---

# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

---

# FORM 10-Q

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# [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30,
2001

OR

# [  ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

---

Commission File Number 0-23952

# AVERT, INC.
(Exact name of small business issuer as specified 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)

970/484-7722
(Registrant's telephone number, including area code)

Check
whether the registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes 
[X]     No [  ]

As
of August 8, 2001 the issuer had 3,311,705 shares of Common Stock, no par value,
outstanding.

Transitional Small
Business Disclosure Format.

Yes 
[  ]     No [X]

---

## Form 10-Q
Quarter Ended June 30, 2001

Part I  FINANCIAL INFORMATION
  ITEM 1. Financial Statements
        Unaudited balance sheets................................
 ....................................... 3
        Unaudited statements of income.
 ............................................................. 4
        Unaudited statements of cash
flows.......................................................... 5
        Notes to unaudited financial statements................
 ................................... 6
  ITEM 2. Management's Discussion and Analysis of
    Financial Condition and Results of
Operations..............................................  7
  ITEM 3.  Quantitative and Qualitative Disclosures
    About Market
Risks....................................................................................  10

Part II  OTHER INFORMATION
  ITEM 1 ............................................................
 ...........................................   13
  ITEMS 2, 3 and 5 ..................................................
 ................... Not applicable
  ITEMS 4 and 6 .....................................................
 ......................................   13

        Signature....................
 ............................................................................ 14

---

# PART I -
FINANCIAL INFORMATION

# AVERT, INC.
BALANCE SHEETS

`ASSETS

                                                                June 30,       DECEMBER 31,
                                                                  2001             2000
                                                               ---------      -----------
                                                               (unaudited)         ***
Current assets:

         Cash and cash equivalents .........................   $ 1,582,000   $   666,000
         Marketable securities .............................     4,980,000     7,319,000
         Accounts receivable, net of allowance .............     2,858,000     2,287,000
         Note receivable ...................................     1,000,000     1,000,000
         Income taxes receivable ...........................          --         115,000
            Deferred income taxes ..........................       221,000       125,000
         Prepaid assets and other ..........................       233,000        80,000
                                                               -----------   -----------
                  Total current assets .....................   $10,874,000    11,592,000

Property and equipment, net ................................     3,057,000     2,361,000
Intangible Assets ..........................................     1,795,000          --
Other Assets ...............................................     1,004,000       625,000
                                                               -----------   -----------

Total assets ...............................................   $16,730,000   $14,578,000
                                                               ===========   ===========

                   LIABILITIES AND SHAREHOLDERS EQUITY

Current liabilities:

         Accounts payable ..................................   $ 1,047,000   $   655,000
         Accrued expenses and other ........................       892,000       645,000
         Deferred income ...................................       269,000       190,000
                                                               -----------   -----------
                  Total current liabilities ................     2,208,000     1,490,000
         Deferred Taxes ....................................       428,000       376,000
                                                               -----------   -----------
                  Total liabilities ........................   $ 2,636,000   $ 1,866,000


Shareholders equity:

         Preferred shares, no par value; authorized
           1,000,000 shares; none outstanding ..............          --            --
         Common stock, no par value; authorized
           9,000,000 shares; 3,311,705 shares issued
           and outstanding .................................     4,470,000     3,618,000
         Retained earnings .................................     9,624,000     9,094,000
                                                               -----------   -----------
                  Total shareholders' equity ...............   $14,094,000   $12,712,000
                                                               -----------   -----------

Total liabilities and shareholders' equity .................   $16,730,000   $14,578,000
                                                               ===========   ===========`

See
accompanying notes to the financial statements.

***NOTE:
Amounts have been derived from audited financial statements.

---

# AVERT, INC.
STATEMENTS OF INCOME
(unaudited)

`Three Months Ended             Six Months Ended
                                                         June 30,                       June 30,
                                                  ----------------------    ----------------------------
                                                  2001              2000          2001            2000
                                                  ----              ----          ----            ----
Net revenues:
         Search and product fees ........   $  5,361,000    $  4,288,000    $ 10,025,000    $  7,941,000
         Interest and other income ......        206,000          95,000         332,000         187,000
                                            ------------    ------------    ------------    ------------

                                            $  5,567,000    $  4,383,000    $ 10,357,000    $  8,128,000
Expenses:

         Search and product costs .......      2,575,000       2,095,000       4,785,000       3,795,000
         Marketing ......................        664,000         488,000       1,253,000         920,000
         General and administrative .....        573,000         437,000       1,006,000         843,000
         Software development ...........        266,000         156,000         465,000         298,000
         Depreciation and amortization...        144,000         170,000         340,000         335,000
                                            ------------    ------------    ------------    ------------

