SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[ ]  Annual Report under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934

     For the fiscal year ended ________________ or

[X]  Transition report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934

     For the transition period from June 1, 1999 to December 31, 1999

                         Commission File Number: 0-15304


                               Avesis Incorporated
                   -------------------------------------------
                 (Name of small business issuer in its charter)


               Delaware                                  86-0349350
    -------------------------------            ---------------------------------
    (State or other jurisdiction of            (IRS Employer Identification No.)
     incorporation or organization)


   3724 North Third Street, Suite 300
          Phoenix, Arizona                                   85012
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip Code)


Issuer's telephone number: (602) 241-3400

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.01 par value &
          $l0 Class A Nonvoting Cumulative Convertible Preferred Stock,
                            Series 2, $.01 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 is not contained in 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 any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year: $5,614,154.

     The   aggregate   market   value  of  the  voting   common  stock  held  by
non-affiliates  of the  registrant,  based upon the  average of the last bid and
asked prices of the  registrant's  Common Stock in the  over-the-counter  market
reported  by the  Electronic  Bulletin  Board  of the  National  Association  of
Securities  Dealers,  Inc. ("NASD") on March 14, 2000 was $1,765,535.  Shares of
Common Stock held by each officer and director and by each person who owns 5% or
more of the outstanding Common Stock have been excluded in that such persons may
be  deemed to be  affiliates.  This  determination  of  affiliate  status is not
necessarily conclusive.

     The number of outstanding shares of the registrant's  Common Stock on March
13, 2000 was 7,250,297.

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
                               AVESIS INCORPORATED
                            FORM l0-KSB ANNUAL REPORT
                    TRANSITION PERIOD ENDED DECEMBER 31, 1999

                                TABLE OF CONTENTS

                                     PART I
                                                                            Page
                                                                            ----
ITEM l. Description of Business ............................................. 1
ITEM 2. Description of Properties ........................................... 6
ITEM 3. Legal Proceedings ................................................... 7
ITEM 4. Submission of Matters to a Vote of
          Security Holders .................................................. 7

                                     PART II

ITEM 5. Market for Common Equity and
          Related Stockholder Matters .......................................  8
ITEM 6. Management's Discussion and Analysis or Plan
          of Operation....................................................... 13
ITEM 7. Financial Statements ................................................ 19
ITEM 8. Changes In and Disagreements with Accountants
          on Accounting and Financial Disclosure ............................ 20

                                    PART III

ITEM 9. Directors, Executive Officers, Promoters,
          and Control Persons; Compliance with Section 16(a)
          of the Exchange Act ............................................... 20
ITEM 10. Executive Compensation ............................................. 24
ITEM 11. Security Ownership of Certain Beneficial
           Owners and Management ............................................ 26
ITEM 12. Certain Relationships and Related Transactions...................... 28
ITEM 13. Exhibits and Reports on Form 8-K ................................... 30
SIGNATURES .................................................................. 31
<PAGE>
                                     PART I

ITEM L. DESCRIPTION OF BUSINESS

GENERAL

     Avesis   Incorporated,   a   Delaware   corporation   (together   with  its
subsidiaries,   Avesis  of  Washington,   D.C.,  Inc.  and  Avesis   Reinsurance
Incorporated,  collectively  the  "Company"),  markets and  administers  vision,
dental, chiropractic and hearing managed care and discount programs ("Programs")
nationally.  The Programs are designed to enable participants  ("Members"),  who
are  enrolled  through  various  sponsoring   organizations  such  as  insurance
carriers, HMOs, Blue Cross and Blue Shield organizations,  corporations,  unions
and  various  associations  ("Sponsors"),  to realize  savings on  purchases  of
products  and  services   through  networks  of  providers  such  as  opticians,
optometrists,  ophthalmologists, dentists, chiropractors and hearing specialists
("Providers").

Administration  fee and  provider  fee revenue has been derived from the product
lines in the following proportions:

                         Transition Period Ended         Fiscal Years Ended
                         -----------------------    ----------------------------
                             December 31, 1999      May 31, 1999    May 31, 1998
                             -----------------      ------------    ------------
Vision and Hearing Program            90%                87%            80%
Dental Program                        10%                13%            20%

VISION PROGRAM

     The Company offers provider networks and administrative  services for group
vision  programs.  Its Vision Program is designed to provide savings by reducing
the cost of eye  examinations and vision products  (frames,  eyeglass lenses and
contact lenses).

     Under the  Company's  Vision  Program,  a Member is entitled to  discounted
pricing that Providers offer for eye examinations and the purchase of eyewear at
network Provider  locations.  The Member may be fully responsible for paying the
Provider unless the Sponsor (a self-funding employer or insurer) is obligated to
pay the Provider, or reimburse the Member. In some cases, the Company may act as
a third party  administrator  for the Sponsor and pay the  Providers  from funds
provided by the Sponsor for that purpose.

     Under some  Programs,  each  Member  pays an annual  enrollment  fee to the
Company for the right to utilize  network  Providers and receive  discounts.  In
other cases,  typically involving Sponsors who pay benefits,  the Sponsors pay a
periodic enrollment fee for each Member.
<PAGE>
     If the Program has insured or self-funded benefits,  the Sponsor determines
the products and services  which will be covered,  how frequently the benefit is
available  and,  subject  to  local   regulation,   whether   reimbursement  for
non-network Provider purchases will be made.

     The Company  principally derives revenues from fees paid by or on behalf of
Members  for  enrollment,   plan   administration   and  services,   and  claims
administration,  and in certain  cases also derives  revenues  from fees paid by
Providers when Members purchase eyewear and services.

     The table below sets forth the approximate numbers of Providers and Members
enrolled in the Vision Program at the dates indicated:

      Date           Number of Providers   Number of States    Number of Members
      ----           -------------------   ----------------    -----------------
December 31, 1999           6,700                 46                 687,000
  May 31, 1999              5,151                 45                 817,000
  May 31, 1998              4,550                 48                 649,000

Substantially all of the Providers indicated above are optometrists. The numbers
of  Members  indicated  in the above  table are as  reported  to the  Company by
Sponsors and generally do not include eligible spouses and children of Members.

     The Company  administers  a buying group for vision  Providers so that they
may take advantage of volume buying discounts for eyeglass  frames.  The Company
has entered into  arrangements  with  certain  frame  manufacturers  that enable
Providers  to obtain  frames at prices  below  wholesale.  The Company is billed
directly  by the frame  manufacturers  and is  responsible  for the  billing and
collection of amounts due from the Providers.  The Company  receives a discount,
above the amount given to the Providers, from the frame manufacturers to pay for
the cost of administering the buying group program.  Providers are not obligated
to purchase from designated suppliers.

HEARING PROGRAM

     The Company's  hearing  program (the  "Hearing  Program") has been marketed
principally  as an adjunct  to the Vision  Program.  Revenues  from the  Hearing
Program have not been significant. A Hearing Program Member may obtain a hearing
evaluation by a Provider for a reduced fee. In addition, the Member may purchase
a hearing aid from a Provider at wholesale cost plus a professional  fee or at a
discount from the Provider's usual charge,  depending on the options selected by
the Plan  Sponsor.  Such  benefits are also  available  to the Member's  spouse,
children, parents and grandparents.

                                       2
<PAGE>
DENTAL PROGRAM

     The Company establishes and maintains dental Provider networks that it also
makes available to Sponsors. Fees charged to Members by Providers are based upon
panel fee  schedules  that the Providers  have agreed to accept.  Similar to the
Vision Program,  the Company's dental program (the "Dental  Program") is offered
both for Members who are themselves  responsible for paying 100% of the costs of
their care to their Providers,  and for Programs under which the Sponsor assumes
the obligation of paying Providers (or reimbursing  Members) for the agreed-upon
costs of  specified  care.  Revenues  from the Dental  Program  principally  are
derived in the same manner as the Vision Program.

     The table below sets forth the approximate  number of Providers and Members
enrolled  in the  Dental  Program at the dates  indicated,  as  reported  to the
Company by Sponsors:

       Date         Number of Providers    Number of States    Number of Members
       ----         -------------------    ----------------    -----------------
December 31, 1999          8,945                  43                73,000
   May 31, 1999            8,397                  42                144,000
   May 31, 1998           10,683                  43                148,000

Included  in the number of  providers  in the table above as of May 31, 1998 are
5,553 providers who participate in a third party's Provider network. The Company
had a network rental  agreement that allowed  Members to utilize the services of
the third party's  Provider  network that was terminated  during the fiscal year
ended May 31, 1999.

See also Item 6 - "Management's Discussion and Analysis or Plan of Operation."

CHIROPRACTIC PROGRAM

     The Company  has  developed  a program  for the  delivery  of  chiropractic
services (the "Chiropractic Program").  Members pay reduced fees to the Provider
for  history  and  physical   examinations,   spinal  manipulation,   non-manual
procedures, physiotherapy, acupuncture and additional care. Although the Company
has not generated significant revenues from the Chiropractic Program, Management
believes the Program is important as it enables the Company to offer to Sponsors
a complete line of ancillary benefits.

                                       3
<PAGE>
PROVIDER NETWORKS

     The  Company   usually   contracts  with  Providers  to  provide   services
simultaneously  with the plan Sponsor's  development  of a membership  base in a
geographic area;  however,  some Providers are enlisted in expansion areas where
there  currently is little or no membership  base.  The Programs  supplement the
practices of Providers by enabling  them to obtain  additional  patients who are
Members while allowing  Providers to retain their existing  practices.  Although
Members  generally pay fees and charges less than those of non-Member  patients,
Member patients can be an important source of incremental  revenue to Providers.
There can be no assurance  that  Providers  will continue to  participate in the
Programs even if their  participation  results in an increase in revenues  since
the portion of their practices  derived from the Programs may be less profitable
than other aspects of their practices.

     The Company  periodically  reviews a portion of the Providers.  This review
includes a patient  survey form which is  distributed  on a random  basis by the
Company to Members,  the  investigation of any complaints  received from Members
and a desk or field audit by a Company  auditor to confirm that Members were not
charged more than the contracted prices for services and products.

PROGRAM ADMINISTRATION AND ADMINISTRATION OF CLAIMS

     The  Company  receives  fees  from  Sponsors  for  program   administration
services.  These  fees vary  depending  upon the type of program  involved,  the
number of card-holding  Members in a Sponsor's program, and the extent of claims
administration and other administrative services involved.

     When the Company acts as a third party  administrator  for  Programs  under
which the Sponsor pays for Provider  services,  Members obtaining  services from
Providers present their cards to the Providers, who in certain cases contact the
Company to confirm  eligibility and, upon performance of services,  submit claim
forms to the Company. The Company processes the claims,  requests funds from the
appropriate Sponsors, and forwards payments to the Providers and/or Members from
the funds  received  from  Sponsors.  Monthly  information  about the use of the
Programs by Members and cost savings is reported to certain Sponsors.

     Although  the Company does not believe it would have any  liability  due to
any  malpractice  on the  part of any  Provider,  the  usual  form  of  Provider
Agreement  requires  each  Provider to indemnify  the Company  against any claim
based on the negligence or other  wrongdoing of the Provider in the  performance
of  services  for  Members.  In  addition,   Providers  are  required  to  carry
malpractice  insurance with limits equal to or greater than their state required
minimums.

                                       4
<PAGE>
MARKETING

     The Company  markets  nationally  to potential  Sponsors  that have or have
access to a large  number of  potential  Members.  Marketing is done through the
efforts of the Company's sales  personnel and  unaffiliated  insurance  brokers,
general  agents and employee  benefit  consultants  compensated  on a commission
basis.  Substantial marketing services are also provided through National Health
Enterprises,  Inc. ("NHE"), an affiliate.  See Item 12 - "Certain  Relationships
and Related  Transactions - Agreements with National Health  Enterprises,  Inc."
See also Item 6 - "Management's  Discussion and Analysis or Plan of Operations -
Results of Operations."

     The Company's  sales and marketing  personnel  market the full range of the
Company's  products and services.  The Company believes that offering a range of
products  and  services in multiple  product  lines  differentiates  it from its
competitors  and  enables  it to  offer  a more  comprehensive  solution  to its
customers' benefits needs.

     Two major  Sponsors  accounted  for 47% and 15% of total  service  revenues
during the  transition  period ended December 31, 1999, and 48% and 14% of total
service  revenues in the fiscal year ended May 31,  1999.  Three major  Sponsors
accounted for 28%, 15% and 10% in the fiscal year ended May 31, 1998. Two of the
three major Sponsors  accounted for separately  during the fiscal year ended May
31, 1998 were combined during the fiscal year ended May 31, 1999 to be one major
Sponsor. The Company is substantially  dependent on a limited number of Sponsors
and may be materially  adversely  affected by termination of its agreements with
Sponsors.

     The Company has recently  developed the Avesis "Advantage Vision Plan," and
the "Premier  Dental Plan." These  products were designed to offer fully insured
benefits to small and medium sized groups,  through internal sales personnel and
the broker  marketplace.  The  growth of these  product  lines  will  enable the
Company to  minimize  the  inherent  risk  related to the  concentration  of its
Members over  relatively  few Sponsors.  The Company  derived its first revenues
from these plans during the last quarter of the Transition Period.

COMPETITION

     The  Company  competes  for  potential  Sponsors,  Members  and  Providers,
depending on the geographic area or market, with various provider organizations,
health maintenance  organizations and health care membership  programs.  Most of
these  competitors  have   significantly   greater   financial,   marketing  and
administrative  resources  than  the  Company.  The  Company  believes  it has a
competitive  advantage as it is able to offer a full line of ancillary  benefits
while substantially all of its competitors concentrate on one benefit line.

                                       5
<PAGE>
REGULATION

     Certain  registration  and licensing laws and regulations  (including those
applicable  to third party  administrators,  preferred  provider  organizations,
franchises  and  business  opportunities)  in many  states in which the  Company
operates may have application to various aspects of the Company's  programs.  In
addition,  statutes  and  regulations  applicable  to  insurers  and  providers,
including those relating to fee splitting,  referral fees, advertising,  patient
freedom of choice,  provider  rights to participate  and  antidiscrimination  in
reimbursement,  may impact  the  Company.  The  Company  believes  that it is in
compliance   with   applicable  laws  and  regulations  as  they  are  currently
interpreted.  However,  there can be no assurance that changes in interpretation
will not occur in the future or that existing laws and  regulations  will not be
broadened.  In that event,  the Company could be required to register in various
additional   states   and/or  post   substantial   fidelity  or  surety   bonds.
Alternatively,  the Company may be  required to alter its  services,  modify its
contractual arrangements with Sponsors, Providers and Members, be precluded from
providing  some  or all  of its  services  in  some  states,  or be  subject  to
substantial fines or penalties.  Any or all of the foregoing  consequences could
materially adversely affect the Company.

EMPLOYEES

     As of March 13, 2000 the Company had 39 full-time  employees as compared to
47 full-time and 2 part-time employees as of August 2, 1999 and 42 full-time and
2 part-time  employees  as of August 10,  1998.  The Company  believes  that its
relationship with its employees is good.


ITEM 2. DESCRIPTION OF PROPERTIES

     The Company  maintains  its  executive  offices at 3724 North Third Street,
Suite 300, Phoenix,  Arizona 85012, in space leased from an unaffiliated  party.
On December 16, 1998, the Company  entered into a lease  agreement to expand its
current  principal office location by  approximately  3,200 square feet to 9,900
square feet. The term of the lease will run concurrently  with the current lease
on the principal office location and will expire on September 30, 2002.

