33-76726-D) filed with the Securities
          and Exchange Commission on October 23, 1996.
     (7)  Filed as an Exhibit to Form  10-KSB  for the year ended  December  31,
          1997 filed with the  Securities  and Exchange  Commission on March 30,
          1998.


(b)  Reports on Form 8-K.

     None














                                       21
<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 23, 1999                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 ??, 1998.


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

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


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



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


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


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




                                       22
<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 Registration. (2)
3.3    Excerpt from Articles of Incorporation of the Registrant Regarding Common
       Stock and Preferred Stock. (2)
10.1   Amendment  to Consumer  Report User  Agreement  between  Registrant  and
       customer of Registrant for changes in FCRA dated September, 1997.
10.1.2 Form of Consumer Report User Agreement-Employment  between Registrant and
       customer of Registrant.
10.1.3 Form of Consumer Report User Agreement-Non  Employment between Registrant
       and customer of Registrant. (7)
10.2   Employment  Agreement dated as of January 1, 1994, between the Registrant
       and Dean A. Suposs. (2)
10.3   Employer Report Subscriber  Agreement,  dated March 29, 1991, between the
       Registrant and TRW, Inc. (1)
10.3.1 Reseller  Service  Agreement,  dated  September  25,  1997,  between  the
       Registrant and TRW, Inc. (2)
10.3.2 Experian (formerly TRW, Inc.) Reseller  Certification of Compliance dated
       May 4, 1998.
10.4   Credit  Bureau  Service  Agreement,  dated  March 30,  1992,  between the
       Registrant And TransUnion. (1)
10.4.1 TransUnion Amendment to Service Agreement dated May 5, 1998.
10.5   Amended and Restated 1994 Stock Incentive Plan.(3)
10.6   Non-Employee Directors' Stock Option Plan. (2)
10.7   Letter  Agreements,  Dated March 24, 1995, with Ace Hardware  Corporation
       and Loss Prevention  Services  relating  to  sales  of  the  Registrant's
       Products.(4)
10.8   Amended and Restated 1994 Stock Incentive Plan and Incentive Stock Option
       Agreement between Leonard Koch and the Registrant.(6)
10.9   Amended and Restated 1994 Stock  Incentive  Plan  Incentive  Stock Option
       Agreement, dated June 10, 1996, between Jerry Thurber and the Registrant.
       (6)
10.10  Amended and Restated 1994 Stock  Incentive  Plan  Incentive  Stock Option
       Agreement,  dated July  1, 1996, between Jamie Burgat and the Registrant.
       (6)
10.11  Restrac/Avert  Avertnet Reseller  Agreement dated January 4, 1999 between
       Registrant and Registrant.

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

     (1)  Filed as an Exhibit to the initial  Registration  Statement  (File No.
          33-76726-D) filed with the Securities and Exchange Commission on March
          21,  1994.
     (2)  Filed as an Exhibit to Amendment No. 1 to the  Registration  Statement
          (File  No.   33-76726-D)   filed  with  the  Securities  and  Exchange
          Commission on April 26, 1994.
     (3)  Filed as an Exhibit to Amendment No. 2 to the  Registration  Statement
          (File  No.   33-76726-D)   filed  with  the  Securities  and  Exchange
          Commission on May 24, 1994.
     (4)  Filed  as  an  Exhibit  to  Post-Effective  Amendment  No.  1  to  the
          Registration Statement (File No. 33-76726-D) filed with the Securities
          and Exchange Commission on May 4, 1995.
     (5)  Filed as an Exhibit to Form  10-KSB  for the year ended  December  31,
          1995 filed with the  Securities  and Exchange  Commission  on March 9,
          1996.
     (6)  Filed  as  an  Exhibit  to  Post-Effective  Amendment  No.  2  to  the
          Registration Statement (File No. 33-76726-D) filed with the Securities
          and Exchange Commission on October 23, 1996.
     (7)  Filed as an Exhibit to Form  10-KSB  for the year ended  December  31,
          1997 filed with the  Securities  and Exchange  Commission on March 30,
          1998.




<PAGE>



                                   Avert, Inc.


                              Financial Statements
                                December 31, 1998



























                                      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,
1998,  and  the  related   statements  of  income  and   comprehensive   income,
shareholders'  equity and cash flows for the years ended  December  31, 1998 and
1997.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Avert, Inc. as of December 31,
1998,  and the results of its  operations and its cash flows for the years ended
December 31, 1998 and 1997, in conformity  with  generally  accepted  accounting
principles.