                                               4,222,000       3,346,000       7,849,000       6,191,000
                                            ------------    ------------    ------------    ------------

Income before income taxes ..............      1,345,000       1,037,000       2,508,000       1,936,000

         Income tax expense .............       (514,000)       (414,000)       (978,000)       (748,000)
                                            ------------    ------------    ------------    ------------
Net income ..............................   $    831,000    $    623,000    $  1,530,000    $  1,189,000
                                            ============    ============    ============    ============
Net income per basic common share .......   $        .25    $        .19    $        .47    $        .36
                                            ============    ============    ============    ============
Net income per diluted common share .....   $        .23    $        .17    $        .43    $        .33
                                            ============    ============    ============    ============
Weighted average common
         shares outstanding (Basic) .....      3,311,705       3,304,263       3,287,550       3,295,091
                                            ============    ============    ============    ============
Weighted average
common shares
         Outstanding (diluted) ..........      3,593,668       3,636,766       3,570,675       3,615,301
                                            ============    ============    ============    ============`

See
accompanying notes to the financial statements.

---

# AVERT, INC.
STATEMENTS OF CASH FLOWS
(unaudited)

`SIX MONTHS ENDED
                                                                                 JUNE 30,
                                                                            -----------------
                                                                            2001          2000
                                                                            ----          ----
Cash Flows From Operating Activities:
    Net income .....................................................   $ 1,530,000    $ 1,189,000
    Adjustments to reconcile net income to net cash
      (used in)/provided by operating activities:
         Depreciation and amortization .............................       283,000        317,000
         Bad debt expense ..........................................         3,000         36,000
         Deferred taxes ............................................       (44,000)       (50,000)
         Changes in operating assets and liabilities:
              Accounts receivable ..................................      (537,000)      (599,000)
              Marketable securities ................................     2,339,000     (1,088,000)
              Prepaid expenses and other current assets ............      (152,000)      (147,000)
                        Accounts payable ...........................       459,000        165,000
              Other long-term assets ...............................      (478,000)          --
              Accrued expenses .....................................       (11,000)       (36,000)
              Income taxes payable .................................       374,000        (54,000)
              Deferred revenue and deposits ........................        79,000         52,000
                                                                       -----------    -----------
Net cash (used in)/provided by operating activities ................   $ 3,845,000    $  (215,000)

Cash Flows from Investing Activities:
     Cash paid for acquisition .....................................      (941,000)          --
     Additions to furniture and equipment ..........................    (1,099,000)      (287,000)
                                                                       -----------    -----------
           Net cash used in investing activities ...................   $(2,040,000)      (287,000)

Cash Flows from Financing Activities:
         Options Exercised .........................................   $   111,000        219,000
         Dividends declared ........................................    (1,000,000)      (595,000)
                                                                       -----------    -----------
            Net cash used in financing activities..................    $  (889,000)      (376,000)

Increase/(Decrease) in Cash and Cash Equivalents ...................   $   916,000       (878,000)


Cash and Cash Equivalents, beginning of period .....................       666,000      1,569,000

Cash and Cash Equivalents, end of period ...........................   $ 1,582,000    $   691,000
                                                                       ===========    ===========`

See
accompanying notes to the financial statements.

---

# AVERT, INC.NOTES
TO FINANCIAL STATEMENTS

The
financial information contained herein is unaudited, but includes all
adjustments (consisting of only normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the information set forth. The
financial statements should be read in conjunction with the Notes to Financial
Statements, which are included in the Annual Report on Form 10-KSB of the
Company, for the year ended December 31, 2000.

The
results for interim periods are not necessarily indicative of results to be
expected for the fiscal year of the Company ending December 31, 2001. The
Company believes that the three and six month report filed on Form 10-QSB is
representative of its financial position, its results of operations and its cash
flows as of and for the periods ended June 30, 2001 and 2000 covered thereby.

In
previous periods, the Company recognized set-up fees when received. In response
to SAB 101, the Company has adopted a policy of deferring set-up fees and
incremental direct acquisition costs over the estimated life of the customer
(generally three years). As incremental acquisition costs exceed the set-up fees
received, incremental acquisition costs are only deferred to the extent of
set-up fee income. Therefore, the change in policy had no effect on net income.
This change in policy also did not have a material effect on prior or current
revenues or expenses.

The
Company executed a Convertible Promissory Note with eScreen Holdings, Inc., in
July 2000 in the amount of $1,000,000. The interest rate is 10%, with all
principal and interest due and payable in July, 2001. The indebtedness and
accrued interest was fully paid by the due date in July 2001.