     Until October 1997,  the Company  maintained  its executive  offices at 100
West Clarendon,  Suite 2300, Phoenix, Arizona 85013. The lease agreement covered
approximately  13,300 usable square feet of space and was scheduled to expire on
September 30, 2000. On October 29, 1996 the Company entered into an agreement to
sublease  approximately  9,090 usable  square feet of space  through  October 1,
1997, and all 13,300 usable square feet thereafter,  until the expiration of the
Company's lease agreement. On February 24, 1999, the Company was released by the
landlord from the lease agreement and by the lessee from the sub-lease agreement
covering the Company's  former  principal  office.  The write-off of unamortized
broker's  commissions  and  accrued  rent  that  related  to the  lease  for the

                                       6
<PAGE>
Company's  former   principal  office  resulted  in  approximately   $47,000  of
miscellaneous  income.  For the fiscal  years ended May 31, 1999 and 1998,  rent
expense   related  to  the   subleased   premises  was  $169,426  and  $159,623,
respectively,   and  sublease   rental   income  was   $168,071  and   $161,720,
respectively.  There  were no  sublease  expenses  or rental  income  during the
Transition Period.

     The Company maintains sales and administrative  offices at 3724 S. Dolfield
Road, Owings Mills, Maryland 21117 and at 5321 First Place NE, Washington,  D.C.
20011. The DC office is used pursuant to a verbal agreement with the lessee that
is terminable at will and is at no cost to the Company. The Company entered into
a lease agreement on June 3, 1999 for approximately  1,500 usable square feet of
space in Owings Mills,  Maryland for a term of five years,  which began November
1, 1999. The lease agreement is with KA Real Estate  Associates,  LLC, a related
party  owned by  Messrs.  Cohn and  Blum,  Jr.,  with  the  terms  being no less
favorable  than an arm's length  transaction.  Until  November 1999, the Company
maintained a sales and  administrative  office at 11460 Cronridge  Drive,  Suite
118, Owings Mills,  Maryland 21117. The former Maryland office was used pursuant
to a verbal  agreement with the lessee that was terminable at will and was at no
cost to the  Company.  The  Company  owns  and  leases  various  computer,  data
processing and other office equipment.  The Company believes that its facilities
and equipment are  maintained in good  operating  condition and are adequate for
the  present  level of  operations.  See Item 12 -  "Certain  Relationships  and
Related Transactions."

ITEM 3. LEGAL PROCEEDINGS

     Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                       7
<PAGE>
                                    PART II

ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     The Company's Common Stock and its Class A Nonvoting Cumulative Convertible
Preferred  Stock,  Series  2  ("Series  2  Shares")  Shares  are  quoted  in the
over-the-counter  market,  except  that the  Company's  Series 2 Shares were not
quoted  during the  Transition  Period.  Quotations  are  reported  in the "pink
sheets" published by the National  Quotation  Bureau,  Inc. and via the National
Association of Securities Dealers' Inc. Electronic Bulletin Board. The following
table  sets forth the high and low bid price for the  Company's  Series 2 Shares
and Common Stock as reported by the  National  Quotation  Bureau,  Inc. for each
quarterly  period  during  the fiscal  years  ended May 31,  1998 and 1999.  The
following  table  also sets  forth the high and low bid price for the  Company's
Common Stock as reported by the National Quotation Bureau,  Inc. for two periods
during the  Transition  Period.  Such  market  quotations  reflect  inter-dealer
prices,  without  retail  markup,  markdown or commission  and may not represent
actual   transactions.   The  Company's  Class  A  Senior  Nonvoting  Cumulative
Convertible Preferred Stock, Series A ("Series A Shares") Shares were not quoted
during the periods presented and quotes are currently not available  pursuant to
the  National  Quotation  Bureau,  Inc.  and via  the  National  Association  of
Securities       Dealers'      Inc.       Electronic       Bulletin       Board.


                                         Series 2 Shares        Common Stock
                                         ---------------        ------------
                                       Bid Quotation Range   Bid Quotation Range
                                       -------------------   -------------------
Fiscal Year Ended May 31,1998            High       Low      High       Low
                                         ----       ---      ----       ---

First Quarter ended Aug. 31, 1997        $1.25    $ 1.25    $ 0.25    $ 0.1875

Second Quarter ended Nov. 30, 1997        1.25      1.00      0.21     0.15625

Third Quarter ended Feb. 28, 1998         1.12      1.06      0.27      0.1875

Fourth Quarter ended May 31, 1998         1.12      1.12      0.27      0.1875

Fiscal Year Ended May 31, 1999

First Quarter ended Aug. 31, 1998        $1.25    $ 1.00    $ 0.21    $0.21875

Second Quarter ended Nov. 30, 1998        2.75      1.25      0.29     0.21875

Third Quarter ended Feb. 28, 1999         2.75      2.75      0.30        0.29

Fourth Quarter ended May 31, 1999         2.75      2.75      0.46        0.30

Transition Period Ended
  December 31, 1999

Four Months ended Sept. 30, 1999                             $ 0.50   $ 0.4375

Three Months ended Dec. 31, 1999                               0.68       0.39

                                        8
<PAGE>
1998 EXCHANGE OFFER

     During the fiscal year ended May 31, 1998 the Company completed an Exchange
Offer  which  offered  one  share  of its  Class A Senior  Nonvoting  Cumulative
Convertible Preferred Stock, Series A ("Series A Shares"),  for each outstanding
share of the Class A Nonvoting Cumulative  Convertible Preferred Stock, Series 2
("Series 2 Shares") of the  Company.  The purpose of this offer was to eliminate
or significantly reduce the number of Series 2 Shares outstanding  including the
related dividend arrearage and to adjust the Company's capital structure.

     The Exchange  Offer expired on May 27, 1998,  and resulted in the tendering
of 317,880  (approximately  82%) of the 388,180 then outstanding Series 2 Shares
for the Series A Shares.

     Series 2 Shares are entitled to receive a cumulative  dividend at an annual
rate of 9% of the  face  value  of  $10.00  ($0.90  per  share).  Each  share is
currently  convertible into 2.5 shares of the Company's  Common Stock.  Series A
Shares  are  entitled  to receive a  cumulative  dividend  at an annual  rate of
$0.3375 per share paid  semi-annually  and each share is  currently  convertible
into 10 shares of the Company's Common Stock.

     The exchange of the Series 2 Shares  pursuant to the Exchange Offer and the
Company's  repurchase  program,  under which it  repurchased  and retired 64,300
Series 2 Shares at $3.00 per share during the fiscal year ended May 31,1999, and
1,000  Series  2  Shares  at $3.25  per  share  during  the  Transition  Period,
significantly  reduced the number of the Series 2 Shares that trade publicly and
the number of holders of the shares.  These  reductions may adversely affect the
liquidity  and the "pink  sheet"  market value of the 5,000  remaining  Series 2
Shares. At the same time, there is no assurance that any market will develop for
the Series A Shares issued pursuant to the Exchange Offer.

COMMON STOCK

     As of March 13,  2000,  there were  7,250,297  shares of the  Common  Stock
outstanding held by approximately  165 stockholders of record.  Trading activity
with respect to the Common Stock has been limited and the volume of transactions
may not of itself  be  deemed  to  constitute  an  "established  public  trading
market." A public trading market having the characteristics of depth,  liquidity
and  orderliness  depends  upon the  existence  of market  makers as well as the
presence of willing buyers and sellers,  which are circumstances  over which the
Company does not have control.

                                       9
<PAGE>
DIVIDENDS

     The  Company  has not paid any  dividends  on its  Common  Stock  since its
inception  and does not expect to pay  dividends on its Common Stock at any time
for the foreseeable  future.  The Series A Shares are senior in rights to annual
dividends  and  redemptions  to the Series 2 Shares.  Under the  Certificate  of
Designation  for the Series A Shares,  no dividends  may be paid on the Series 2
Shares or the Common  Stock until the Series A Shares have  received all current
and cumulative  dividends and the earliest of any of the following  events occur
(i) every  outstanding  share of the Series A Shares has been either redeemed or
converted,  (ii) any time  after  May 31,  2005,  or (iii)  the first day of any
fiscal year following two consecutive  fiscal years in which the Company had net
income  and net  cash  flow  in each  year in  excess  of $1.5  million  and the
Company's  tangible net equity at the end of the second  fiscal year is at least
$5 million.  Moreover,  the terms of the Series 2 Shares provide that as long as
any of the Series 2 Shares  remain  outstanding,  the Company may not declare or
pay any  dividend,  whether  in cash or  property,  on the  Common  Stock of the
Company  unless the full  dividends on the Series 2 Shares for all past dividend
periods and the then  current  dividend  period shall have been paid or declared
and a sum set aside for payment thereof.

RECENT SALES OF UNREGISTERED SECURITIES

     On May 27,  1998,  the  Company's  Offer to Exchange  one share of Class A,
Senior Nonvoting  Cumulative  Convertible  Preferred Stock,  Series A, par value
$.01 for each  outstanding  share of Class A, Nonvoting  Cumulative  Convertible
Preferred Stock, Series 2, par value $.01 expired. The Offer resulted in 317,880
of the 388,180  outstanding  Series 2 Shares  being  exchanged  for the Series A
Shares.

     The  Exchange  Offer was made by the Company in  reliance on the  exemption
from the  registration  requirements  of the  Securities Act of 1933, as amended
(the  "Securities  Act"),  afforded by Section 3(a)(9) thereof and under certain
state  law  exemptions.  The  Company  did  not  pay  any  commission  or  other
remuneration  to any broker,  dealer,  salesman or other  person for  soliciting
tenders of the Series 2 Shares.

     Each  Series A Share is  currently  convertible  into 10  shares  of Common
Stock.  This  conversion  ratio is subject to adjustment  for any  subdivisions,
combinations or any other adjustments made to the Company's Common Stock.

     On July 30, 1998, the Company's Board of Directors  approved a modification
providing all  outstanding  stock option and warrant  holders the opportunity to
exercise  any or all of  their  vested  options  and  warrants  at a  discounted
exercise price from their original grant, during the period from August 1, 1998,
to August 31, 1998.  The  discounted  price was  calculated by  discounting  the
stated  exercise price of each stock option or warrant by 10% per annum from the
expiration  date back to August 1998, and rounding the  calculated  price to the
nearest whole cent. The discounted  price in no case was allowed to be less than
the  prevailing  market  price  of the  Company's  Common  Stock  at the time of

                                       10
<PAGE>
exercise  of the  options,  defined  as the high bid price,  and  rounded to the
nearest whole cent. The  modification  expired on August 31, 1998, and all terms
returned to the original  exercise terms for all  unexercised  stock options and
warrants.

     Pursuant to the revised terms,  the following  individuals  exercised their
stock options or warrants  during  August 1998, in the following  amounts at the
following exercise prices per option or warrant:

                         Number of Common    Number of Common       Modified
Option/Warrant Holder     Stock Options       Stock Warrants      Exercise Price
---------------------     -------------       --------------      --------------
Alan S. Cohn               1,054,750                                  $0.31
Alan S. Cohn                 700,000                                  $0.26
Kenneth L. Blum, Jr.       1,064,750                                  $0.31
Kenneth L. Blum, Jr.         700,000                                  $0.26
William L. Richter            50,000                                  $0.31
William L. Richter                                109,091             $0.31
William L. Richter                                 50,909             $0.26
Richter & Co., Inc.           72,500                                  $0.31
Richter & Co., Inc.                               163,636             $0.31
Richter & Co., Inc.                                76,364             $0.26
Gerald L. Cohen              100,000                                  $0.26
William R. Cohen             100,000                                  $0.26

     The total cash received by the Company from the exercise of the above stock
options and warrants was  $1,228,657.  Of the  preceding  amount,  approximately
$400,712 was used to repurchase all 931,888 shares of the Company's common stock
held by the founder of the  Company,  at a price of $0.43 per share.  The excess
funds received from these transactions were used as working capital.

RETIREMENT OF STOCK INFORMATION

     As previously  disclosed in the Company's Form 10-QSB for the quarter ended
September 30, 1999,  filed on November 15, 1999,  the Company made the following
stock repurchases and retirements:

                                 Series A       Total Purchase Price including
              Date                Shares                  Commissions
              ----                ------                  -----------
        November 1, 1999           7,500                    $37,522


     Subsequent to the filing of the Company's Form 10-QSB for the quarter ended
September  30,  1999,  the Company  made the  following  stock  repurchases  and
retirements:

                                       11
<PAGE>
                                                           Total Purchase Price
 Date                  Common Stock      Series A Shares   including Commissions
 ----                  ------------      ---------------   ---------------------
November 19, 1999         35,000                                $17,524
November 22, 1999         40,000                                $17,222
November 24, 1999                              3,000            $15,022
December 27, 1999                             15,000            $75,022
December 28, 1999         11,300                                 $5,085
December 31, 1999          6,700                                 $3,037

SELECTED FINANCIAL DATA

     The following table sets forth selected financial information regarding the
Company.  This  information  should be read in  conjunction  with the  Company's
Financial Statements and related notes and Management's  Discussion and Analysis
or Plan of Operation included elsewhere in this Form 10-KSB.

     The selected  financial data for the Transition Period and each of the four
fiscal  years  ending May 31, 1996  through  1999,  have been  derived  from the
Company's audited financial statements. The selected financial data are included
herein as additional information.

<TABLE>
<CAPTION>
                                 Transition                Fiscal Years Ended May 31,
                                 ----------   -----------------------------------------------------
Selected Operating Data:           Period        1999          1998          1997           1996
------------------------           ------        ----          ----          ----           ----
<S>                              <C>          <C>           <C>          <C>            <C>
Operating revenues               $5,614,154   $10,206,467   $8,336,631   $ 5,645,276    $ 6,019,896
Operating expenses                5,024,537     9,300,195    8,010,021     5,739,503      6,106,694
Net income (loss) (1)             1,045,838     1,006,265      313,875      (190,265)      (124,859)
Net income (loss) per share of
Common Stock - Basic (2)                .13           .13          .06          (.13)          (.12)

                                   As of
                                 December 31,                 As of May 31,
                                 ------------   --------------------------------------------
Selected Balance Sheet Data:        1999        1999          1998        1997          1996
----------------------------        ----        ----          ----        ----          ----


Working capital                  $2,198,148   $1,651,410   $  350,418   $  293,595   $  422,922
Current assets                    2,961,887    3,197,248    1,588,969    1,271,505      864,566
Total assets                      3,905,999    3,897,255    2,241,705    1,639,389    1,650,527

Current liabilities                 763,739    1,545,838    1,238,551      977,910      441,644
Long term obligations                13,614       20,368       90,475       92,044      449,183
Total liabilities                   777,353    1,566,206    1,329,026    1,069,954      890,827
Total stockholders' equity        3,128,646    2,331,049      912,679      569,435      759,700
</TABLE>

----------
(1)  Transition  Period Net income includes the cumulative effect of a change in
     accounting  method  that  resulted  in an  increase  to income of  $521,000
     ($470,000 after taxes).

(2)  After provision for preferred  stock  dividends as follows:  $61,049 in the
     Transition  Period;  $107,936  in 1999;  $63,270 in 1998  (70,300  Series 2
     Shares  outstanding as of May 31, 1998 times $0.90 per share); and $349,162
     in 1997and 1996.