/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP


Denver, Colorado
February 19, 1999



                                      F-2
<PAGE>


                                   AVERT, INC.

                                  BALANCE SHEET
                                DECEMBER 31, 1998


                                     ASSETS
                                     ------

CURRENT ASSETS:

     Cash and cash equivalents .................................   $   531,000

     Marketable securities .....................................     6,006,000

     Accounts receivable, net of allowance of $57,000 ..........     1,061,000

     Prepaid expenses and other ................................       172,000
                                                                   -----------
          Total current assets .................................     7,770,000


PROPERTY AND EQUIPMENT, net ....................................     3,138,000
                                                                   -----------

TOTAL ASSETS ...................................................   $10,908,000
                                                                   ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY


CURRENT LIABILITIES:

     Accounts payable ..........................................   $   296,000

     Accrued expenses ..........................................       125,000
                                                                   -----------
          Total current liabilities ............................       421,000


DEFERRED INCOME TAXES ..........................................       476,000

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; 3,323,000 shares issued ..............    4 ,462,000
        and outstanding

     Retained earnings .........................................     5,549,000
                                                                   -----------
          Total shareholders' equity ...........................    10,011,000
                                                                   -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .....................   $10,908,000
                                                                   ===========

              See accompanying notes to these financial statements.



                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                                        AVERT, INC.
   
                       STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



                                                                  FOR THE YEARS ENDED
                                                                      DECEMBER 31,
                                                               -------------------------
                                                                  1998          1997
                                                                  ----          ----
<S>                                                          <C>            <C>        
NET REVENUES:

     Search and product fees .............................   $ 9,638,000    $ 9,071,000

     Interest and other income ...........................       324,000        420,000
                                                             -----------    -----------
                                                               9,962,000      9,491,000
EXPENSES:

     Search and product costs ............................     4,644,000      4,182,000

     Marketing ...........................................     1,493,000      1,436,000

     General and administrative ..........................     1,467,000      1,246,000

     Software development and maintenance ................       582,000        364,000

     Depreciation ........................................       564,000        405,000
                                                             -----------    -----------
                                                               8,750,000      7,633,000
                                                             -----------    -----------
INCOME BEFORE INCOME TAXES ...............................     1,212,000      1,858,000

     Income tax expense ..................................      (472,000)      (640,000)
                                                             -----------    -----------
NET INCOME AND COMPREHENSIVE INCOME ......................   $   740,000    $ 1,218,000
                                                             ===========    ===========
NET INCOME PER COMMON SHARE:
     Basic ...............................................   $       .22    $       .35
                                                             ===========    ===========
     Diluted .............................................   $       .21    $       .34
                                                             ===========    ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

     Basic ...............................................     3,440,000      3,461,000
                                                             ===========    ===========
     Diluted .............................................     3,504,000      3,593,000
                                                             ===========    ===========
</TABLE>


              See accompanying notes to these financial statements.




                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                                                             AVERT, INC.

                                                  STATEMENT OF SHAREHOLDERS' EQUITY
                                           FROM JANUARY 1, 1997 THROUGH DECEMBER 31, 1998

                                                                                    
                                                                 COMMON STOCK                                             Total
                                                          ---------------------------               Retained           Shareholders'
                                                          Shares               Amount               Earnings              Equity
                                                          ------               ------               --------           -------------
<S>                                                   <C>                <C>                   <C>                   <C>   
BALANCES, January 1, 1997 ..................            3,400,000          $  4,745,000          $  3,941,000          $  8,686,000

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

     Net income ............................                 --                    --               1,218,000             1,218,000
                                                     ------------          ------------          ------------          ------------
BALANCES, December 31, 1997 ................            3,488,000             5,276,000             5,159,000            10,435,000

     Dividend paid .........................                 --                    --                (350,000)             (350,000)

     Shares repurchased ....................             (165,000)             (814,000)                 --                (814,000)

     Net income ............................                 --                    --                 740,000               740,000
                                                     ------------          ------------          ------------          ------------

BALANCES, December 31, 1998 ................            3,323,000          $  4,462,000          $  5,549,000          $ 10,011,000
                                                     ============          ============          ============          ============
</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,
                                                                                   ---------------------------
                                                                                   1998                   1997
                                                                                   ----                   ----