On
March 30, 2001, Avert, Inc. acquired the business and substantially all of the
assets of Advantage Assessment, Inc., (Advantage) for a combination
of cash, assumption of certain liabilities and common stock valued at $1.7
million. Advantage has been a provider of assessment testing since 1998. The
Advantage Assessment Testing System is a dual approach to employment screening,
which includes a personality inventory and cognitive ability test. The system
provides for an evaluation of prominent personal and interpersonal competencies
and the cognitive abilities of the applicant. The testing period is brief and
the test(s) may be administered either on-line or in a paper and pencil format.
The transaction was accounted for using the purchase method of accounting and
resulted in the purchase price being totally allocated to net tangible assets
and intangible assets totaling $1,198,000. The purchase price was
approximately $941,000 in cash and 45,000 shares of unregistered common stock,
no par value, of Avert and the assumption of approximately $130,000 in
liabilities. The cash and stock purchase price was paid in April, 2001. The
results of the Advantage acquisition have been consolidated with those of Avert,
Inc. effective March 31, 2001

---

## ITEM 2. 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

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. This
document may contain 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.

## Financial
Condition

The
Companys financial position at June 30, 2001 remained strong with working
capital at that date of $8,666,000 compared to $10,102,000 at December 31,2000.
Cash and cash equivalents at June 30, 2001 were $1,582,000 and increased from
$666,000 at December 31, 2000. Marketable Securities at June 30, 2001 were
$4,980,000 as compared to $7,319,000 at December 31, 2000. Net cash provided
from operations for the six month period ended June 30, 2001 was $3,845,000 and
consisted primarily of $2,339,000 sale of marketable securities, a $459,000
increase in accounts payable, and a net income of $1,530,000. The Company had
capital expenditures of $1,099,000 for the six month period ended June 30, 2001
as compared to $287,000 for the six months ended June 30, 2000. The majority of
the capital expenditures during the six months ended June 30, 2001 were
attributable to ongoing implementation of software development and enhancements
and upgrades to internal software programs used in servicing customers and
upgrades of existing hardware. In addition, initial expenses were incurred for a
6,000 square foot addition to the building is planned to be completed by
approximately Year-end 2001. The estimated construction cost is approximately
$600,000 with an additional $100,000 for furniture, and is estimated to
accommodate up to approximately 50-60 additional personnel. Net cash used in
financing activities for the six month period ended June 30, 2001 was $889,000
and consisted primarily of a $1,000,000 cash dividend of $.30 per common share
payable in March 30, 2001 to shareholders of record on March 9, 2001.

On
March 30, 2001, Avert, Inc. acquired the business and substantially of the
assets of Advantage Assessment, Inc., (Advantage) for a combination
of cash, assumption of certain liabilities and common stock valued at $1.7
million. Advantage has been a provider of assessment testing since 1998. The
Advantage Assessment Testing System is a dual approach to employment screening,
which includes a personality inventory and cognitive ability test. The system
provides for an evaluation of prominent personal and interpersonal competencies
and the cognitive abilities of the applicant. The testing period is brief and
the test(s) may be administered either on-line or in a paper and pencil format.
The transaction was accounted for using the purchase method of accounting and
resulted in the purchase price being totally allocated to net tangible assets
and intangible assets totaling $1,198,000. The purchase price was
$941,000 in cash and 45,000 shares of unregistered common stock, no par value,
of Avert and the assumption of approximately $130,000 in liabilities. The cash
and stock purchase price was paid in April 2001. The results of the Advantage
acquisition have been consolidated with those of Avert, Inc. effective March 31,
2001.

The
primary objective of the acquisition of AIS was the addition of a product line
that expanded Averts offering of employment screening services. Avert is
offering assessment testing as a stand alone solution to customers who are not
traditional users of other employment screening products (background checking),
and as a component of a complete applicant management and screening solution.
Customers may purchase the product on a single use or subscription basis. Avert
believes that the product offering is applicable to both small and large
businesses. Avert plans to sell through assessment testing through in-house
tele-sales to small and mid-sized businesses, corporate account sales and
through partnerships with providers of human resources software and service
products.

Avert
intends to enhance the existing assessment product through (1) addition of new
features, functionality, and improved integration with existing products; (2)
addition of improved reporting capabilities, and (3) addition of other testing
components. Avert is conducting a number of research studies to measure the
reliability and validity of the both the personal inventory section and
cognitive ability test of the assessment system. The studies are expected to run
from April 2001 to December 2001. Based on the results of the studies additional
enhancement may be necessary. Product releases are scheduled throughout 2001.