                                       12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

     The  statements   contained  in  this  discussion  and  analysis  regarding
management's anticipation of adequacy of cash reserves for operations,  adequacy
of reserves for claims,  anticipated level of operating  expenses related to new
cardholders,  viability  of the  Company,  cash flows and  marketability  of the
Company  constitute  "forward-looking"  statements  within  the  meaning  of the
Private Securities  Litigation Reform Act of 1995. Such statements involve risks
and  uncertainties,  which could cause actual results to differ  materially from
the  forward-looking   statements.   Management's  anticipation  is  based  upon
assumptions  regarding  the market in which the Company  operates,  the level of
competition,  the level of demand for  services,  the  stability  of costs,  the
retention of Sponsors and Members  enrolled in the Company's  benefit  programs,
the relevance of the Company's  historical  performance and the stability of the
regulatory  environment.  Any of these assumptions  could prove inaccurate,  and
therefore there can be no assurance that the  forward-looking  information  will
prove to be accurate.

     The Company derives its  administration  fee revenue from Plan Sponsors who
customarily  pay a set fee per Member per month.  Administration  fee revenue is
recognized  on the accrual basis during the month that the Member is entitled to
use the benefit.  Certain Sponsors pay for services rendered by the Company on a
fee for  service  basis.  Based upon the type of program  (e.g.,  managed  care,
discount,  third party administration) the Provider's claim for service provided
to  Members  is paid  either by the  Company,  Sponsor,  Member  or  combination
thereof.  Buying  Group  revenues  are  recorded at the total  amount  billed to
participating  Providers  and  recognized  in the month the  product is shipped.
Vision  Provider  fee revenue is based upon a percentage  of  materials  sold by
certain participating Providers under certain plans.

CHANGE IN FISCAL YEAR

     On October 5, 1999, the Company  changed its fiscal year-end from May 31 to
December  31 to  conform  to the  year-end  of Avesis  Reinsurance  Incorporated
("ARI").  Reinsurance  corporations  are required by the Arizona  Department  of
Insurance to have a December 31 fiscal year-end and to submit calendar  year-end
audited financial statements. The transition period resulting from the change in
fiscal year-end is measured from the Company's former fiscal year-end of May 31.
Accordingly,  the seven-month  period  resulting from this change,  June 1, 1999
through December 31, 1999, is referred to herein as the "Transition Period."

                                       13
<PAGE>
RESULTS OF OPERATIONS

     The  following  table  details  the  Company's  major  revenue  and expense
categories for the transition  period from June 1, 1999 to December 31, 1999 and
the corresponding period from June 1, 1998 to December 31, 1998 (unaudited):

<TABLE>
<CAPTION>
                                                         Seven Months Ended
                                 Seven Months Ended       December 31, 1998
                                  December 31, 1999         (unaudited)        Increase/(Decrease)
                             ------------------------  ---------------------- ---------------------
                                           % of                    % of
                                        Total Service           Total Service
Revenue:                                  Revenue                 Revenue                  % Change
--------                                  -------                 -------                  --------
<S>                          <C>            <C>       <C>            <C>      <C>              <C>
Total Service Revenue        $5,614,154     100%      $5,863,176     100%     $(249,022)       (4%)
Vision & Hearing Program      4,227,308      75%       4,213,037      72%        14,271         0%
Vision Provider Fee              73,653       1%          84,458       1%       (10,805)      (13%)
Dental Program                  491,993       9%         680,312      12%      (188,319)      (28%)
Buying Group Program            816,420      15%         874,876      15%       (58,456)       (7%)

Expenses:
---------
Cost of Services              3,740,468      67%       4,326,920      74%      (586,452)      (14%)
General & Administrative        674,496      12%         595,378      10%        79,118        13%
Selling & Marketing             609,573      11%         618,034      11%        (8,461)       (1%)

Income from Operations          589,617      11%         322,844       6%       266,773        83%
Net Income                    1,045,838      19%         364,364       6%       681,474       187%

     The  following  table  details  the  Company's  major  revenue  and expense
categories for the years ended May 31, 1999 and 1998:

                                   Year Ended               Year Ended
                                  May 31, 1999             May 31, 1998        Increase/(Decrease)
                             ------------------------  ---------------------- ---------------------
                                           % of                    % of
                                        Total Service           Total Service
Revenue:                                  Revenue                 Revenue                  % Change
--------                                  -------                 -------                  --------
Total Service Revenue        $10,206,467     100%     $8,336,631     100%     $ 1,869,836        22%
Vision & Hearing Program       7,386,670      72%      5,258,750      63%       2,127,920        40%
Vision Provider Fee              142,863       1%        124,397       1%          18,466        15%
Dental Program                 1,054,660      10%      1,266,548      15%        (211,888)      (17%)
Buying Group Program           1,607,000      16%      1,655,298      20%         (48,298)       (3%)

Expenses:
---------
Cost of Services               7,131,269      70%      6,120,416      73%       1,010,853        17%
General & Administrative       1,066,390      10%      1,121,099      14%         (54,709)       (5%)
Selling & Marketing            1,102,536      11%        768,506       9%         334,030        43%

Income from Operations           906,272       9%        326,610       4%         579,662       177%
Net Income                     1,006,265      10%        313,875       4%         692,390       221%
</TABLE>

     Past and future  revenues in all lines of business are directly  related to
the number of Members enrolled in the Company's benefit programs. However, there
may be  significant  pricing  differences  to Sponsors  depending on whether the
benefit  offered is funded in part or whole by the plan  Sponsor.  A substantial
portion  of the  Company's  Member  base is  derived  from a  limited  number of
Sponsors.

                                       14
<PAGE>
     The decrease in the Company's total service  revenues during the Transition
Period  ended  December 31, 1999 as compared to the  corresponding  period ended
December  31, 1998 was largely due to  decreases  in the dental  program and the
buying group program.  The Company was able to decrease  operating expenses as a
percentage of total service revenues in the Transition  Period by 5% compared to
the corresponding period's results.

     The increase in the Company's  total  service  revenues from the year ended
May 31, 1998 to the year ended May 31, 1999, was  principally  due to the growth
of the Company's managed care vision products.  The Company was able to decrease
operating  expenses as a percentage of total service  revenues by 5% compared to
the prior fiscal year's results.

     Vision and hearing revenues  remained  constant in the Transition Period as
compared  to the  corresponding  period  ended  December  31,  1999.  There were
approximately  687,000 vision and 5,000 hearing Members as of December 31, 1999,
compared to approximately 817,000 vision and 6,000 hearing Members as of May 31,
1999. The decrease of approximately 130,000 vision Members during the transition
period  was  largely   attributable   to  the  termination  of  a  Sponsor  with
approximately  103,000 Members in the Company's discount vision program.  Due to
the pricing of the benefit, the loss of Members did not significantly negatively
impact the Company's revenues.

     The  increase  in vision and hearing  revenues  from the year ended May 31,
1998 to the year ended May 31, 1999,  primarily  resulted from the addition of a
significant Sponsor,  with approximately 86,000 managed care vision Members, and
the increase in the level of benefits provided to a portion of the membership of
a significant Sponsor,  with approximately  100,000 affected vision cardholders.
Revenues  derived from the Company's  managed care programs have a significantly
higher cost of service than the revenues  derived  from the  Company's  discount
programs.  There were approximately  817,000 vision and 6,000 hearing Members as
of May 31, 1999,  compared to  approximately  649,000  vision and 6,000  hearing
Members as of May 31, 1998.

     Vision  provider fee revenue  remained  constant as a  percentage  of total
service revenues during the Transition Period to the corresponding period in the
prior year and from the fiscal  year ended May 31, 1998 to the fiscal year ended
May 31, 1999.

     Dental  Program  revenues  decreased  in the  Transition  Period  from  the
corresponding  period ended December 31, 1998. The decrease  primarily  resulted
from four Sponsors who collectively  lost  approximately  74,000 Members.  There
were  approximately  73,000 dental Members as of December 31, 1999,  compared to
approximately 144,000 as of May 31, 1999.

                                       15
<PAGE>
     The decrease in Dental Program revenues from the year ended May 31, 1998 to
the year ended May 31,  1999  resulted  from a Sponsor's  loss of  approximately
18,000  Members.  This loss of Members  was  partially  offset by  increases  of
Members from various other current  Sponsors.  The revenue  derived from the new
Members was less than the lost  revenue due to the  differences  in the level of
benefits provided. There were approximately 144,000 dental Members as of May 31,
1999, compared to approximately 148,000 as of May 31, 1998.

     The Company makes available to its vision  Providers a buying group program
that enables the Provider to purchase  eyeglass frames from the manufacturers at
discounts from wholesale costs. These discounted prices are generally lower than
a Provider could negotiate individually, due to the large volume of purchases of
the buying group. The Company has not actively marketed its buying group program
in the past.  Due to the recent  development  of  systems  to better  handle the
transaction  data  from  the  eyeglass  frame  manufacturers,   the  Company  is
researching the best approach in which to market the buying group.

     Cost of Services  primarily  relates to servicing  Members,  Providers  and
Sponsors under the Company's vision,  hearing,  dental and chiropractic  benefit
programs  as well as the cost of  frames  that are sold  through  the  Company's
buying  group  program as  discussed  above.  Cost of Services  decreased in the
Transition  Period as compared to the  corresponding  period ended  December 31,
1998 due to  positive  claims  experience,  reduction  of the  volume  of frames
purchases  and  efficiencies  in  operations  that the  Company is  experiencing
relating to the maturation of the benefits for its largest Sponsors.

     Cost of Services  continued  to decrease as a percentage  of total  service
revenues  in the year ended May 31,  1999 as  compared  to the two prior  fiscal
years. This is due to the efficiencies of scale that the Company is experiencing
as its Total Service Revenues and Member base continue to grow.

     General and  Administrative  Expenses increased in the Transition Period as
compared to the  corresponding  period ending December 31, 1998 due to increases
in depreciation  and  amortization  related to the Company's new systems and the
increases in the cash  payments  under the  Company's  Management  Agreement and
Investment Advisor Agreement.

     General and  Administrative  Expenses  decreased as a  percentage  of total
service  revenues  in the year ended May 31,  1999 as  compared to the two prior
fiscal  years.  This is due to the  efficiencies  of scale  that the  Company is
experiencing  as its Total  Service  Revenues and Member base  continue to grow.
Included in General and Administrative  Expense for the year ended May 31, 1998,
is $142,000 of legal and  professional  fees  directly  related to the Company's
Offer to Exchange Series 2 Preferred shares for Series A Preferred shares.

                                       16
<PAGE>
     Selling and marketing expenses include marketing fees, broker  commissions,
employee sales and marketing  salaries and related  expenses,  travel related to
the Company's  sales  activities  and an allocation of other  overhead  expenses
relating to the Company's sales and marketing  functions.  Selling and marketing
expenses were  consistent as a percentage of total service  revenues  during the
Transition  Period as compared to the  corresponding  period ended  December 31,
1998.

     The  increase in selling and  marketing  expenses in the year ended May 31,
1999 as  compared  to the  prior  fiscal  year  resulted  from the  increase  of
commissions  directly related to the increase in administration fee revenue, the
addition of an experienced salesperson during September,  1998, and the increase
of travel and related  expenses to expand the Company's  markets.  A significant
amount of the Company's  marketing  activities has been outsourced to affiliated
management  consultants,  National  Health  Enterprises.  See Item 12 - "Certain
Relationships  and  Related  Transactions  -  Agreements  with  National  Health
Enterprises, Inc."

     Interest  Income was $72,316  during the  Transition  Period as compared to
$42,049 in the corresponding  period ended December 31, 1998, and is included in
non-operating  income  (expense) on the  Company's  Consolidated  Statements  of
Earnings.  Income tax expense was $86,000 for the Transition  Period.  No income
tax expense was booked for the corresponding period ended December 31, 1998.

     Non-operating  income/(expense) was $112,993 in the year ended May 31, 1999
and ($12,735) in the year ended May 31,1998.  Included in  non-operating  income
was $85,875 and $30,982 of interest  income for the years ended May 31, 1999 and
1998, respectively. Also included in the year ended May 31, 1999's non-operating
income  was  approximately  $47,000  related  to the  write-off  of  unamortized
broker's  commissions  and  accrued  rent  that  related  to the  lease  for the
Company's former principal office. The prior fiscal year's non-operating expense
includes  $25,373 for the write-off of virtually all of the  unamortized  moving
expenses related to the Company's previous relocation of the principal office.

     During the  Transition  Period  the  Company  changed  its  methodology  of
accounting for cost of services provided in connection with the Company's vision
program that resulted in a change in  accounting.  The change in method has been
reflected  as a change in  accounting  principle on the  Company's  Consolidated
Statements  of  Earnings  and has  resulted  in a net  increase  to  earnings of
$470,000.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash and cash  equivalents  decreased by $115,603  during the
transition  period  from  $2,599,342  as of May  31,  1999 to  $2,483,739  as of
December 31, 1999. During the Transition Period the Company  established two (2)
$100,000  letters of credit;  one related to Avesis  Reinsurance,  Inc.  and one
related to the Avesis  Advantage  Vision  Plan.  The $200,000 is included on the
Company's  Balance  Sheet in Deposits  and other  assets.  Cash  provided by the
Company's operations funded the repurchases of stock,  payments of dividends and
purchases of property and equipment. Current cash on hand and cash provided from

                                       17
<PAGE>
operations  are  expected  to allow the  Company to sustain  operations  for the
foreseeable future.

     On May 31, 1999, the Company's cash and cash  equivalents  were $2,599,342,
compared  to  $993,610  as of May 31,  1998.  The  increase  of  $1,605,732  was
primarily  due  to  the  Company's   profitability,   coupled  with  the  timely
collections of accounts  receivable and the favorable timing of vendor and claim
payments.  The Company also  received  cash of  $1,228,657  from the exercise of
stock options by members of the Board of Directors, which was offset by $714,016
for repurchases of capital stock throughout the year.

     The Company is party to a revolving  credit  facility  for an amount not to
exceed  $100,000.  The credit facility allows the Company  flexibility to better
manage its cash  liquidity.  To date,  the  Company has never drawn funds on the
credit facility.

     As of December  31,  1999,  the Company had  $679,649 of Accounts  Payable,
compared to $1,364,586 as of May 31, 1999 and $1,106,165 as of May 31, 1998. The
fluctuations are predominately due to claims reserves of $489,814 as of December
31,  1999,  $1,082,072  as of May 31,  1999  and  $786,052  as of May 31,  1998,
included in Accounts  Payable.  The  reserves  are for incurred but not reported
claim  reimbursements  to  Providers  who  participate  in certain  managed care
programs.  As mentioned above, the Company changed its methodology of accounting
for cost of services  provided in connection  with the Company's  vision program
during the  transition  period.  The change of accounting  method  resulted in a
decrease of claims  reserves of $470,000.  The Company  believes this reserve is
adequate.

     The Company expects to pay dividends of approximately $46,000 on the Series
A Shares to holders of record on May 31, 2000.

YEAR 2000 COMPLIANCE

     The Company so far has  experienced  no disruptions in the operation of its
internal information systems during the transition to the year 2000. The Company
is not aware  that any of its  vendors or clients  experienced  any  disruptions
during  their  transition  to the year 2000 or that there has been any year 2000
problems  with its services  provided.  The Company will continue to monitor the
transition  to year 2000 and will act  promptly  to resolve  any  problems  that
occur.  If  the  Company  or any  third  parties  with  which  it  has  business
relationships  experience problems related to the year 2000 transition that have
not yet been discovered, it could have a material adverse impact on the Company.