<S>                                                                            <C>                    <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income ........................................................       $   740,000            $ 1,218,000
     Adjustments to reconcile net income to net
        cash provided by operating activities:
     Depreciation ......................................................           564,000                405,000
     Bad debt expense ..................................................            72,000                 31,000
     Deferred income taxes .............................................           (19,000)               290,000
     Loss (gain) on sale of asset ......................................             2,000                  6,000
     Changes in operating assets and liabilities:

         (Increase) decrease in:
               Trading investments, net ................................           107,000               (536,000)
               Accounts receivable .....................................             2,000               (378,000)
               Prepaid expenses and other current assets ...............           120,000                (28,000)
          Increase (decrease) in:
               Accounts payable ........................................           (92,000)               (65,000)
               Accrued expenses ........................................           (76,000)                45,000
                                                                               -----------            -----------
     Net cash provided by operating activities .........................         1,420,000                988,000

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment ................................          (338,000)            (1,300,000)
     Proceeds from sale of property and equipment ......................            33,000                  1,000
                                                                               -----------            -----------
          Net cash used in investing activities ........................          (305,000)            (1,299,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Purchase of shares outstanding ....................................          (814,000)                  --
     Proceeds from exercise of warrants ................................              --                  531,000
     Dividends declared ................................................          (350,000)                  --
                                                                               -----------            -----------
          Net cash provided by (used in) financing activities ..........        (1,164,000)               531,000
                                                                               -----------            -----------
INCREASE IN CASH AND CASH EQUIVALENTS ..................................           (49,000)               220,000

CASH AND CASH EQUIVALENTS, beginning of year ...........................           580,000                360,000
                                                                               -----------            -----------
CASH AND CASH EQUIVALENTS, end of year .................................       $   531,000            $   580,000
                                                                               ===========            ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
     Income taxes paid .................................................       $   415,000            $   282,000
                                                                               ===========            ===========
</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, 1998.

     Concentration of Credit Risk and Financial  Instruments - Concentrations 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, 1998,  approximately  $645,000 of cash  equivalents as well as
     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 on revenues,  and when specific credit  problems arise.  Management's
     estimates  have been adequate  during  historical  periods,  and management
     believes that all significant credit risks have been identified at December
     31, 1998.

     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, except
     for the Company's building which is 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.  In 1996,  the Company  embarked on a major  upgrade to its
     database  system to expand its  service to its  customers.  During 1997 and
     1998, the Company  capitalized  major  enhancements  costs of approximately
     $1,182,000  and  $191,000,  consisting  principally  of  payments  to third
     parties.  These  capitalized  software costs are being  amortized over five
     years  commencing as the project phases were completed.  In April 1998, the
     total project was fully  completed.  Maintenance  and routine  upgrades are
     expensed in operations.




                                      F-7
<PAGE>


                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS


     Impairment of  Long-Lived  Assets - The Company  periodically  assesses the
     recoverability  of the  carrying  amount of  long-lived  assets,  including
     intangible  assets.  A loss is recognized  when expected  future cash flows
     (undiscounted  and without  interest) are less than the carrying  amount of
     the asset. The impairment loss is determined as the difference by which the
     carrying amount of the asset exceeds its fair value.  Assets to be disposed
     of are carried at the lower of their financial  statement  carrying amounts
     or fair value less costs to sell.

     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 - Basic earnings per share (EPS) excludes dilution for
     common  stock  equivalents  and is  computed  by  dividing  income  or loss
     available to common  shareholders  by the weighted  average  number  common
     shares  outstanding  for the period.  Diluted EPS  reflects  the  potential
     dilution that could occur if securities or other  contracts to issue common
     stock were  exercised  or  converted  into common stock and resulted in the
     issuance  of common  stock.  In 1998 and 1997,  diluted  common  and common
     equivalent shares outstanding includes 64,000 and 132,000 common equivalent
     shares, respectively,  consisting of stock options and warrants, determined
     using the treasury stock method.

     Comprehensive  Income  (Loss) -  Comprehensive  income  is  defined  as all
     changes in  stockholders'  equity,  exclusive of transactions  with owners,
     such as capital  investments.  Comprehensive  income includes net income or
     loss,  changes in certain assets and liabilities that are reported directly
     in  equity  such as  translation  adjustments  on  investments  in  foreign
     subsidiaries,  and  certain  changes in minimum  pension  liabilities.  The
     Company's  comprehensive income was equal to its net income for all periods
     presented in these financial statements.