---

## Results of
Operations

Comparison of
quarters ended June 30, 2001 and June 30, 2000

Total
net revenues increased from $4,288,000 for the three-month period ended June 30,
2000 to $5,361,000 for the comparable three-month period in 2001 or
approximately 25%. This increase was primarily due to:


    Increased usage of package orders
        
    Increased membership in Avert subscription models
        
    Continued use of Avert's criminal history products
        
    Increased usage of Avert's driving record products
        
    Increased customer base

During
the second quarter of 2001, revenues generated from Averts package orders
increased from approximately $245,000 in second quarter ended June 30, 2000 to
approximately $629,000 in second quarter ended June 30, 2001, or a 156.7%
increase. As part of its on-line order entry system, Avert has created the
ability for its customers to order through packages, which is a bundling of
Averts products and services. This method enables them to consistently
order a pre-determined group of products at a flat-rate price, with a simplified
order entry screen.

In
2nd quarter 2001, Avert added a total of 4,951 new customers. The
Company launched a program to build communities of subscription accounts using
our human resource help desk and best business practices. Through this program
3,852 new accounts were added in the three-month period ended June 30, 2001. In
addition there was continued focus on our traditional account growth for
background checking customers, of which 1,099 new accounts were added. This
compares with the growth of 1,123 accounts added in second quarter of 2000 in
the background checking arena. There were 8,748 customers that actually used
Avert services during the second quarter of 2001. This compares to 8,049 during
the second quarter of 2000, and represents an approximate 8.7% increase. The
dollars spent per customer increased from $532 in the second quarter 2000 to
$612 in the second quarter 2001 representing an approximate 15.0% increase.

The
Companys distribution arrangement with ADP in which Avert services are
sold to ADP customers, generated revenues of approximately $415,000
in second quarter 2000 and increased to approximately $748,000 in revenues in
second quarter 2001. This represents an 80.2% increase. Avert has a User
Agreement with the ADP customer, which is cancelable at any time by either
party. The ADP partnership continues to be developed, and the Company believes
it to be one that continues to create substantial revenues.

Revenues
generated from the criminal history product line continues to represent the
largest revenue producing product, and accounts for approximately
$2,390,000 or 42.9% of total net revenues in second quarter 2001 as compared to
$2,186,000 or 49.9% of total net revenues in second quarter 2000. This growth of
approximately 9.3% results from the continued use of the product of its existing
customers, as well as the new customers. Revenues generated from the driving
record product line increased from approximately $417,000 in the three-month
period ended June 30, 2000 to approximately $573,000 in the same three-month
period ended June 30, 2001, or $37.4%. Driving records continue to be an
important background check for employers, and one that has quick turn-around for
fast hiring decisions.

In
addition, the increase in the customer base mentioned above, resulted in
increased revenues from the Avert Advantage On-line subscriptions, and
accounted for approximately $146,000 in the second quarter of 2000, as compared
to approximately $177,000 in the second quarter of 2001. As the customer base
continues to grow, revenues from memberships will continue to grow accordingly,
and represent a recurring revenue stream.

Avert
implemented a new entity and chart of accounts structure in January, 2001. As a
result, there have been re-classifications for simpler reporting. The breakdown
of net revenues, exclusive of miscellaneous income items, is as follows:

---

`Three Months Ended        Three Months Ended
                                          June 30, 2001             June 30, 2000      Percent of
                                     ----------------------    ----------------------   Increase
                                     Revenues        % total   Revenues       % total  (Decrease)
                                     --------        -------   --------       -------   --------
PRODUCT SALES:
Background Stand-Alone:
  Workers compensation histories   $   168,000        3.1%  $   216,000        4.9%     (22.2)%
  Criminal history reports         $ 2,390,000       42.9%  $ 2,186,000       49.9%       9.3%
  Previous employment reports/     $   474,000        8.5%  $   440,000       10.0%       7.7%
     credit reports
  Motor vehicle driving records    $   573,000       10.3%  $   417,000        9.5%      37.4%
  Other Stand-Alone                $   134,000        2.4%  $   129,000        2.9%       3.8%
Packages                           $   629,000       11.3%  $   245,000        5.6%     156.7%
Subscriptions                      $   925,000       16.6%  $   561,000       12.8%      64.9%
SERVICE AND SETUP SALES:           $   161,000        2.9%  $   157,000        3.6%       2.5%
CREDITS:                           $   (93,000)      (1.7)% $   (63,000)      (1.4)%     47.6%
INTEREST INCOME:                   $   206,000        3.7%  $    95,000        2.2%     116.8%
                                    ----------       ----    ----------      -----

         NET REVENUES              $ 5,567,000      100%    $ 4,383,000      100%         2.7%`

Workers
compensation histories revenues continued to decline as a percentage of net
revenues as previously predicted. In second quarter 2000, workers
compensation reports represented $216,000 or approximately 4.9% of total net
revenues, as compared to $168,000 in the second quarter of 2001, or
approximately 3.1% of total net revenues.