ITEM 7. FINANCIAL STATEMENTS

     Financial Statements appear commencing at page F-1 immediately hereafter.

                                       18
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

                        Consolidated Financial Statements

                       December 31, 1999 and May 31, 1999

                   (With Independent Auditors' Report Thereon)
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Avesis Incorporated:

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Avesis
Incorporated  and subsidiaries as of December 31, 1999 and May 31, 1999, and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for the Transition Period ended December 31, 1999 and each of the years in
the two-year period ended May 31, 1999. These consolidated  financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  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 consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Avesis Incorporated
and subsidiaries at December 31, 1999 and May 31, 1999, and the results of their
operations  and their cash flows for the  Transition  Period ended  December 31,
1999 and  each of the  years in the  two-year  period  ended  May 31,  1999,  in
conformity with generally accepted accounting principles.

As discussed in note 1 to the  consolidated  financial  statements,  the Company
changed its method of accounting for the cost of services provided in connection
with the vision program that resulted in a change in accounting.


Phoenix, Arizona
March 24, 2000

                                      F-1
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                           Consolidated Balance Sheets

                       December 31, 1999 and May 31, 1999

<TABLE>
<CAPTION>
                                                                                              December 31,       May 31,
                                     ASSETS                                                      1999             1999
                                                                                             ------------     -----------
<S>                                                                                          <C>                <C>
Current assets:
    Cash and cash equivalents                                                                 $  2,483,739      2,599,342
    Accounts receivable, net                                                                       301,048        341,005
    Prepaid expenses and other                                                                     177,100        256,901
                                                                                              ------------    -----------

               Total current assets                                                              2,961,887      3,197,248

Property and equipment, net                                                                        511,604        466,088
Deposits and other assets                                                                          432,508        233,919
                                                                                              ------------    -----------
               Total assets                                                                   $  3,905,999      3,897,255
                                                                                              ============    ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                                            $    679,649      1,364,586
  Current installments of obligations
    under capital lease                                                                             10,288         10,288
  Accrued expenses:
    Compensation                                                                                    43,642         75,232
    Other                                                                                           16,096         32,709
  Dividends payable                                                                                     --         50,821
  Deferred income                                                                                   14,064         12,202
                                                                                              ------------    -----------

    Total current liabilities                                                                      763,739      1,545,838

  Obligations under capital lease, excluding
    current installments                                                                            13,614         20,368
                                                                                              ------------    -----------

               Total liabilities                                                                   777,353      1,566,206
                                                                                              ------------    -----------

Stockholders' equity:
  Preferred stock, $.01 par value, authorized 12,000,000 shares: $3.75 Class A, senior
   nonvoting cumulative convertible preferred stock, Series A, $0.01 par value;
   authorized 1,000,000 shares;  272,160 and 301,160 issued and outstanding at
   December 31 and May 31, 1999, respectively (liquidation preference of $3.75 per share)            2,722          3,012
  $10 Class A, nonvoting cumulative convertible preferred stock, Series 2, $.01 par value;
   authorized 1,000,000 shares; 5,000 and 6,000 shares issued and outstanding at December 31
   and and May 31, 1999, respectively (liquidation preference of $10 per share) and $32,625
   and $35,100 of dividends in arrears at $6.53 and $5.85 per share at December 31, and
   May 31, 1999, respectively; dividends accrue at $.225 per share each calendar quarter                50             60
  Common stock of $.01 par value, authorized 20,000,000 shares; 7,250,297 and 7,356,297
   shares issued and outstanding at December 31 and May 31, 1999, respectively                      72,503         73,563
  Additional paid-in capital                                                                    10,265,360     10,461,420
  Accumulated deficit                                                                           (7,211,989)    (8,207,006)
                                                                                              ------------    -----------
             Total stockholders' equity                                                          3,128,646      2,331,049

Commitments and contingencies
  (notes 4, 10, 11, 12, 13 and 14)
                                                                                              ------------    -----------
                                                                                              $  3,905,999      3,897,255
                                                                                              ============    ===========
</TABLE>
See accompanying notes to consolidated financial statements.

                                      F-2                            (Continued)
<PAGE>
               AVESIS INCORPORATED AND SUBSIDIARIES

               Consolidated Statements of Earnings
Transition Period ended December 31, 1999 and years ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                      Transition
                                                                                     period ended         Year ended May 31,
                                                                                     December 31,     --------------------------
                                                                                         1999            1999           1998
                                                                                     ------------     -----------     ----------
<S>                                                                                   <C>                <C>            <C>
Service revenues:
 Administration fees                                                                   $  4,719,319      8,447,735     6,550,966
 Buying group                                                                               816,420      1,607,000     1,655,298
 Provider fees                                                                               73,653        142,863       124,397
 Other                                                                                        4,762          8,869         5,970
                                                                                       ------------    -----------    ----------
  Total service revenues                                                                  5,614,154     10,206,467     8,336,631

Cost of services                                                                          3,740,468      7,131,269     6,120,416
                                                                                       ------------    -----------    ----------
  Income from services                                                                    1,873,686      3,075,198     2,216,215

General and administrative expenses                                                         674,496      1,066,390     1,121,099

Selling and marketing expenses                                                              609,573      1,102,536       768,506
                                                                                       ------------    -----------    ----------
  Income from operations                                                                    589,617        906,272       326,610
                                                                                       ------------    -----------    ----------
Non-operating income (expense):
 Interest income                                                                             72,316         85,875        30,982
 Interest expense                                                                            (1,838)        (3,960)      (19,305)
 Other                                                                                        1,743         31,078       (24,412)
                                                                                       ------------    -----------    ----------
  Total non-operating expense                                                                72,221        112,993       (12,735)
                                                                                       ------------    -----------    ----------
  Income before income taxes and cumulative effect of change in accounting principle        661,838      1,019,265       313,875

Income taxes                                                                                (86,000)       (13,000)           --
                                                                                       ------------    -----------    ----------
  Income before cumulative effect of change in accounting principle                         575,838      1,006,265       313,875

Cumulative effect of change in accounting principle, net of income taxes of $51,000         470,000             --            --
                                                                                       ------------    -----------    ----------

  Net income                                                                              1,045,838      1,006,265       313,875

Preferred stock dividends                                                                   (61,049)      (107,936)      (63,270)
                                                                                       ------------    -----------    ----------
  Net income available to common stockholders                                          $    984,789        898,329       250,605
                                                                                       ============    ===========    ==========
Basic earnings per share:
 Income before cumulative effect of change in accounting principle                     $       0.07           0.13          0.06
 Cumulative effect of change in accounting principle                                           0.06             --            --
                                                                                       ------------    -----------    ----------
  Net income                                                                           $       0.13           0.13          0.06
                                                                                       ============    ===========    ==========

Diluted earnings per share:
  Income before cumulative effect of change in accounting principle                    $       0.06           0.10          0.06
  Cumulative effect of change in accounting  principle                                         0.04             --            --
                                                                                       ------------    -----------    ----------
  Net income                                                                           $       0.10           0.10          0.06
                                                                                       ============    ===========    ==========
Weighted average common and equivalent shares outstanding - basic                         7,334,719      6,788,944     4,073,918
                                                                                       ============    ===========    ==========
Weighted average common and equivalent shares outstanding - diluted                      10,459,631      9,902,713     5,089,657
                                                                                       ============    ===========    ==========
</TABLE>
See accompanying notes to consolidated financial statements.

                                      F-3                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

Transition period ended December 31, 1999 and years ended May 31, 1999 and 1998

<TABLE>
<CAPTION>
                                Preferred Stock                                                     Total
                              --------------------    Common      Additional      Accumulated    Stockholders'
                              Series A    Series 2     Stock    Paid-in Capital     Deficit         Equity
                              --------    --------     -----    ---------------     -------         ------
<S>                           <C>          <C>        <C>          <C>           <C>               <C>
Balance, May 31, 1997          $    --      3,882      41,004       9,949,159     (9,424,610)       569,435

Repurchase of shares                --         --        (793)        (19,838)            --        (20,631)

Exchange offer (Series 2
  for Series A preferred)        3,179     (3,179)         --              --             --             --

Issuance of 250,000
  shares of common stock
  in connection with the
  Supplemental Investment
  Banking Agreement                 --         --       2,500          47,500             --         50,000

Net income                          --         --          --              --        313,875        313,875
                               -------     ------     -------     -----------     ----------     ----------
Balance, May 31, 1998            3,179        703      42,711       9,976,821     (9,110,735)       912,679

Repurchase of shares              (167)      (643)    (11,568)       (701,638)            --       (714,016)

Exercise of stock options           --         --      38,420       1,072,601             --      1,111,021

Exercise of warrants                --         --       4,000         113,636             --        117,636

Dividends declared, $.3375
    per Class A, senior
    nonvoting cumulative
    convertible preferred
    stock, Series A                 --         --          --              --       (102,536)      (102,536)

Net income                          --         --          --              --      1,006,265      1,006,265
                               -------     ------     -------     -----------     ----------     ----------
Balance, May 31, 1999            3,012         60      73,563      10,461,420     (8,207,006)     2,331,049

Repurchase of shares              (290)       (10)     (1,060)       (196,060)            --       (197,420)

Dividends declared, $.16875
  per Class A, senior
  nonvoting cumulative
  convertible preferred
  stock, Series A                   --         --          --              --        (50,821)       (50,821)

Net income                          --         --          --              --      1,045,838      1,045,838
                               -------     ------     -------     -----------     ----------     ----------
Balance, December 31, 1999     $ 2,722         50      72,503      10,265,360     (7,211,989)     3,128,646
                               =======     ======     =======     ===========     ==========     ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

Transition Period ended December 31, 1999 and years ended May 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                             Transition
                                                            Period Ended      Year Ended May 31,
                                                            December 31,    -----------------------
                                                                1999           1999          1998
                                                             -----------    ----------     --------
<S>                                                          <C>             <C>           <C>
Cash flows from operating activities:
  Net income                                                 $ 1,045,838     1,006,265     313,875
  Adjustments to reconcile net
   income to net cash provided by operating activities:
    Depreciation and amortization                                 86,333       124,538     112,071
    Cumulative effect of change in accounting principle         (521,000)           --          --
    Provision for losses of accounts receivable                       --        14,884      16,980
    Loss on disposal of fixed assets                                  --        18,245       2,124
    Common stock issued for professional services                     --            --      50,000
    Increase (decrease) in cash resulting from changes in:
        Accounts receivable                                       39,957       124,019    (156,532)
        Prepaid expenses and other                                79,801      (141,450)     (1,837)
        Deposits                                                (198,589)        9,590     (60,626)
        Accounts payable                                        (163,937)      258,421     641,788
        Deferred income                                            1,862        (4,746)     (6,284)
        Accrued rent                                                  --       (92,827)    (16,842)
        Accrued expenses                                         (48,203)       36,278     (53,125)
        Dividend payable                                              --        50,821          --
                                                             -----------    ----------    --------
  Net cash provided by operating activities                      322,062     1,404,038     841,592
                                                             -----------    ----------    --------
Cash flows from investing activities:
  Purchases of property and equipment                           (131,849)     (209,389)   (294,307)
  Proceeds from dispositions of property and equipment                --         9,745       5,000
                                                             -----------    ----------    --------
  Net cash used in investing activities                         (131,849)     (199,644)   (289,307)
                                                             -----------    ----------    --------
Cash flows from financing activities:
  Payment of dividend on preferred stock                        (101,642)     (102,536)         --
  Repayment of convertible subordinated debentures                    --            --    (189,000)
  Payments for repurchase of capital stock                      (197,420)     (714,016)    (20,631)
  Proceeds from exercise of stock options and warrants                --     1,228,657          --
  Repayment of shareholder notes payable                              --            --    (160,000)
  Principal payments under capital lease obligations              (6,754)      (10,767)     (6,579)
                                                             -----------    ----------    --------
  Net cash provided by (used in) financing activities           (305,816)      401,338    (376,210)
                                                             -----------    ----------    --------
  Net increase (decrease) in cash and cash equivalents          (115,603)    1,605,732     176,075

Cash and cash equivalents, beginning of period                 2,599,342       993,610     817,535
                                                             -----------    ----------    --------
Cash and cash equivalents, end of period                     $ 2,483,739     2,599,342     993,610
                                                             ===========    ==========    ========
Supplemental disclosures of cash flow information:
    Cash paid for interest                                   $     1,740         3,960      20,118
                                                             ===========    ==========    ========
  Equipment acquired under capital lease                     $        --            --      48,002
                                                             ===========    ==========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-5                           (Continued)
<PAGE>

                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  NATURE OF BUSINESS AND CONSOLIDATION POLICY

          Avesis  Incorporated,  a Delaware  Corporation,  and its  wholly-owned
          subsidiaries,  Avesis of  Washington,  D.C.,  a District  of  Columbia
          Corporation   and   Avesis   Reinsurance   Incorporated,   an  Arizona
          Corporation  (collectively,  the  Company),  markets  and  administers
          vision,  hearing,  dental and chiropractic programs which are designed
          to enable  participants  (members),  who are enrolled  through various
          sponsoring  organizations such as insurance  carriers,  Blue Cross and
          Blue  Shield   organizations,   corporations,   unions,   and  various
          associations  (sponsors)  to realize  savings on purchases of products
          and services through Company-organized  networks of providers, such as
          opticians,   optometrists,   ophthalmologists,   hearing  specialists,
          dentists  and  chiropractors  (providers).   The  Company  also  makes
          available to its vision  providers a buying group program that enables
          the provider to purchase  frames from the  manufacturers  at discounts
          from wholesale costs. These discounted prices are generally lower than
          a provider could  negotiate  individually,  due to the large volume of
          purchases  of the buying  group.  The  Company  receives a fee for its
          services which varies according to the volume of activity. The Company
          incorporated  Avesis  Reinsurance  Incorporated  in October  1999,  to
          enable the Company to insure risks as a life and disability reinsurer,
          thereby  maximizing the potential revenues and earnings related to its
          Programs.  The consolidated  financial statements include the accounts
          of  Avesis  Incorporated  and  its  wholly-owned   subsidiaries.   All
          significant   intercompany   balances  and   transactions   have  been
          eliminated in consolidation.

     (b)  CHANGE IN FISCAL YEAR END

          The  Company  has changed  its  year-end  from May 31 to December  31.
          Accordingly,  the Company began a new 12-month  fiscal year on January
          1, 2000. The seven-month  period  resulting from this change,  June 1,
          1999 through  December 31, 1999, is referred herein as the "Transition
          Period".

     (c)  USE OF ESTIMATES

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent  assets and liabilities as of
          the financial  statement date and the reported  amounts of revenue and
          expenses during the reporting period. Actual results could differ from
          those estimates.

     (d)  CHANGE IN ACCOUNTING PRINCIPLE

          During the Transition  Period,  the Company changed its methodology of
          accounting  for  cost of  services  provided  in  connection  with the
          Company's vision program that resulted in a change in accounting.  The
          cumulative effect of the change in the accounting method as of June 1,
          1999, is separately reported in the accompanying statement of earnings
          as the  cumulative  effect of a change in accounting  principle in the
          amount of  $470,000,  after taxes.  There was no effect on  Transition
          Period pre-tax income as a result of adopting the change in accounting
          method.

     (e)  CASH AND CASH EQUIVALENTS

          Cash and cash  equivalents  include cash on hand,  money market funds,
          and  short-term  investments  with  original  maturities of 90 days or
          less.