     Stock-Based  Compensation  - As permitted  under the Statement of Financial
     Accounting  Standards No. 123 (SFAS No. 123),  Accounting  for  Stock-Based
     Compensation,  the Company  accounts for its  stock-based  compensation  in
     accordance with the provisions of Accounting Principles Board (APB) Opinion
     No. 25,  Accounting  for Stock Issued to Employees.  As such,  compensation
     expense is recorded on the date of grant only if the current  market  price
     of the underlying stock exceeded the exercise price.  Certain pro forma net
     income  and EPS  disclosures  for  employee  stock  option  grants are also
     included  in the notes to the  financial  statements  as if the fair  value
     method as defined in SFAS No. 123 had been applied.  Transactions in equity
     instruments with  non-employees  for goods or services are accounted for by
     the fair value method.







                                      F-8
<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS



     Impact of Recently Issued Accounting  Standards - SFAS No. 133,  Accounting
     for Derivative Instruments and Hedging Activities, was issued in June 1998.
     This  statement   establishes   accounting  and  reporting   standards  for
     derivative  instruments  and for hedging  activities.  It requires  that an
     entity  recognize all  derivatives  as either assets or  liabilities in the
     statement  of  financial  position and measure  those  instruments  at fair
     value. This statement is effective for the Company's  financial  statements
     for the year ended  December 31, 2000 and the adoption of this  standard is
     not  expected  to  have  a  material  effect  on  the  Company's  financial
     statements.

     SFAS  No.   132,   Employers'   Disclosures   about   Pensions   and  Other
     Postretirement  Benefits,  was  issued in  February  1998.  This  statement
     revises the disclosure  requirement  for pensions and other  postretirement
     benefits.   This  statement  is  effective  for  the  Company's   financial
     statements  for the year ended  December  31, 1999 and the adoption of this
     standard  is not  expected  to  have a  material  effect  on the  Company's
     financial statements.

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


2    PROPERTY AND EQUIPMENT:

     Property and equipment consist of the following at December 31, 1998:

          Land                                               $  210,000
          Building and improvements                           1,219,000
          Computer hardware and software                      2,639,000
          Furniture and equipment                               572,000
                                                             ----------
                                                              4,640,000
          Less accumulated depreciation                      (1,502,000)
                                                             ----------
                                                             $3,138,000
                                                             ==========
3    INCOME TAXES:

     The actual  income tax  expense  differs  from the  "expected"  tax expense
     (computed by applying the U.S. Federal corporate income tax rate of 34% for
     each period) as follows:





                                      F-9
<PAGE>

<TABLE>
<CAPTION>
                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                                             Years Ended December 31,
                                                         ------------------------------
                                                         1998                      1997
                                                         ----                      ----
                                                         Amount           %        Amount              %
                                                         -----          --         ------            --
<S>                                                   <C>            <C>         <C>               <C>
Computed "expected" tax expense ...................   $ 412,000                  $ 632,000
                                                                      34.0%                        34.0%
State income taxes, net of Federal income .........      49,000                     61,000
  tax benefit .....................................                    4.0%                         3.3%
Refundable credits ................................        --            0%        (59,000)
                                                                                                   (3.1%)
Non-deductible expenses and other .................      11,000                      6,000
                                                      ---------        -----     ---------         -----
                                                                        0.9%                         .2%
                                                      ---------        -----     ---------         -----
Total income tax expense ..........................   $ 472,000                  $ 640,000
                                                      ==========       =====     =========         =====
                                                                       38.9%                       34.4%
                                                      ==========       =====     =========         =====
</TABLE>

     Income tax expense (benefit) consists of the following:

                                         Years Ended December 31,
                                         -----------------------
                                          1998             1997
                                          ----             ----
     Current                           $491,000          $350,000
     Deferred                           (19,000)          290,000
                                       --------          --------
     Total income tax expense          $472,000          $640,000
                                       ========          ========

     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 relates primarily to differences in capitalized software costs.