Interest
and other income increased approximately 116.8%, generating approximately
$95,000 in the second quarter of 2000 and $206,000 in second quarter of 2001.
The change is primarily a result of the sale of interest bearing securities
required to fund the purchase of AdvanteageIS.com previously discussed and
additional accumulated interest income on marketable securities recently
credited to this account. Avert, Inc. did make a $1,000,000 loan in July 2000 to
eScreen. This loan was made in the form of a one-year, convertible promissory
note at an interest rate of 10%, with all principal and interest due at maturity
in July 2001. The principal and interest were paid in full in July, 2001.
EScreen is a start-up company that has a cutting edge drug-screening product
that Avert may wish to pursue as a potential addition to its product line. The
amount of interest recorded in 2nd quarter 2001 for this loan was approximately
$25,000.

Total
expenses, when expressed as a percentage of total net revenues, increased from
approximately 76.3% in the second quarter 2000, representing $3,346,000, to
approximately 75.8% in the first quarter 2001 representing $4,222,000. A
breakdown in expenses is as follows:

`Three Months Ended       Three Months Ended    Increase (Decrease)
                                      June 30, 2001            June 30, 2000       % of Revenues
                                -----------------------   ---------------------- ------------------
                                Expenses   % of Revenue   Expenses  % of Revenue  2001 over 2000
                                --------   ------------   --------  ------------  --------------


Search and product              $2,575,000     46.2%    $2,095,000     47.8%         (1.6)%
Marketing                          664,000     11.9        488,000     11.1           0.8
General and administration         573,000     10.3        437,000     10.0           0.3
Software development               266,000      4.8        156,000      3.5           1.3
Depreciation and amortization      144,000      2.6        170,000      3.9          (1.3)
                                ----------     ----       ---------    -----          ----

         Expenses               $4,222,000     75.8%    $3,346,000     76.3%          0.5%
                                ==========     ====      =========    =====          ====`

Search
and product fees decreased from approximately 47.8% of total net revenues in
second quarter 2000 compared to approximately 46.2% of total net revenues in
second quarter 2001. The Company was able to produce approximately 30.2% more in
actual reports in the second quarter of 2001 as compared to the same three month
period in 2000. Product costs were reduced for the largest product line 
criminal history searches  from approximately 19.1% of total net revenues
in 2000 to approximately 16.4% of total net revenues in 2001. The majority of
the decrease was attributable to the improved automation of the Companys
acquisition of data supplied to its customers, specifically decreasing costs of
obtaining criminal history information from sources. The largest area of
increase in search and product fees was in the area of subscriptions.
Subscription costs increased from approximately 3.4% of total net revenues in
second quarter 2000 to approximately 5.3% of total net revenues in the same
period of 2001. The other main area of increase in search and product fees was a
result of the increased usage in package orders, which tend to be more
competitively priced for larger customers. Package costs increased from
approximately 2.5% of total net revenues in second quarter 2000 to approximately
4.2% of total net revenues in second quarter 2001.

---

There
was an approximate 0.8% increase as a percentage of total net revenues in
marketing expenses, in the second quarter of 2000, representing approximately
11.1% of total net revenues, as compared to the same period of 2001,
representing approximately 11.9% of total net revenues. The majority of the
increase was a result of increased revenues generated through the ADP
partnership, which require a revenue pass-through payment recorded as a
marketing expense. The Company maintained consistent expenditures in certain
lead generation activities such as trade shows and yellow pages advertising as
well as continuing its transition to web-based lead generation programs.

General
and Administrative expenses increased approximately 0.3% of total net revenues
from the second three-month period ended June 30, 2000, representing
approximately 10.0% of total net revenues, as compared to the second three-month
period ended June 30, 2001 representing 10.3% of total net revenues. A majority
of the increase related to the purchase of AdvantageIS.com and G&A costs
associated with the Florida office space and its personnel, as well as increased
product and compliance costs associated with the new applicant testing product
that was acquired. In addition, there was an additional staff person added in
the Accounting area, along with an increase in bad debt allowance as the
Companys accounts receivable increase.

There
was an increase in software development and maintenance expenses expressed as a
percentage of total net revenues from approximately 3.5% in second quarter 2000
to approximately 4.8% in the comparable period of 2001. The majority of the
increase was a result of the AdvantageIS.com acquisition and its software
development personnel. The Company continues to focus on making technology its
strategic advantage in its relationships with customers, partners and suppliers.