                                      F-6                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

     (f)  PROPERTY AND EQUIPMENT

          Property and  equipment are stated at cost and are  depreciated  using
          the straight-line  method over estimated useful lives which range from
          five to ten years.  Software is amortized  over the  estimated  useful
          life of five years.

     (g)  REVENUE RECOGNITION

          Administrative  fee revenue is  recognized  on the accrual  basis,  in
          accordance with generally accepted accounting  principles,  during the
          month that the member is  entitled to use the  benefit.  Substantially
          all  administrative fee revenue is received in the month the member is
          entitled  to use the  benefit.  Any  amounts  received  in advance are
          recorded as deferred income and recognized ratably over the membership
          period.   Buying  group   revenue  is  recognized  in  the  month  the
          merchandise is shipped to the provider. Provider fee revenue, based on
          member utilization, is recognized when the service is performed.

     (h)  DEFERRED REVENUE

          Deferred revenue  represents cash received on membership fees received
          from sponsors, as allowed under fee agreements.

     (i)  EARNINGS PER SHARE

          In  accordance  with SFAS 128,  basic EPS is computed by dividing  net
          income, after deducting the preferred stock dividends requirement,  by
          the weighted average number of shares of common stock outstanding.

          Diluted EPS  reflects  the maximum  dilution  that would  result after
          giving  effect to  dilutive  stock  options  and  warrants  and to the
          assumed conversion of all dilutive convertible securities and stock.

     (j)  INCOME TAXES

          The Company  accounts for income  taxes under the asset and  liability
          method.  Under this method,  deferred tax assets and  liabilities  are
          recognized for the estimated future tax  consequences  attributable to
          differences  between  the  financial  statement  carrying  amounts  of
          existing  assets  and  liabilities  and their  respective  tax  bases.
          Deferred tax assets and  liabilities  are measured  using  enacted tax
          rates  expected  to be in  effect  during  the  year  in  which  those
          temporary  differences  are expected to be  recovered or settled.  The
          effect on deferred tax assets and liabilities of a change in tax rates
          is  recognized  in income in the period that  includes  the  enactment
          date.

     (k)  STOCK OPTION PLAN AND WARRANTS

          All stock options and warrants are granted at the fair market value or
          greater of the underlying securities on the date of grant.

                                      F-7                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

          Prior to June 1, 1996, the Company accounted for its stock option plan
          in  accordance  with the  provisions of  Accounting  Principles  Board
          ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,  and
          related interpretations. As such, compensation expense was recorded on
          the date of grant only if the current  market price of the  underlying
          stock  exceeded  the  exercise  price.  On June 1, 1996,  the  Company
          implemented  SFAS No. 123,  ACCOUNTING FOR  STOCK-BASED  COMPENSATION,
          which permits entities to recognize as expense over the vesting period
          the  fair  value  of all  stock-based  awards  on the  date of  grant.
          Alternatively,  SFAS No. 123 also allows entities to continue to apply
          the  provisions of APB Opinion No. 25 and provide pro forma net income
          and pro forma earnings per share disclosures for employee stock option
          grants made in 1996 and  subsequent  years as if the  fair-value-based
          method  defined  in SFAS No. 123 had been  applied.  The  Company  has
          elected to continue to apply the  provisions of APB Opinion No. 25 and
          provide the pro forma disclosure provisions of SFAS No. 123.

     (l)  IMPAIRMENT OF LONG-LIVED  ASSETS AND LONG-LIVED  ASSETS TO BE DISPOSED
          OF

          The  Company  reviews  long-lived  assets  and  certain   identifiable
          intangibles for impairment whenever events or changes in circumstances
          indicate that the carrying  amount of an asset may not be recoverable.
          Recoverability  of  assets  to be  held  and  used  is  measured  by a
          comparison of the carrying  amount of an asset to future  undiscounted
          cash flows  expected to be generated by the asset.  If such assets are
          considered to be impaired, the impairment to be recognized is measured
          by the amount by which the carrying  amount of the assets  exceeds the
          fair value of the assets. Assets to be disposed of are reported at the
          lower of the carrying amount or fair value less costs to sell.

     (m)  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The carrying  amount of cash and cash  equivalents  approximated  fair
          value because their maturity is generally less than three months.  The
          fair value of  accounts  receivable,  accounts  payable,  and  accrued
          expenses  approximates the carrying value due to the short-term nature
          of these instruments.

     (n)  COMPREHENSIVE INCOME

          On  June  1,  1998,  the  Company  adopted  SFAS  No.  130,  REPORTING
          COMPREHENSIVE INCOME. SFAS 130 establishes standards for reporting and
          presentation of comprehensive  income and its components in a full set
          of financial  statements.  Comprehensive income consists of net income
          and net  unrealized  gains  (losses) on securities and does not affect
          the Company's  consolidated  financial  statements  for the Transition
          Period and the years ended May 31, 1999 and 1998.

     (o)  SEGMENT REPORTING

          The Company  has one  operating  business  segment  which  markets and
          administers vision, hearing, dental and chiropractic programs.

     (p)  RECLASSIFICATION

          Certain  reclassifications have been made in the May 31, 1999 and 1998
          consolidated  statement  of  cash  flows  to  conform  to the  current
          period's presentation.

                                      F-8                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

(2)  ACCOUNTS RECEIVABLE

     Accounts receivable consists of:

                                                    December 31,     May 31,
                                                       1999           1999
                                                     ---------      --------
Trade accounts receivable                            $ 329,309       382,038
Less allowance for doubtful accounts                   (28,261)      (41,033)
                                                     ---------      --------
                                                     $ 301,048       341,005
                                                     =========      ========

(3)  PROPERTY AND EQUIPMENT

     Property and equipment consists of:

                                                    December 31,     May 31,
                                                       1999           1999
                                                     ---------      --------

Furniture and fixtures                              $  267,946       267,946
Equipment                                              838,346       805,197
Software                                               469,186       370,486
                                                    ----------     ---------
                                                     1,575,478     1,443,629
Less accumulated depreciation and amortization       1,063,874       977,541
                                                    ----------     ---------
                                                    $  511,604       466,088
                                                    ==========     =========

(4)  LEASES

     The Company leases office space under an agreement which expires  September
     30, 2002. Until October 1997, the Company  maintained its executive offices
     at a different  location.  The lease agreement for this location was set to
     expire on September 30, 2000. On October 29, 1996, the Company entered into
     an agreement to sublease the space until the  expiration  of the  Company's
     lease  agreement.  On February  24,  1999,  the Company was released by the
     landlord  from the lease  agreement  and by the lessee  from the  sub-lease
     agreement covering the Company's former principal office.

     On June 3, 1999,  the Company  entered into a lease  agreement with KA Real
     Estate Associates,  LLC, for office space in Owings Mills,  Maryland.  This
     lease expires in November  2004. The Company paid $3,060 in rent during the
     Transition Period.

     The  Company  also  leases   equipment  under  long-term   operating  lease
     agreements.  For the Transition Period and the years ended May 31, 1999 and
     1998,  rent expense for all  operating  leases was  $136,594,  $185,785 and
     $159,224, respectively. For the years ended May 31, 1999 and 1998, sublease
     rent expense was $169,426 and $159,623,  respectively,  and sublease rental
     income was $168,071 and $161,720, respectively.

     The Company is obligated  under one capital lease for  telephone  equipment
     that expires in October  2001.  As of December 31, 1999 the gross amount of
     equipment and  accumulated  depreciation  recorded under this capital lease

                                      F-9                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

     was $48,002 and $21,600, respectively. At May 31, 1999, the gross amount of
     equipment and  accumulated  depreciation  recorded under this capital lease
     was $48,002 and $16,000, respectively.

     The Company records rent expense using the  straight-line  method.  For the
     lease that expires September 30, 2002, there is no difference  between rent
     expense and actual rent paid.

     Future  minimum  lease  payments for capital  lease  payments and operating
     leases are as follows:

                                                            Capital    Operating
                                                             Lease       Leases
                                                             -----       ------
      Years ending December 31:
      2000                                                  $14,731     $208,069
      2001                                                   11,049      198,919
      2002                                                       --      164,281
      2003                                                       --       54,708
      2004                                                       --       32,778
      Thereafter                                                 --       12,394
                                                            -------     --------
Total future minimum lease payments                          25,780     $671,149
                                                                        ========

      Less amount representing interest (at 10.4%)            1,878
                                                            -------
      Present value of net minimum lease payments            23,902

      Less current installments of obligations under
        capital lease                                        10,288
                                                            -------
      Obligations under capital lease, excluding current
        installments                                        $13,614
                                                            =======

(5)  INCOME TAXES

     For the Transition  Period and year ended May 31, 1999,  income tax expense
     amounted to $86,000 and  $13,000,  respectively.  No income tax benefit was
     recorded for the year ended May 31, 1998. This was due to the establishment
     of a 100%  valuation  allowance  against the Company's  deferred tax assets
     because of the uncertainty surrounding the Company's ability to realize its
     net operating loss carryforwards.

     Components of income tax expense for the  Transition  Period ended December
     31, 1999 and the year ended May 31, 1999 include:

                                      Current   Deferred      Total
                                      -------   --------      -----
        December 31, 1999:
          Federal                     $ 4,246        --        4,246
          State                        81,754        --       81,754
                                      -------    ------       ------
                                      $86,000        --       86,000
                                      =======    ======       ======

                                      Current   Deferred      Total
                                      -------   --------      -----
        May 31, 1999:
          Federal                     $13,000        --       13,000
          State                            --        --           --
                                      -------    ------       ------
                                      $13,000        --       13,000
                                      =======    ======       ======

     The provision for income taxes differs from the amount computed by applying
     the statutory  federal income tax rate to income before taxes.  The sources
     and tax  effects of the  differences  for the  Transition  Period and years
     ended May 31, 1999 and 1998 are as follows:

                                                         May 31,
                                 December 31,    ----------------------
                                     1999          1999          1998
                                  ---------      --------      --------
Computed "expected" federal
  income tax expense              $ 225,025       346,550        80,325
Change in valuation allowance      (261,710)     (350,117)     (129,660)
State taxes                         116,290            --            --
Other                                 6,395        16,567        49,335
                                  ---------      --------      --------

                                  $  86,000        13,000            --
                                  =========      ========      ========

                                      F-10                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

     The tax  effects of  temporary  differences  that give rise to  significant
     portions of deferred tax assets and liabilities are as follows:

     Deferred tax assets:
         Net operating loss carryforwards (NOL)     $ 1,952,633
         Accrued expenses and other                      42,650
         Property and equipment                         (30,308)
         Valuation allowance                         (1,964,975)
                                                    -----------
                   Net deferred tax assets          $        --
                                                    ===========

     Management  estimates  that it is more  likely  than  not  that it will not
     realize a  substantial  portion of the benefits of its deferred tax assets.
     Accordingly,  it has  established  a valuation  allowance  to reflect  this
     uncertainty.  The net change in the valuation  allowance for the Transition
     Period and years ended May 31,  1999 and  1998 was a decrease of  $134,312,
     $290,868  and  $361,945,  respectively.  The  Transition  Period  change in
     valuation  allowance is the net effect of a $332,655 increase from a change
     in tax rate, a current year benefit of $261,710  resulting from utilization
     of  federal  NOLs and the  effect of the  cumulative  change in  accounting
     principle of $205,257.

     The Company's federal NOLs of approximately  $5,553,000 expire between 2004
     and 2013.

(6)  COMMON STOCK

     During the Transition  Period,  the Company  repurchased  106,000 shares of
     common stock for prices ranging from $0.43 to $0.50 per share, 1,000 shares
     of Class A, nonvoting cumulative convertible preferred stock, Series 2, for
     a price of $3.25 per share and 29,000  shares of Class A, senior  nonvoting
     cumulative  convertible preferred stock, Series A, for a price of $5.00 per
     share. Subsequent to the repurchases, the Company retired these shares.

     During the year  ended May 31,  1999,  the  Company  repurchased  1,156,829
     shares of common  stock for prices  ranging  from $0.23 to $0.43 per share,
     64,300 shares of Class A, nonvoting cumulative convertible preferred stock,
     Series 2, for a price of $3 per share and 16,720  shares of Class A, senior
     nonvoting  cumulative  convertible  preferred  stock,  Series A, for prices
     ranging from $2.63 to $3.81 per share.  Subsequent to the  repurchases, the
     Company retired these shares.

     During the year ended May 31, 1998, the Company  repurchased  79,294 shares
     of  common  stock  for  prices  ranging  from  $0.25  to $0.27  per  share.
     Subsequent to the repurchases, the Company retired these shares.

                                      F-11                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

(7)  EARNINGS PER SHARE

     A summary of the  reconciliation  from basic  earnings per share to diluted
     earnings per share for the  Transition  Period and years ended May 31, 1999
     and 1998 follows:

<TABLE>
<CAPTION>
                                                                                    May 31,
                                                        December 31,     ---------------------------
                                                           1999              1999            1998
                                                        ------------      ----------      ----------
<S>                                                    <C>               <C>              <C>
Income before cumulative effect of change in
    accounting principle                               $    575,838      1,006,265        313,875
Less:  preferred stock dividends                            (61,049)      (107,936)       (63,270)
                                                       ------------     ----------     ----------

Income before cumulative effect of change in
    accounting principle available to common
    stockholders                                       $    514,789        898,329        250,605
                                                       ============     ==========     ==========


Basic EPS - weighted average shares outstanding           7,334,719      6,788,944      4,073,918
                                                       ============     ==========     ==========

Basic earnings per share - before cumulative effect
    of change in accounting principle                  $       0.07           0.13           0.06
                                                       ============     ==========     ==========


Basic EPS - weighted average shares outstanding           7,334,719      6,788,944      4,073,918

Effect of diluted securities:
    Convertible debentures                                       --             --         19,162
    Convertible preferred stock                           2,976,927      3,113,769        996,577
    Employee stock options                                  147,985             --             --
                                                       ------------     ----------     ----------


Dilutive EPS - weighted average shares outstanding       10,459,631      9,902,713      5,089,657

Net earnings                                                575,838      1,006,265        313,875
Interest expense on non-CSE debt                                 --             --          8,978
                                                       ------------     ----------     ----------
                                                            575,838      1,006,265        322,853

Diluted earnings per share                             $       0.06           0.10           0.06
                                                       ============     ==========     ==========
</TABLE>

                                      F-12                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

(8)  STOCK OPTION PLANS AND WARRANTS

     In 1993 the Company  adopted a stock  option plan (the  "Plan").  The stock
     option plan sets aside 600,000 shares of common stock (including  incentive
     qualified and non-qualified  stock options) to be granted to employees at a
     price  not  less  than the fair  market  value of the  stock at the date of
     grant.  The vesting  provisions are determined by the Board of Directors at
     the dates of grant.  At December  31, 1999,  there were  220,000  incentive
     options  outstanding  under this plan (of which 173,324 were exercisable at
     $0.48) and 120,000  non-qualified  options  outstanding under this plan (of
     which  110,000 were  exercisable  at prices  ranging from $.40 to $1.00 per
     share). At May 31, 1999, there were 170,000  incentive options  outstanding
     under this plan (of which  113,333 were  exercisable  at $0.48) and 110,000
     nonqualified  options  outstanding  under this plan  exercisable  at prices
     ranging from $.40 -$1.00 per share.