                                      F-10
<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS



4    SHAREHOLDERS' EQUITY:


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

     Incentive and non-qualified stock options may not be granted at an exercise
     price of less than the fair market value of the common stock on the date of
     grant  (except  for holders of more than 10% of common  stock,  whereby the
     exercise  price must be at least 110% of the fair market  value at the date
     of grant for  incentive  stock  options).  The term of the  options may not
     exceed 10 years.  At December  31,  1998,  the Company had granted  options
     under the Stock  Option Plan to purchase  354,000  shares of which  240,398
     options  are  vested  and the  balance  will vest  over one to five  years.
     Options  outstanding  for the Stock  Option Plan at December  31, 1998 have
     exercise prices that range from $5.00 to $7.63.

     In 1994, the Company adopted the Non Employee  Directors' Stock Option Plan
     (the  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.  As of December
     31, 1998,  14,000  options have been  granted,  of which 11,000 are vested.
     Exercise prices for the directors' options outstanding at December 31, 1998
     range from $5.25 to $8.00.

     The following is a table of activity under these plans.
                                                                       Weighted
                                                            Outside     Average
                                               Stock       Directors'   Exercise
                                            Option Plan      Plan        Price
                                            -----------    ----------  ---------
OPTIONS OUTSTANDING, January 1, 1997 ......    363,000        8,000     $  5.40
Options granted ...........................      1,000        3,000     $  7.49
                                              --------      -------       -----
OPTIONS OUTSTANDING, December 31, 1997 ....    364,000       11,000        5.42
Options expired ...........................    (10,000)        --          5.25
Options granted ...........................       --          3,000        6.79
                                              --------      -------       -----
OPTIONS OUTSTANDING, December 31, 1998 ....    354,000       14,000     $  5.44
                                              ========      =======       =====


                                      F-11
<PAGE>


                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS


     For all options  granted during 1998 and 1997, 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,
     1998 was  approximately 6 years. At December 31, 1998,  options for 251,398
     shares were  exercisable,  with a weighted average exercise price of $5.14,
     and options for the remaining  shares become  exercisable  pro rata through
     2002. If not  previously  exercised,  options  outstanding  at December 31,
     1998, will expire as follows:

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

     1999 ...............................            2,000               $5.25

     2000 ...............................            3,000               $6.17

     2001 ...............................            3,000               $5.58

     2002 ...............................            3,000               $7.46

     2003 ...............................            3,000               $6.79

     2004 ...............................          220,000               $5.25

     2006 ...............................           60,000               $5.00

     2007 ...............................           73,337               $6.17

     2008 ...............................              663               $7.63
                                                  --------
                                                   368,000
                                                  ========

     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.





                                      F-12
<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                                       Years Ended December 31,
                                                       -----------------------
                                                       1998              1997
                                                       ----              ----
Net income applicable to common stockholders:
     As reported .............................     $   740,000     $   1,218,000
     Pro forma ...............................     $   670,000     $   1,117,000
Net income per common share - basic:
     As reported .............................     $       .22     $         .35
     Pro forma ...............................     $       .20     $         .32
Net income per common share - diluted:
     As reported .............................     $       .21     $         .34
     Pro forma ...............................     $       .19     $         .31

     For purposes of this  disclosure,  the  weighted  average fair value of the
     options  granted  in 1998 and 1997 was $4.59 and $4.10,  respectively.  The
     fair value of each employee option and warrant granted in 1998 and 1997 was
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the following weighted average assumptions:

                                                       Years Ended December 31,
                                                       -----------------------
                                                       1998              1997
                                                       ----              ----
     Expected volatility                                80%              50.1%
     Risk-free interest rate                            5.5%              6.5%
     Expected dividends                                  --                --
     Expected terms (in years)                           5               7.82


     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 entitled the holder to purchase
     one share of common stock for $6.50 through April 1997. In connection  with
     this offering,  the underwriter  received a redeemable  warrant to purchase
     100,000 units at $6.30 per unit.  This  redeemable  warrant is  exercisable
     through June 1999. During 1997,  176,250 warrants were exercised for 88,125
     shares of  common  stock at $6.50  per  share  and the  remaining  warrants
     expired unexercised. The Company received net proceeds of $530,800.

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




                                      F-13
<PAGE>
                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS





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 1998 and 1997 was  approximately  $56,000  and  $92,000,
     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 1998 and 1997 were insignificant.


6    SUBSEQUENT EVENT (UNAUDITED):

     On February  23,  1999,  the Company  declared a cash  dividend of $.12 per
     share of common  stock to be paid March 24, 1999 to those  shareholders  of
     record as of close of business  March 15, 1999.  Total cash  dividend to be
     paid is approximately $400,000.









                                      F-14