There
was a decrease in depreciation and amortization expenses when expressed as a
percentage of total net revenues, from approximately 3.9% in the second quarter
of 2000, to approximately 2.6% in the comparable period of 2001. The decrease is
a result of the implementation of fixed asset software and a full inventory of
fixed assets. It was determined that certain assets had been over-depreciated in
past periods. Entries were made adjusting the accumulated depreciation amounts
to match the fixed asset software amounts. In addition, depreciation and
amortization began in April 2001 as a result of the AdvantageIS.com acquisition.

Income
before income taxes increased from $1,037,000 in second quarter 2000 to
$1,345,000 in second quarter 2001, or approximately 29.7%, and represented
approximately 23.7% in 2000, as compared to approximately 24.2% in the
comparable period of 2001.

The
combined federal and state income tax rates for 2nd quarter 2001 and 2000 was
38.2% and 39.9% respectively, resulting in net income of approximately
$831,000 and was $.25 per share on 3,311,705 weighted avert shares in 2001 and
$.19 per share on 3,304,263 shares in 2000. Diluted earnings per share were $.23
per share on 3,593,668 (weighted average shares plus common stock equivalents)
in 2001 and $.17 per share on 3,636,766 shares (weighted average shares plus
common stock equivalents) in 2000.

Comparison of six
months ended June 30, 2001 and June 30, 2000

Net
revenues increased from $8,128,000 for the six-month period ended June 30, 2000
to $10,357,000 for the comparable period in 2001 or approximately 27.4%. In the
first six months of 2001, Avert added a total of 9,733 new customers. The
Company launched a program to build communities of subscription accounts using
our human resource help desk and best business practices. Through this program
7,273 new accounts were added in the six-month period ended June 30, 2001. In
addition there was continued focus on our traditional account growth for
background checking customers, of which 2,460 new accounts were added. This
compares with the growth of 2,570 accounts added in the first six months of 2000
in the background checking arena. There were 9,272 customers that actually used
Avert services the six month period ended June 30, 2000 and increased to 10,128
in the same period in 2001. The dollars spent per customer increased from $855
in the first six months of 2000 to $989 in the first six months of 2001
representing an approximate 15.7% increase.

---

The breakdown of net
revenues, exclusive of product discounts and other miscellaneous income items,
is as follows:

`Six Months Ended          Six Months Ended
                                         June 30, 2001             June 30, 2000         Percent of
                                     -----------------------    ----------------------    Increase
                                     Revenues       % total     Revenues       % total    (Decrease)
                                     --------       -------     --------       -------    ---------

Products:
  Workers compensation histories   $    329,000        3.2%    $    425,000        5.2%    (22.6)%
  Criminal history reports         $  4,589,000       44.3%    $  4,057,000       49.9%     13.1%
  Reference Check reports/         $    899,000        8.7%    $    806,000        9.9%     11.5%
     Credit reports
  Motor vehicle driving records    $  1,161,000       11.2%    $    893,000       11.0%     30.0%
Other Stand-Alone                  $    274,000        2.6%    $    261,000        3.2%      5.0%
Packages                           $    907,000        8.8%    $    267,000        3.3%    239.7%
Subscriptions                      $  1,729,000       16.7%    $  1,044,000       12.9%     65.6%
SERVICE AND SETUP SALES:           $    313,000        3.0%    $    316,000        3.9%      0.9%
CREDITS:                           $   (176,000)      (1.7)%   $   (128,000)      (1.6)%    37.5%
INTEREST INCOME:                   $    332,000        3.2%    $    187,000        2.3%     77.2%
                                    -----------      -----      -----------       ----


         NET REVENUES ..........   $ 10,357,000      100%      $  8,128,000      100%       27.4%`

The
largest single product line growth of approximately 239.7%, during the first six
months of 2001 over the first six months of 2000, was packages. It represented
$907,000 in the first six months of 2001, as compared to approximately $267,000
in the first six months of 2000. The packaged or bundled method of pricing has
become popular with customers due to its ease of ordering and fixed pricing per
applicant.

The
revenues resulting in the Subscriptions category increased from $1,044,000 or
approximately 12.9% of total net revenues for the six month period ended July
30, 2000 to $1,729,000 or approximately 16.7% of total net revenues for the
comparable period in 2001. For the first six months of 2000, subscription
revenues generated as a result of the distribution arrangement with ADP
accounted for approximately $765,000 and increased to $1,383,000 in the first
six months of 2001. Partner relationships have continued to be a focus of Avert
in 2000.