     In connection  with the Long-Term  Management  Agreement,  National  Health
     Enterprises, Inc. of Owings Mills, Maryland (NHE) received ten-year options
     to purchase up to 4,400,000 shares of the Company's  common stock.  Options
     to purchase  1,400,000  shares at an exercise  price of $.40 per share were
     vested at  inception,  and the remaining  options to purchase  shares at an
     exercise  price of $.48 per share vested on December 5, 1994, in connection
     with a Board of Directors resolution. NHE transferred all of the options in
     March 1993 to certain  individuals  affiliated with NHE. Effective December
     5, 1994, these individuals collectively transferred an aggregate of 125,000
     of the options exercisable at $.48 per share to Richter & Co., Inc.

     On July 30, 1998, the Company's Board of Directors  approved a modification
     providing all outstanding  stock option and warrant holders the opportunity
     to exercise any or all of their vested options and warrants at a discounted
     exercise price from their original grant,  during the period from August 1,
     1998 to August 31, 1998. The discounted price was calculated by discounting
     the stated  exercise price of each stock option or warrant by 10% per annum
     from the  expiration  date back to August 1998, and rounding the calculated
     price  to the  nearest  whole  cent.  The  discounted  price in no case was
     allowed to be less than the prevailing market price of the Company's common
     stock at the  time of  exercise  of the  options,  defined  as the high bid
     price, and rounded to the nearest whole cent. During August 1998, 3,842,000
     options  were  exercised at prices  ranging  between  $0.26 and $0.31.  The
     modification  expired  on August  31,  1998 and all terms  returned  to the
     original exercise terms for all unexercised stock options and warrants.

                                      F-13                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

A summary of stock option activity for the Transition Period and years ended May
31, 1999 and 1998 follows:


                                           Options         Price Per Option
                                           -------         ----------------
Balance outstanding, May 31, 1997         4,710,000
Options granted                             180,000         $   0.48
Options exercised                                --
Options canceled                                 --
                                          ---------

Balance outstanding, May 31, 1998         4,890,000
Options granted                                  --
Options exercised                         3,842,000         $0.26 - 0.31
Options canceled                             10,000         $   0.48
                                          ---------

Balance outstanding, May 31, 1999         1,038,000
Options granted                              60,000         $0.48 - 0.60
Options exercised                                --
Options canceled                                 --
                                          ---------

Balance outstanding, December 31, 1999    1,098,000
                                          =========

As of  December  31,  1999  and May 31,  1999  and  1998,  options  to  purchase
1,041,334,  981,333 and 4,770,000 shares,  respectively,  at prices ranging from
$.40 to $1.00 were exercisable.

A summary  of stock  options  for common  stock  granted at  December  31,  1999
follows:

                  Options Outstanding                      Options Exercisable
-----------------------------------------------------   ------------------------
                 Number        Weighted                    Number
               Outstanding      Average      Weighted    Exercisable   Weighted
Range of           At         Remaining      Average         At         Average
Exercise       December 31,   Contractual    Exercise    December 31,   Exercise
 Price            1999           Life         Price         1999         Price
 -----            ----           ----         -----          ----        -----
$   0.40          100,000         3.3         $ 0.40       100,000      $ 0.40
$   0.48          978,000         4.3         $ 0.48       931,334      $ 0.48
$0.6 - $1.00       20,000         8.4         $ 0.80        10,000      $ 1.00
                ---------                     ------     ---------      ------
$0.4 - $1.00    1,098,000                     $ 0.48     1,041,334      $ 0.48
                =========                     ======     =========      ======

                                      F-14                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

The weighted  average fair value at date of grant for options granted during the
Transition  Period  and the  year  ended  May 31,  1998  was  $0.18  and  $0.06,
respectively.  There were no options granted during the year ended May 31, 1999.
The fair  value of each  option  was  estimated  on the date of grant  using the
Black-Scholes pricing model with the following assumptions:

                                                      May 31,
                                   December 31,  -----------------
                                     1999         1999        1998
                                     ----         ----        ----
        Dividend yield             $     0%          0%          0%
        Expected volatility          54.10%      54.92%      57.98%
        Risk-free interest rate       6.28%       8.00%       8.00%
        Forfeiture rate                  0           0           0
        Expected term in years           6           6           6

The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plan.  Accordingly,  no  compensation  cost has been  recognized for the
Plan. Had compensation cost for the Company's stock-based compensation plan been
determined  consistent  with FASB  Statement  No. 123, the  Company's net income
would have been reduced to the pro forma amounts indicated below:

                                                  May 31,
                           December 31,  -----------------------
                             1999           1999            1998
                             ----           ----            ----
Net income:
    As reported          $ 1,045,838       1,006,265       313,875
    Pro forma              1,042,271       1,003,622       305,633

Earnings per share:
    Basic:
      As reported                .13             .13           .06
      Pro forma                  .13             .13           .06

Diluted:
    As reported                  .10             .10           .06
    Pro forma                    .10             .10           .06

The management  agreement discussed above and related  transactions with NHE and
certain other  substantial  transactions  were structured and negotiated for the
Company by Richter & Co., Inc. (RCI), a New York investment  banking firm, whose
principal,  William L. Richter, is a member of the Company's Board of Directors.
RCI received  cash  consideration  of $50,000 and ten-year  warrants to purchase
400,000  shares of common stock.  160,000 of these warrants had been assigned to
William L. Richter.  In August 1998, RCI and William L. Richter  exercised their
warrants at exercise prices of $.26 and $.31.

                                      F-15                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

(9)  PREFERRED STOCK

     The  Company  has  authorized  1,000,000  shares of $10 Class A,  Nonvoting
     Cumulative Convertible Preferred Stock, Series 2 (the Series 2 Shares) with
     a par value of $.01 per share and  quarterly  dividends at the fixed annual
     rate of $.90 per share.  The Series 2 Shares are  convertible at the option
     of the holder into common stock of the Company at $4.00 per share,  subject
     to adjustment under certain conditions.  There is a liquidation  preference
     which entitles holders to receive, out of the assets of the Company, $10.00
     per share plus all  accrued  and unpaid  dividends,  before any amounts are
     distributed to the holders of common stock.

     During  fiscal 1998 the Company  completed an Exchange  Offer which offered
     one share of its Class A, Senior Nonvoting Cumulative Convertible Preferred
     Stock,  Series A, par value $.01 ("Series A Shares"),  for each outstanding
     share of the Class A, Nonvoting  Cumulative  Convertible  Preferred  Stock,
     Series 2, par value $.01 of the  Company.  The purpose of this offer was to
     eliminate or significantly reduce the number of Series 2 Shares outstanding
     including  the  related  dividend  arrearage  and to adjust  the  Company's
     capital structure.

     The Exchange  Offer expired on May 27, 1998,  and resulted in the tendering
     of 317,880  (approximately  82%) of the 388,180 outstanding Series 2 Shares
     for the Series A Shares.

     As of  December  31,  1999 and May 31,  1999,  there  were 5,000 and 6,000,
     respectively,  Series 2 Shares  outstanding,  with each share  entitled  to
     receive a cumulative  dividend at an annual rate of 9% of the face value of
     $10.00  ($0.90 per share).  As of December 31 and May 31, 1999,  there were
     272,160 and 301,160,  respectively,  Series A Shares outstanding, with each
     share  entitled  to  receive a  cumulative  dividend  at an annual  rate of
     $0.3375 per share paid  semi-annually.  The Series A Share  dividends shall
     accrue through the last day of each semi-annual period and shall be payable
     to holders of record on the last day of such semi-annual period.

     The  Company  has not paid any  dividends  on its  common  stock  since its
     inception  and does not expect to pay  dividends on its common stock at any
     time for the foreseeable  future.  The Series A Shares are senior in rights
     to annual  dividends  and  redemptions  to the  Series 2 Shares.  Under the
     Certificate  of  Designation  for the Series A Shares,  no dividends may be
     paid on the Series 2 Shares or the common  stock  until the Series A shares
     have received all current and cumulative  dividends and the earliest of any
     of the following events occur (i) every outstanding Series A Share has been
     either  redeemed or  converted,  (ii) any time after May 31, 2005, or (iii)
     the first day of any fiscal year following two consecutive  fiscal years in
     which the  Company  had net income and net cash flow in each year in excess
     of $1.5  million and the  Company's  tangible  net equity at the end of the
     second  fiscal  year is at least $5  million.  Moreover,  the  terms of the
     Series 2 Shares  provide that as long as any of the Series 2 Shares  remain
     outstanding,  the Company may not declare or pay any  dividend,  whether in
     cash or  property,  on the  common  stock of the  Company  unless  the full
     dividends on the Series 2 Shares for all past dividend periods and the then
     current  dividend  period  shall have been paid or  declared  and a sum set
     aside for payment thereof.

                                      F-16                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

(10) CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

     The  Company's  programs  and services  are offered  throughout  the United
     States. Most of the Company's customers are located in the Midwest,  Texas,
     the Southwest  states and the D.C.  metropolitan  area.  For the Transition
     Period and year ended May 31, 1999,  two major  customers  provided 47% and
     15% and 48% and 14% of total service revenues,  respectively.  For the year
     ended May 31,  1998,  three major  customers  provided  28%, 15% and 10% of
     total service revenues.

(11) LONG-TERM MANAGEMENT AND MARKETING AGREEMENT

     In March 1993, the Company  entered into a Long-Term  Management  Agreement
     with NHE,  which  provides  for NHE to manage all aspects of the  Company's
     business.  The  initial  term  of the  agreement  was  five  years  and was
     renewable.  NHE also received options to purchase up to 4,400,000 shares of
     the Company's  common stock.  In December  1997,  the Company  renewed this
     agreement  for a term of five years with  payments of $250,000 per year due
     to NHE. In May 1999,  the Company  increased the payments,  effective  June
     1999, to $300,000 per year. For the Transition Period, payments of $175,000
     were made under this agreement.

     Additionally, the Company entered into a Marketing Representation Agreement
     with NHE,  whereby  NHE is  entitled  to  receive a  commission  of 7.5% of
     enrollment  fees  from  sponsor  contracts  generated  by  NHE,  or 2.5% of
     enrollment fees where marketing assistance is rendered.  For the Transition
     Period  and  years  ended  May  31,  1999  and  1998,   the  Company   paid
     approximately $155,167, $310,000 and $211,000,  respectively,  to NHE under
     the terms of this agreement.

(12) RELATED PARTY TRANSACTIONS

     The  Company  has  contracted  with NCS to lease its  computer  system  for
     approximately  $1,000 per month.  The Company paid $7,000 of computer lease
     charges for the Transition Period and $12,000 of computer lease charges for
     the years ended May 31, 1999 and 1998.

     The Company entered into a Registration Rights Agreement (the "Registration
     Rights Agreement") effective March 18, 1993 with NHE, and two shareholders.
     The Registration  Rights Agreement  provides two demand  registrations with
     respect to 100,000  shares  previously  purchased  and the shares  issuable
     pursuant  to  the  ten-year  options  discussed  in  note  8  ("Registrable
     Securities").  The first demand  registration is exercisable at the request
     of holders of at least 900,000 Registrable Securities after the exercise by
     NHE and/or its transferees of at least 900,000  options.  The second demand
     registration is exercisable at the request of holders of at least 1,000,000
     options after  completion of a fiscal year in which the Company has profits
     of at least  $1,000,000.  The  Registration  Rights Agreement also provides
     piggyback  registration rights with respect to registrations in which other
     selling stockholders are participating. The Company is obligated to pay the
     offering  expenses  of each  such  registration,  except  for  the  selling
     stockholders'  pro rata portion of underwriting  discounts and commissions.
     No  precise  prediction  can be  made  of the  effect,  if  any,  that  the
     availability of shares  pursuant to  registrations  under the  Registration
     Rights  Agreement  will have on the market  price  prevailing  from time to
     time.  Nevertheless,  sales of  substantial  amounts  of the  common  stock
     pursuant to such  registrations  could adversely affect  prevailing  market
     prices.

                                      F-17                           (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                        Consolidated Financial Statements

                    Transition Period ended December 31, 1999
                      and years ended May 31, 1999 and 1998

     Effective January 18, 1995, the Company retained RCI as exclusive financial
     advisor and placement agent.  RCI's fees under this arrangement are payable
     only upon  completion  of defined  transactions  and,  in such  event,  are
     calculated  upon the basis of a percentage of the  transaction  value.  The
     agreement is terminable  by the Company upon 90 days notice,  provided that
     RCI is entitled to receive certain fees for two years following termination
     in the event a transaction  is concluded  with an entity  introduced to the
     Company by RCI.

     On April 23,  1998,  the Company  entered  into a  Supplemental  Investment
     Banking  Agreement with RCI for investment  banking services related to the
     Exchange  Offer  for the  Company's  Series 2  Shares.  RCI  received  cash
     consideration  of $50,000 and 250,000 shares of the Company's  common stock
     valued at $0.20 per share.

     RCI provided substantial ongoing financial management and other services to
     the Company at no charge through May 1999. In May 1999, the Company's Board
     of Directors approved a cash payment to RCI at an annual rate of $30,000 to
     commence in June 1999. For the Transition Period,  payments of $17,500 were
     made under this  agreement.  Effective  November  6, 1999,  the  investment
     banking agreement was assigned to RCI's parent company,  Richter Investment
     Corp.,  and  modified  so as to delete  any  functions,  and any  attendant
     compensation,   providable  only  by  broker-dealers.  In  the  opinion  of
     management,  the terms of the Company's  arrangements with RCI, NHE and NCS
     taken as a whole  are at  least as  favorable  to the  Company  as could be
     obtained from third parties.

     During the  Transition  Period,  the Company made  payments of $3,060 to KA
     Real Estate Associates for a lease of office space.

(13) EMPLOYEE BENEFIT PLAN

     The Company has a qualified  401(k) Plan (defined  contribution  plan). The
     plan covers  substantially all employees who have completed three months of
     service and attained age twenty-one.  Subject to limits imposed by Internal
     Revenue  Service  regulations  and other  options  retained  by the Company
     affecting participant contribution, participants may voluntarily contribute
     a percentage of their annual wages not to exceed limits  established by the
     Tax Reform Act of 1986.  Participants are immediately  vested in the amount
     of their direct contribution. For the Transition Period and years ended May
     31, 1999 and 1998, the Company did not contribute to the plan.

(14) COMMITMENTS AND CONTINGENCIES

     During the Transition Period, the Company established two letters of credit
     totaling  $200,000 at December 31, 1999. The letters of credit are included
     in  Deposits  and other  assets on the  balance  sheet and relate to Avesis
     Reinsurance, Inc. and the Avesis Advantage Vision Plan.

     The Company had  available a revolving  line of credit for an amount not to
     exceed  $100,000  which expires  October 31, 2001. The line of credit bears
     interest  at the  bank's  National  Association  Base  rate  plus 1%. As of
     December 31, 1999, the Company had not drawn on this line of credit.

                                      F-18
<PAGE>
ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

     The  following  table sets forth the names of the  directors  and executive
officers of the Company and certain biographical information relating to them.


 Name                   Age      Position(s) with Company
 ----                   ---      ------------------------
William R. Cohen         68      Co-Chairman and Director

William L. Richter       57      Co-Chairman and Director

Kenneth L. Blum, Sr.     73      Director, Former Acting President and CEO
                                   from September 1996 to May 1998

Gerald L. Cohen          55      Director

Sam Oolie                63      Director

Alan S. Cohn             44      President, CEO and Director

Kenneth L. Blum, Jr.     36      Director

Neal A. Kempler          31      Corporate Secretary,
                                   Vice President of Operations

Shannon R. Barnett       31       Controller

Joel H. Alperstein       31       Treasurer, Chief Financial Officer

                                       19
<PAGE>
     On July 30, 1998,  the Company's  Board of Directors  expanded the Board of
Directors from 5 to 7 members.  Consequently,  Alan S. Cohn and Kenneth L. Blum,
Jr. were named to the Board of  Directors to fill the two vacant seats until the
next  stockholder  meeting at which time they were re-elected as directors.  The
appointment to the Board of Messrs.  Cohn and Blum, Jr. was conditioned upon the
early exercise of their stock options.

     William R. Cohen, 68, Co-Chairman of the Board, has served as a Director of
the Company  since April 1986.  Mr.  Cohen is the  Chairman of Go Lightly  Candy
Company. Mr. Cohen has served as Chairman of American Mobile  Communications,  a
cellular  communications  company,  and has also held various positions with CFC
Associates,  a venture capital partnership,  and its predecessor  organizations.
Mr.  Cohen  serves as a lifetime  trustee of the Hospital  Center,  Orange,  New
Jersey. Mr. Cohen is not related to Gerald L. Cohen.

     William L. Richter,  57,  Co-Chairman of the Board,  has been a Director of
the  Company  since  August  1993.  Mr.  Richter has been  President  of Richter
Investment  Corp., a merchant and investment  banking firm, (or its  predecessor
organization)  for the past ten years and has been a Senior Managing Director of
Cerberus  Capital  Management,  L.P., an asset  management  organization (or its
predecessor  organizations)  since their  founding in late 1992. Mr. Richter was
Co-Chairman of Rent-A-Wreck of America,  Inc., a franchiser of automobile rental
agencies,  from  November  1989 to June 1993 and has been Vice  Chairman of that
Company since June 1993.

     Kenneth L. Blum,  Sr.,  73, has served as a Director of the  Company  since
August 1993. Mr. Blum was acting  President and Chief  Executive  Officer of the
Company from September 1996 to May 1998. Mr. Blum has been Chairman of the Board
of Rent-A-Wreck of America,  Inc., an automobile rental  franchiser,  since June
1993,  President  from June 1993 to October 1994,  and Chief  Executive  Officer
since  January 1994.  Mr. Blum has been the  President of KAB Leasing,  Inc., an
automobile  wholesaler,  since its inception  during 1998. Mr. Blum has been the
President of KAB, Inc., a management  company,  since 1990. Mr. Blum  co-founded
United HealthCare, Inc., a Baltimore, Maryland-based healthcare company, in 1974
and served as its President and Chief Executive  Officer until 1990. Since 1990,
Mr. Blum has been a management  consultant to a variety of companies,  including
National Computer Services,  Inc., a computer service bureau;  American Business
Information Systems,  Inc., a high-volume laser printing company; and Mail-Rx, a
mail-order prescription drug company. Mr. Blum is the father of Kenneth L. Blum,
Jr. and the father-in-law of Alan S. Cohn. See "Management Services Agreement."

                                       20
<PAGE>
     Gerald L. Cohen,  55, has served as a Director  of the Company  since March
1985. Mr. Cohen is a managing  director of Greenley Capital  Company,  a limited
partnership which is a New York-based  investment banking firm. Mr. Cohen is the
sole  shareholder of the general partner  (Greenley  Corp.) of Greenley  Capital
Company.  From August 1982 through April 1989, Mr. Cohen was a managing director
of Richter,  Cohen & Co., a New  York-based  investment  banking firm. Mr. Cohen
also serves as a Director of  Marketing  Systems of  America.  Mr.  Cohen is not
related to William R. Cohen.

     Sam Oolie,  63, has served as a Director of the  Company  since March 1985.
Mr. Oolie has been Chairman of NoFire Technologies, Inc., a manufacturer of fire
retardant  coatings and  textiles,  since  August 1995 and has been  Chairman of
Oolie Enterprises,  an investment  company,  since July 1985. Mr. Oolie has held
various positions with CFC Associates,  a venture capital  partnership,  and its
predecessor  companies  since  January  1984.  He was Vice  Chairman of American
Mobile  Communications,  Inc. a cellular telephone  company,  from February 1986
until  July  1989  and  Chairman  of the  Nostalgia  Network,  a  24-hour  cable
television  program service,  from April 1987 until January 1990. Mr. Oolie also
serves  as  a  Director  of  NCT  Group,  Inc.   (formerly  Noise   Cancellation
Technologies, Inc.) and Comverse Technology, Inc.

     Alan S. Cohn,  44,  became the  President and CEO of the Company as of June
1998 and a Director of the  Company as of August  1998.  Mr.  Cohn is  providing
management  services on behalf of the Company  through an arrangement  with NHE.
Mr. Cohn has been a management  consultant  for NHE and KAB, Inc. since 1993 and
1990,  respectively.  Since 1990,  Mr. Cohn has been a principal  or  management
consultant  to a variety of companies,  including  National  Computer  Services,
Inc., a computer service bureau;  American Business Information Systems, Inc., a
high-volume laser printing company; Rent-A-Wreck of America, Inc., an automobile
franchiser;  Allscripts,  Inc., formerly Physician  Dispensing Systems,  Inc., a
pharmaceutical dispensing company;  Lawphone, Inc., a prepaid legal fee company;
and Mail-Rx, a mail-order  prescription drug company. Mr. Cohn is the son-in-law
of Kenneth L. Blum,  Sr., the Company's  former acting  President and CEO, and a
member of the Board of Directors.

     Kenneth L. Blum,  Jr.,  36,  became a Director  of the Company as of August
1998.  Mr.  Blum  is  the  President,  Chief  Executive  Officer  and  the  sole
stockholder of NHE. Mr. Blum is also President and Secretary of  Rent-A-Wreck of
America,  Inc., an automobile rental franchiser,  President of National Computer
Services,  Inc., a computer service bureau,  and President of American  Business
Information  Systems,  Inc., a high-volume  laser printing  company.  Kenneth L.
Blum,  Sr., the Company's  former acting  President and CEO, and a member of the
Board of  Directors,  is the  father of Kenneth  L.  Blum,  Jr. See  "Management
Services Agreement."

                                       21
<PAGE>
     Neal  Kempler,  31, has been the  Corporate  Secretary of the Company since
June 1996,  the Vice  President of Marketing & Operations  of the Company  since
August  1996 and the  Assistant  to the  President/Director  of  Marketing  from
January 1993 until  August  1996.  Mr.  Kempler  served as Account  Executive of
National Health Enterprises,  Inc., a management  company,  from June 1990 until
January 1993.

     Shannon R. Barnett,  31, has been the Controller of the Company  (Principal
Accounting Officer) since August 1996 and was a Senior Accountant of the Company
from November 1995 until August 1996.  Ms.  Barnett was Assistant  Controller of
Quality Hotel and Marlyn Nutraceuticals,  a vitamin manufacturer, from September
1994 until  November 1995 and Staff  Accountant of General  Atlantic  Resources,
Inc., an oil and gas company, from November 1992 until June 1994.

     Joel H.  Alperstein,  31,  has  been the  Treasurer  of the  Company  since
December  1997, the Chief  Financial  Officer of the Company since December 1999
and the  Director of Finance of the Company  from  January  1997 until  December
1999.  Mr.  Alperstein  has been a management  consultant  to American  Business
Information  Systems,  Inc., a high-volume laser printing  company,  since March
1999 and Rent-A-Wreck of America, Inc., an automobile franchiser, since December
1999. Mr.  Alperstein was a  self-employed  financial  consultant from September
1996 until  December  1996.  Mr.  Alperstein  was a Manager  at Stout,  Causey &
Horning,  P.A., a full service public accounting firm, from September 1992 until
August 1996,  and a Senior  Accountant at Arthur  Andersen,  LLP, from July 1990
until  September 1992. Mr.  Alperstein has a Masters of Business  Administration
from Loyola College of Maryland and is a Certified Public Accountant.

     All  directors   will  hold  office  until  the  next  annual   meeting  of
stockholders and the election and  qualification of their  successors.  Officers
are appointed annually and serve at the pleasure of the Board of Directors.

MANAGEMENT SERVICES AGREEMENT

     Effective March 18, 1993, the Company  entered into a Management  Agreement
(the "Management Agreement") with National Health Enterprises,  Inc., a Maryland
corporation  ("NHE")  pursuant to which NHE agreed to manage  substantially  all
aspects  of the  Company's  business,  subject to  certain  limitations  and the
direction  of  the  Company's  Board  of  Directors.  See  Item  12  -  "Certain
Relationships and Related Transactions."

                                       22
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Under the securities  laws of the United States,  the Company's  directors,
its  executive  officers,  and any persons  holding more than ten percent of the
Company's  Common and  Preferred  Stock are  required  to report  their  initial
ownership of the Company's Common and Preferred Stock and any subsequent changes
in that ownership to the Securities and Exchange Commission.  Specific due dates
for these reports have been  established and the Company is required to disclose
any  failure to file by these  dates.  The  Company  believes  that all of these
filing requirements were satisfied during the Transition Period. In making these
disclosures,  the Company has relied  solely on  representations  obtained  from
certain of its former and current directors,  executive officers and ten percent
holders and/or copies of the reports that they have filed with the Commission.


ITEM 10. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

     The following table and related notes set forth  information  regarding the
     compensation awarded to, earned by or paid to the Company's Chief Executive
     Officer during the  transition  period and the years ended May 31, 1999 and
     1998. No executive  officer that was serving as an executive officer during
     the transition  period  received  salary and bonus that aggregated at least
     $100,000 for services rendered to the Company.

<TABLE>
<CAPTION>
                                                Annual Compensation             Long Term Compensation
                                                -------------------             ----------------------
                                                                                        Awards
                                                                                        ------
Name and Principal Position           Year          Salary ($)          Securities Underlying Options/SARs (#)
---------------------------           ----          ----------          --------------------------------------
<S>                                <C>                  <C>                           <C>
                                   Transition           $0
Alan S. Cohn, CEO (1)                Period                                            --
                                      1999              $0                             --

Kenneth L. Blum, Sr., Acting CEO      1998              $0                             --
</TABLE>

----------
(1)  Mr.  Cohn  became  CEO of the  Company  as of June  1,  1998.  Mr.  Cohn is
     compensated   through  the  Management   Agreement  with  National   Health
     Enterprises, Inc.

     See also Item 12 --  "Certain  Relationships  and  Related  Transactions  -
     Agreements with National Health Enterprises, Inc. -- Stock Option Grant."

                                       23
<PAGE>
EMPLOYMENT   CONTRACTS,   TERMINATION  OF  EMPLOYMENT,   AND   CHANGE-IN-CONTROL
ARRANGEMENTS

     No employment  contracts,  termination of employment,  or change-in-control
arrangements  currently exist except for the National Health  Enterprises,  Inc.
arrangement described below.

DIRECTOR COMPENSATION

     Directors are reimbursed for out-of-pocket  expenses incurred in connection
with each Board of Directors or committee meeting  attended.  Directors who also
are  employees  of the Company  are  eligible to  participate  in the  Company's
Incentive Stock Option Plan and the Company's 401(k) Plan, and all directors are
eligible  to  participate  in the  Company's  1993 Stock  Option Plan (the "1993
Plan").  Pursuant to the 1993 Plan,  options for 100,000 shares of the Company's
Common  Stock  were  granted  on April 8, 1993 to each of  directors  William R.
Cohen,  Gerald L. Cohen,  and Sam Oolie.  The exercise  price of such options is
$.40 per share, which was at least the fair market value of the Company's Common
Stock on the date of grant.  (See Item 5 - "Market for Common  Stock and Related
Stockholder  Matters - Recent Sales of  Unregistered  Securities").  Options for
25,000  shares of Common Stock were  exercisable  by each of the optionees as of
the date of grant, with the balance vesting in equal parts at the end of each of
the 10 three-month periods following the date of grant.

     During  August  1998,  William R. Cohen and Gerald L. Cohen each  exercised
their 100,000 stock options  pursuant to the reduced  pricing as approved by the
Board  of  Directors.  See  Item  5 -  "Market  for  Common  Stock  and  Related
Stockholder Matters - Recent Sales of Unregistered Securities."

                                       24
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of March 13, 2000 there were  7,250,297  shares of Common  Stock,  5,000
Series 2 Shares and 272,160  Series A Shares  outstanding.  The table below sets
forth as of March 13, 2000, certain  information  regarding the shares of Common
Stock and Series A Preferred  Stock  beneficially  owned by each director of the
Company and each named executive officer in the Summary  Compensation  table set
forth in Item 10, by all of the Company's  executive officers and directors as a
group,  and by those persons known by the Company to have owned  beneficially 5%
or more of the  outstanding  shares of Common  Stock,  which  information  as to
beneficial  ownership is based upon statements  furnished to the Company by such
persons. None of the directors or executive officers owns any Series 2 Shares.

<TABLE>
<CAPTION>
                                                     Common issuable upon conversion or exercise of:(1)
                                                      ------------------------------------------------
                                                                                           Total Common
                                Common        % of       Series A      % of                Beneficially  Percent of
Name and Address                 Stock       Common   Preferred Stock  Pref.    Options     Owned (1)    Common (2)
----------------                 -----       ------   ---------------- -----   -----------   ---------    ----------
                                                       (actual shares)
<S>                            <C>            <C>         <C>           <C>    <C>            <C>            <C>
Gerald L. Cohen*               253,359        3.5         22,274(7)     8.2          --       476,099        6.4

William R. Cohen*              161,117(4)     2.2         10,552        3.9          --       266,637        3.6

William L. Richter           1,194,620(3)    16.5         50,099       18.4          --     1,695,610(3)    21.9
C/o Richter Investment Corp.
450 Park Ave., 28th Floor
New York, NY 10022

Sam Oolie*                     220,021(5)     3.0         24,023        8.8     100,000       560,251        7.4

Kenneth L. Blum, Sr            140,000(6)     1.9          2,000        0.7          --       160,000        2.2
17133 Ericarose Street
W. Boca Raton, FL 33496

Kenneth L. Blum, Jr.         1,814,750        25.0            --         --          --     1,814,750       25.0
10324 S. Dolfield Rd.
Owings Mills, MD 21117

Alan S. Cohn                 1,804,750        24.9            --         --          --     1,804,750       24.9
10324 S. Dolfield Rd.
Owings Mills, MD 21117

All directors and            5,588,617(4)(5)  77.1       108,948       40.0     505,000     7,183,097       81.2
Executive officers as
A group (9 persons)
</TABLE>

----------
*    Business  Address:  3724 North Third Street,  Suite 300,  Phoenix,  Arizona
     85012.

                                       25
<PAGE>
(1)  Includes shares of Common Stock with respect to which the identified person
     had the right to acquire  beneficial  ownership on or within 60 days of the
     date of the above table  pursuant to the Series A Preferred or options,  as
     indicated. Each share of Series A Preferred Stock indicated in the table is
     convertible  into 10 shares of Common Stock and such shares of Common Stock
     are included in the total Common Stock beneficially owned.

(2)  The percentages shown include Common Stock actually owned as of the date of
     the above  table and  Common  Stock as to which the person had the right to
     acquire  beneficial  ownership  within 60 days of such date pursuant to the
     Series A Preferred or options, as indicated.  In calculating the percentage
     of ownership,  all shares of Common Stock which the  identified  person had
     the right to  acquire  within  60 days of the date of the  above  table are
     deemed to be  outstanding  when  computing  the  percentage of Common Stock
     owned by such person but are not deemed to be  outstanding  when  computing
     the percentage of Common Stock owned by any other person.