Motor
vehicle driving records grew by approximately 30.0% from the six-month period
ended June 30, 2000 to the same six-month period in 2001. The Criminal History
product line experienced continued growth of approximately 13.1% in the
six-month period ended June 30, 2000 as compared to the six-month period ended
June 30, 2001. It has decreased as a percentage of total net revenues from
approximately 49.9% in the first six months of 2000, representing $4,057,000, to
approximately 44.3% in the same period of 2001, representing $4,589,000.

Workers
compensation reports continued its downward trend, decreasing from $425,000 in
revenues for the six-month period ended June 30, 2000 to $329,000 in revenues
for the six-month period ended June 30, 2001. The regulation requirements of
this product have made it less viable in the marketplace.

Total
expenses increased slightly when expressed as a percentage of total net revenues
from $6,191,000, or approximately 76.2% of total net revenues for the six-month
period ended June 30, 2000 to $7,849,000, or approximately 75.8% for the
comparable period in 1999. A breakdown in expenses is as follows:

---

`Six Months Ended         Six Months Ended    Increase (Decrease)
                                      June 30, 2001            June 30, 2000       % of Revenues
                                -----------------------   ---------------------- ------------------
                                Expenses   % of Revenue   Expenses  % of Revenue  2000 over 1999
                                --------   ------------   --------  ------------  --------------

Search and product ............  $4,785,000    46.2%    $3,795,000      46.7%        (0.5)%
Marketing .....................   1,253,000    12.1        920,000      11.3          0.8
General and administration ....   1,006,000     9.7        843,000      10.4         (0.7)
Software development ..........     465,000     4.5        298,000       3.7          0.8
Depreciation and amortization..     340,000     3.3        335,000       4.1         (0.8)
                                 ----------    ----       ----------    ----          ---

         Expenses .............  $7,849,000    75.8   % $6,191,000      76.2%        (0.4)%
                                 ==========    ====       ==========    ====          ===`

Total
expenses increased approximately 0.4% as a percentage of total net revenues from
the first six-month period of 2000 to the first six-month period of 2001. There
were three categories that decreased and two categories that increased.

Search
and product expenses accounted for $3,795,000, or approximately 46.7% of total
net revenues in the first six months of 2000, and $4,785,000, or approximately
46.2% of total net revenues in the first six months of 2001. The Company
actually produced approximately 30.9% more searches in the six month period
ended June 30, 2001 as compared to the same six month period in 2000. In
addition, Avert was able to reduce direct product costs for criminal history
reports by approximately 6.8%, while producing 35.7% more actual reports. This
increased efficiency is a result of increased automation in the first six months
of 2001 as compared to the comparable period of 2000. These criminal history
costs represent approximately 16.4% of total net revenues in period ended June
30, 2001 as compared to approximately 19.1% of total net revenues in the period
ended June 30, 2000.

Marketing
expenses increased from approximately $920,000 in the six month period ended
June 30, 2001 to $1,253,000 in the six month period ended June 30, 2001. As
discussed previously, the vast majority of the increase is attributable to the
increased revenue pass through payments resulting from the ADP partnership
revenues. General and administrative costs experienced a slight decrease when
expressed as a percentage of total net revenues, representing approximately
10.4% in the first six months of 2000 and approximately 9.7% in the same period
of 2001. Software development expenses increased from $298,000 in the six month
period ended June 30, 2000 to $465,000 in the six month period ended June 30,
2001. The increase is a result of increased salaries from the AdvantageIS.com
acquisition. Depreciation and amortization also decreased slightly from
approximately 4.1% of total net revenues in the six months ended June 30, 2000
to approximately 3.3% of total net revenues in the same period of 2001. The
decrease was a result of a physical inventory being conducted as well as
software implementation for asset and depreciation management.

Income
before income taxes increased from $1,937,000 in the six-month period ended June
30, 2000 to $2,508,000 in the six-month period ended June 30, 2001 or
approximately 29.5%. This represented approximately 23.8% of net revenues in the
first six months of 2000 compared to approximately 24.2% in the first six months
of 2001.

Income
taxes for the combined federal and state statutory rate were approximately 38.6%
in the first six months of 2000 and 38.9% in the first six months of 2001. The
lower expense percentage in the period of 2000 is a result of an approximate
$15,000 over accrual of state income taxes in the prior year. The net
income of the first six months of 2000 represented $1,189,000 or $.36 per basic
share on 3,295,091 shares (weighted average shares). This compares to net income
of $1,530,000 or $.47 per basic share 3,287,550 shares(weighted
average shares) for the first six months ended June 30, 2001. The result in
terms of diluted earnings (weighted average shares plus common stock
equivalents) was $.33 per diluted share on 3,615,301 for the six-month period
ended June 30, 2000, as compared to $.43 per diluted share on 3,570,675 shares
for the same six-month period ended June 30, 2001.

---

In June 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 141 (SFAS 141), Business Combinations. SFAS 141 applies to all business
combinations initiated after June 30, 2001. The Statement also applies to all
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001 or later. The adoption of SFAS 141 will not have
an impact on the Companys financial statements.

In June 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 142 (SFAS 142), Goodwill and Other Intangible Assets. The provisions of SFAS
142 are required to be applied starting with fiscal years beginning after
December 15, 2001 with earlier application permitted for entities with fiscal
years beginning after March 15, 2001 provided that the first interim financial
statements have previously been issued. The statement is required to be applied
to all goodwill and other intangible assets recognized in its financial
statements to that date. The initial application of SFAS 142 will have no impact
on the Companys financial statements.

# PART II -
OTHER INFORMATION

## ITEM 1. Legal
Proceedings

Avert
is currently a party to one lawsuit. The Company has been named in a third-party
complaint in the Superior Court of Arizona, County of Pima. Number C20005072,
filed on May 14, 2001; third-party plaintiff, Great Western Management and
Reality, DBA Simpson Property Group vs. Avert, Inc.

The
complaint alleges that plaintiff requested background reports on a potential
employee. Upon confirmation that no records were found plaintiff
hired employee who subsequently was arrested and convicted of stealing from
residents of the apartment complex where he was employed as a maintenance man.
Plaintiff learned that employee in fact did have a criminal record. Plaintiff
was sued by one of the residents of the apartments for negligence and has named
Avert as a third-party defendant in that case.

Avert,
Inc. denies negligence. Avert (through its E and O insurer, Royal Surplus Lines)
has requested a dismissal as a third- party defendant. If dismissal is not
granted Avert intends to defend this case through it insurer, Royal Surplus Line
and their attorneys. The basis for Averts request for a dismissal is that
incorrect information was provided to Avert as the basis for the search Avert
performed. Averts request for dismissal is currently awaiting review by the
court.

## ITEM 2.
Changes in Securities and Use of Proceeds

None

## ITEM 3. Defaults
Upon Senior Securities

None

## ITEM 4.
Submission of Matters to a Vote of Security Holders

On
June, 18, 2001 Avert, Inc. announced that the Company and Automatic Data
Processing, Inc. (NYSE: ADP) have entered into an Agreement and Plan of Merger
pursuant to which AVERT will be acquired by a wholly-owned subsidiary of ADP,
Inc., in a cash merger transaction for $22.00 per share. Upon completion of the
Merger, AVERT will no longer be traded on NASDAQ. Pursuant to the terms of the
Merger, each outstanding share of AVERT will be exchanged for $22.00 in cash.
The Merger values the common shares of AVERT on a fully-diluted basis at
approximately $82 million and represents a 25.7% premium to AVERTs closing
price of $17.50 on June 15, 2001 and a 34.6% premium to the average 60 trading
day closing price before this announcement. Consummation of the Merger is
subject to certain conditions, including, without limitation: (i) AVERT
shareholder approval; and (ii) the receipt of all requisite approvals by
applicable public and regulatory authorities. Lehman Brothers Inc. served as
financial advisor to Avert and delivered a fairness opinion to the Board of
Directors of AVERT. The Special Shareholders Meeting is scheduled for Friday,
August 17, 2001.

## ITEM 5. Other
Information

---

## ITEM 6. 
Exhibits and Reports on Form 8-K

|(a) | April 13, 2001 announcing completion of AdvantageIS.com acquisition
|--- | -------------------------------------------------------------------

|(b) | May 22, 2001 announcing 1st quarter 2001 financial results.
|--- | -----------------------------------------------------------

|(c) | May 29, 2001 announcing the Avert Hiring Index for the 2000 calendar year.
|--- | --------------------------------------------------------------------------

|(d) | June 18, 2001 announcing the signing of the merger agreement between ADP and
Avert, Inc.
|--- | ----------------------------------------------------------------------------------------

---

# SIGNATURES

In
accordance with the requirements 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:
            August 8, 2001
           
   
        BY: /s/ Dean A. Suposs
             
             
             
              
             
             Dean A. Suposs, President

DATE:
            August 8, 2001
           
   
        BY: /s/ Jamie M. Burgat
             
             
             
              
             
             Jamie M. Burgat, Vice President of
             
             
              
             
                          
Operations and Chief Financial Officer

---