(3)  Includes 462,500 shares of Common Stock and shares of Common Stock issuable
     upon  conversion  of  26,183  shares of  Series A  indirectly  owned via an
     affiliated  corporation,  Richter Investment Corp.  ("RIC"),  which thereby
     beneficially  owns in its own name 724,330  shares or 9.6% of the Company's
     Common Stock. Also includes shares of Common Stock issuable upon conversion
     of 4,530 shares of Series A Preferred held via a related corporation.  Also
     includes shares of Common Stock issuable upon conversion of 2,500 shares of
     Series A  Preferred  and  15,169  shares  of  Common  Stock  held by family
     members, as to which Mr. Richter disclaims beneficial ownership.

(4)  Includes  6.67% of the 6,337  shares of common  stock and 19,412  shares of
     Series A Preferred stock held by an affiliated corporation, with respect to
     which William R. Cohen owns 6.67% of the outstanding stock.

(5)  Includes  20% of the  6,337  shares of common  stock and  19,412  shares of
     Series A Preferred stock held by an affiliated corporation, with respect to
     which Mr. Oolie owns 20% of the  outstanding  stock.  Also  includes  8,679
     shares  owned  by  Mr.  Oolie's  wife,  as to  which  Mr.  Oolie  disclaims
     beneficial ownership.
(6)      The indicated shares are held by Mr. Blum's spouse.

(7)  Includes  43.75% of the  4,530  shares  of  Series A  Preferred  held by an
     affiliated corporation.

                                       26
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

AGREEMENTS WITH NATIONAL HEALTH ENTERPRISES, INC.

     Management Agreement. On December 12, 1997 the Company's Board of Directors
agreed to extend  the term of the  Company's  Management  Agreement  with NHE to
March 18, 2003. Also, effective March 18, 1998, the Company's Board of Directors
agreed to  increase  the cash  compensation  paid to NHE  under  the  Management
Agreement  by  $50,000  per year to  $250,000  per  year.  On May 3,  1999,  the
Company's Board of Directors  agreed to increase the cash  compensation  paid to
NHE under the Management Agreement by an additional $50,000 per year to $300,000
per year. Messrs. Blum Sr., Blum Jr. and Cohn abstained from voting due to their
relationship to National Health Enterprises. The later increase became effective
as of June 1, 1999.

     Stock Option  Grant.  Pursuant to the  Management  Agreement,  on March 18,
1993, the Company  issued options (the  "Options") to NHE for the purchase of up
to  4,400,000  shares  of the  Company's  Common  Stock.  Also  pursuant  to the
Management  Agreement,  the Company entered into a Registration Rights Agreement
effective March 18, 1993 with NHE, Mr. Blum, Jr. and Mr. Cohn.

     During August 1998,  Messrs.  Blum,  Jr., Cohn and Richter (to whom NHE had
transferred  a portion  of their  options)  exercised  all of their  outstanding
options  from the March 18, 1993 Stock  Option  Grant.  See Item 5 - "Market for
Common  Stock and Related  Stockholder  Matters - Recent  Sales of  Unregistered
Securities."

     Subordinated  Promissory  Notes.  On March 18, 1993,  the Company  obtained
loans in the amount of $80,000  from each of Mr.  Blum,  Jr. and Mr.  Cohn.  The
notes were due March 18, 1998 and accrued  interest at the rate of 6% per annum,
provided that the holders could  accelerate the notes if the Company  terminated
the Management  Agreement  without cause.  Interest was payable  semiannually in
arrears,   commencing   September  18,  1993.   The  notes  were  unsecured  and
subordinated  to  the  Company's   outstanding  9  1/2%  Debentures  and  future
indebtedness  of the  Company for  borrowed  money.  The Company  paid $8,416 in
interest  under the terms of these notes during the year ended May 31, 1998.  On
March 18,  1998 the Company  paid Mr.  Blum,  Jr. and Mr.  Cohn the  outstanding
principal and accrued interest amounts on the subordinated promissory notes.

     Marketing Agreement.  Effective March 18, 1993, the Company and NHE entered
into a Marketing  Representation  Agreement (the "Marketing Agreement") pursuant
to  which  NHE is  entitled  to  receive  a  commission  equal  to 7 1/2% of the
enrollment  fees (as  defined)  from  Sponsor  contracts  generated  by NHE. The
Company  also agreed to pay NHE  commissions  equal to 2 1/2% of the  enrollment
fees  from  Sponsor  contracts  with  respect  to which NHE  provides  marketing
assistance in procuring the contract,  but does not itself  generate the initial
Sponsor contact. The term of the Marketing Agreement is coextensive with that of
the Management  Agreement.  During the Transition Period and years ended May 31,

                                       27
<PAGE>
1999 and 1998, the Company paid approximately  $155,167,  $310,000 and $211,000,
respectively,  to NHE under the Marketing  Agreement.  For the Transition Period
and years ended May 31, 1999 and 1998,  the Company paid  approximately  $9,976,
$13,446 and $8,000,  respectively,  in  reimbursable  marketing  expenses to NHE
under the Marketing Agreement.

REAL ESTATE LEASE

     On June 3, 1999,  the Company  entered into a lease  agreement with KA Real
Estate  Associates,  LLC, for office space in Owings  Mills,  Maryland.  KA Real
Estate Associates,  LLC is owned by Messrs.  Cohn and Blum, Jr. The Company paid
$3,060 in rent  during  the  Transition  Period.  See Item 2 -  "Description  of
Properties."

INVESTMENT BANKING SERVICES

     On April 23, 1998, the Company  entered into a Supplemental  Agreement with
Richter & Co.,  Inc.  ("RCI") for  Investment  Banking  services  related to the
Exchange Offer for the Company's  Series 2 Preferred  shares.  RCI received cash
consideration  of $50,000 and 250,000 shares of the Company's  Common Stock. RCI
assigned  100,000  shares of the  Company's  Common  Stock  received  under this
agreement to William L. Richter.

     On May 3, 1999, the Company's Board of Directors approved a cash payment to
Richter & Co.,  Inc. at an annual rate of $30,000 under the  Investment  Banking
Agreement.  Mr. Richter abstained from voting due to his relationship to Richter
& Co., Inc. The payment commenced as of June 1, 1999. Richter & Co., Inc. was
merged into its parent company, Richter Investment Corp., as of December 31,
1999. The Investment Banking Agreement was modified to reflect the fact that
Richter Investment Corp. is not a broker-dealer.

SOFTWARE DEVELOPMENT SERVICES

     During fiscal 1995, the Company contracted with National Computer Services,
Inc.  ("NCS") to develop software  related to the Company's  vision,  dental and
hearing  programs.  The Company did not pay any development  fees related to the
software during the transition period and the years ended May 31, 1999 and 1998.
Additionally,  the Company has contracted  with NCS to lease its computer system
for  approximately  $1,000 per month.  The Company paid $7,000 of computer lease
charges for the Transition  period and $12,000 of computer lease charges for the
years  ended May 31,  1999 and 1998.  Kenneth  L.  Blum,  Jr.,  a  Director,  is
President  and a  stockholder  of NCS and the son of Kenneth L. Blum,  Sr.,  the
former Acting President and CEO, and a Director of the Company.

                                       28
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  See  Exhibit  Index  following  the  Signatures  page  which  Index is
          incorporated herein by reference.

     (b)  Reports on Form 8-K.

     No  reports on Form 8-K were  filed  during the last  quarter of the period
covered by this report.

                                       29
<PAGE>
SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized. AVESIS INCORPORATED


Date March 29, 2000                     By: /s/ Alan S. Cohn
     ---------------                        ------------------------------------
                                            Alan S. Cohn
                                            President and Principal Executive
                                            Officer

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

Signature                        Title                              Date
---------                        -----                              ----
/s/ Alan S. Cohn                President, Principal              March 29, 2000
------------------------        Executive Officer and Director
Alan S. Cohn

/s/ Neal A. Kempler             Corporate Secretary and           March 29, 2000
----------------------          Vice President of Operations
Neal A. Kempler

/s/ Joel H. Alperstein          Treasurer and Chief Financial     March 29, 2000
------------------------        Officer (Principal Financial
Joel H. Alperstein              Officer)


/s/ Shannon R. Barnett          Controller                        March 29, 2000
-----------------------         (Principal Accounting Officer)
Shannon R. Barnett

/s/ William R. Cohen            Co-Chairman of the                March 29, 2000
----------------------          Board of Directors
William R. Cohen

/s/ William L. Richter          Co-Chairman of the                March 29, 2000
------------------------        Board of Directors
William L. Richter

/s/ Kenneth L. Blum, Sr.        Director                          March 29, 2000
------------------------
Kenneth L. Blum, Sr.

/s/ Kenneth L. Blum, Jr.        Director                          March 29, 2000
------------------------
Kenneth L. Blum, Jr.

/s/ Gerald L. Cohen             Director                          March 29, 2000
----------------------
Gerald L. Cohen

/s/ Sam Oolie                   Director                          March 29, 2000
------------------------
Sam Oolie

                                       30
<PAGE>
                               AVESIS INCORPORATED
                                  EXHIBIT INDEX
                                   FORM 10-KSB
                FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
EXHIBIT NO.     EXHIBIT                                            INCORPORATED BY REFERENCE FROM THE:
-----------     -------                                            -----------------------------------
<S>            <C>                                                 <C>
    3.1         Amended and Restated Certificate of                Company's Registration Statement on Form S-1
                Incorporation of the Company, as amended           (File No. 33-17217) filed January 12, 1988,
                                                                   and declared effective January 12, 1988.

    3.2         Bylaws of the Company                              Company's Registration Statement on Form S-18
                                                                   (File No. 33-6366-LA) filed July 11, 1986 and
                                                                   declared effective July 14, 1986.

    3.3         Amendments to Bylaws adopted December 6, 1991      Company's Annual Report on Form 10-K for the
                                                                   year ended May 31, 1992 (File No. 1-9758).

    3.4         Amendments to Bylaws adopted February 15, 2000     filed herewith

    4.1         Statement of Designations, Preferences,            Company's Registration Statement on Form S-l
                Privileges, Voting Powers, Restrictions,           filed May 17, 1989 (File No. 33-28756).
                Qualifications and Rights of the Series 2
                Preferred

    4.2         Specimen Certificate representing $.0l par value   Company's Registration Statement on Form S-18
                Common Stock                                       (File No. 33-6366-LA) filed July 11, 1986 and
                                                                   declared effective July 14, 1986.

    4.3         Specimen Certificate representing $10 Class A      Amendment No. l to the Company's Registration
                Nonvoting Cumulative Convertible Preferred         Statement on Form S-l filed June 29, 1989
                Stock, Series 2                                    (File No. 33-28756).

    4.4         Statement of Designations, Preferences,            Company's Schedule 13E-4 filed April 27, 1998
                Privileges, Voting Powers, Restrictions and        (Annex A).
                Qualifications of the Series A Preferred

   10.1         Incentive Stock Option Plan of the Company, as     Company's Registration Statement on Form S-1
                amended                                            (File No. 33-17217) filed January 12, 1988,
                                                                   and declared effective January 12, 1988.

   10.2         401(k) Plan of the Company                         Company's annual report on Form 10-K for the
                                                                      year ended May 31, 1989 (File No. 1-9758).
</TABLE>

                                       31
<PAGE>
<TABLE>
<CAPTION>
<S>            <C>                                                 <C>
   10.3         Management Agreement dated March 18, 1993          Company's report on Form 8-K dated March 18,
                between the Company and NHE                        1993 (File No. 1-9758).

   10.4         Stock Option Grant to NHE dated March 18, 1993     Company's report on Form 8-K dated March 18,
                relating to options for the purchase of            1993 (File No. 1-9758).
                4,400,000 shares of the Company's Common Stock

   10.5        Subordinated Promissory Note dated March 18,        Company's report on Form 8-K dated March 18,
                1993 in the amount of $80,000 payable by the       1993 (File No. 1-9758).
   10.5         Company to Mr. and Ms. Blum

   10.6         Subordinated Promissory Note dated March 18,       Company's report on Form 8-K dated March 18,
                1993 in the amount of $80,000 payable by the       1993 (File No. 1-9758).
                Company to Mr. and Mrs. Cohn

   10.7         Registration Rights Agreement dated March 18,      Company's report on Form 8-K dated March 18,
                1993 among NHE, Mr. Blum, and Alan S. Cohn         1993 (File No. 1-9758).

   10.8         Marketing Agreement dated March 18, 1993 between   Company's report on Form 8-K dated March 18,
                the Company and NHE                                1993 (File No. 1-9758).

   10.9         Option Transfer Documents dated March 31, 1993     Company's report on Form 8-K dated March 18,
                                                                   1993 (File No. 1-9758).

   10.10        Stock Purchase Warrant issued to Richter & Co.,    Company's report on Form 8-K dated March 18,
                Inc. dated March 18, 1993 for the purchase of      1993 (File No. 1-9758).
                240,000 shares of the Issuer's Common Stock

   10.11        Stock Purchase Warrant issued to William L.        Company's report on Form 8-K dated March 18,
                Richter  dated March 18, 1993 for the              1993 (File No. 1-9758).
                purchase of 160,000 shares of the Issuer's
                Common Stock

   10.12        1993 Stock Option Plan                             Company's annual report on Form 10-KSB for the
                                                                   year ended May 31, 1993 (File No. 1-9758).

   10.13        Lease Agreement between the Company and Phoenix    Company's Report on Form 10-QSB for the three
                City Square                                        months ended February 28, 1995 (File No.
                                                                   1-9758).

   10.14        Fee Agreement between the Company and Richter &    Company's Report on Form 10-QSB for the three
                Co., Inc.                                          months ended February 28, 1995 (File No.
                                                                   1-9758).

   10.15        Software Development Agreement between the         Company's Report on Form 10-QSB for the three
                Company and National Computer Services, Inc.       months ended August 31, 1995 (File No. 1-9758).

   10.16        Litigation Agreement between the Company and Ken   Company's Report on Form 10-KSB for the year
                Blum, Sr., Ken Blum, Jr., and Alan Cohn            ended May 31, 1997 (File No. 0-15304).
</TABLE>

                                       32
<PAGE>
<TABLE>
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<S>            <C>                                                 <C>
   10.17        Sublease Agreement between the Company and         Company's Report on Form 10-KSB for the year
                InfoImage, Inc.                                    ended May 31, 1997 (File No. 0-15304).

   10.18        Lease Agreement between the Company and            Company's Report on Form 10-KSB for the year
                Principal Mutual Life Insurance Company            ended May 31, 1997 (File No. 0-15304).

   10.19        Supplemental Agreement to the December 5, 1994     Company's Report on Form 10-KSB for the year
                Investment Banking Agreement                       ended May 31, 1998 (File No. 0-15304).

   10.20        Lease Agreement between the Company and KA         filed herewith
                Leasing, LLC

   10.21        Modified Investment Banking Agreement              filed herewith

    11          Statement recomputation of per-share earnings      Earnings (Loss) per Share Computation, see
                                                                   Note 7 to the Notes to Consolidated Financial
                                                                   Statements.

    21          Subsidiary of Registrant                           filed herewith

    27          Financial Data Schedule                            filed herewith
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