Securities and Exchange Commission
                              Washington D.C. 20549
                               AMENDMENT NO. 1 TO
                                  Form 10-KSB/A


(Mark One)
   [ X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended             May 31, 1996
                                   --------------------------------


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

         For the transition period from facilities ___________ to ______________


                        Commission File Number     0-15304
                                              ------------------

                               AVESIS INCORPORATED
--------------------------------------------------------------------------------
                     (Exact name of small business issuer as
                            specified in its charter)

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


      100 West Clarendon Avenue, Suite 2300       Phoenix, Arizona  85013
      -------------------------------------------------------------------
                    (Address of principal executive offices)

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

Securities  registered  pursuant to Section 12(g) of the Act: Common Stock, $.01
par value per share; Preferred Stock, $10 Class A Nonvoting Cumulative, Series 2

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 no disclosure of delinquent filers in  response  to Item 405 of
Regulation S-B is not contained in this form, and will not 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.
                                   Page 1 of 5
<PAGE>
State issuer's revenues for its most recent fiscal year: $6,019,895

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant,  based  upon  the  average  closing  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 August 19, 1996 was approximately  $951,890.  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 August 19,
1996 was 4,100,420.
                                  Page 2 of 5
<PAGE>
         Avesis  Incorporated  (the "Company")  hereby amends its Report on Form
10-KSB for the year ended May 31, 1996 by replacing the complete text of Items 7
and 13, thereto, as set forth below.

                                     PART II

Item 7.           Financial Statements.

                  Financial Statements appear commencing at page F-1 immediately
hereafter.
                                   Page 3 of 5
<PAGE>
                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Avesis Incorporated:


We  have  audited  the  accompanying   consolidated   balance  sheet  of  Avesis
Incorporated  and  subsidiary as of May 31, 1996,  and the related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
years in the two-year period ended May 31, 1996.  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 subsidiary as of May 31, 1996, and the results of their operations and their
cash flows for each of the years in the two-year  period ended May 31, 1996,  in
conformity with generally accepted accounting principles.


                                                           KPMG PEAT MARWICK LLP



Phoenix, Arizona
July 12, 1996
                                      F-1
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

                           Consolidated Balance Sheet

                                  May 31, 1996
<TABLE>
<S>                                                                                           <C>              
                                                      Assets
Current assets:
    Cash and cash equivalents                                                                 $         436,083
    Receivables, net (note 2)                                                                           315,407
    Prepaid expenses and other                                                                          113,076
                                                                                                 ------------------
      Total current assets                                                                              864,566

Property and equipment, net (note 3)                                                                    599,298

Deferred debenture issuance costs, less accumulated amortization of $17,528                               2,848

Deposits                                                                                                183,815
                                                                                                 ------------------

                                                                                              $       1,650,527
                                                                                                 ==================

                                       Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                                                                          $         223,914

    Accrued expenses:
      Compensation                                                                                       72,232
      Other                                                                                             114,133

    Deferred income                                                                                      31,365
                                                                                                 ------------------
      Total current liabilities                                                                         441,644

Convertible subordinated debentures (note 4)                                                            189,000

    Less unamortized debenture discount                                                                  (3,018)

Accrued rent (note 5)                                                                                   103,201

Notes payable to stockholders (note 12)                                                                 160,000
                                                                                                 ------------------
              Total liabilities                                                                         890,827
                                                                                                 ------------------

Stockholders' equity (notes 4, 8 and 9):
    Preferred stock, $.01 par value, authorized 12,000,000 shares:
         $100 Class A, nonvoting cumulative convertible preferred stock, Series 1, $.01 par
         value; authorized 1,000,000 shares; none issued and outstanding (liquidation preference
         of $100 per share)                                                                                  --
         $10 Class A, nonvoting cumulative convertible preferred stock, Series 2, $.01 par value;
         authorized 1,000,000 shares; 388,180 shares issued and outstanding (liquidation
         preference of $10 per share) and $1,281,522 of dividends in arrears at $.90 per share            3,882
         Class A, voting cumulative convertible preferred stock, Series 3, $.01 par value;
          authorized 100,000 shares; none issued and outstanding (liquidation preference of
          $100 per share)                                                                                    -- 
    Common stock of $.01 par value, authorized 20,000,000 shares; 4,100,420 shares issued
         and outstanding                                                                                 41,004
    Additional paid-in capital                                                                        9,949,159
    Accumulated deficit                                                                              (9,234,345)
                                                                                                 ------------------
              Total stockholders' equity                                                                759,700

Commitments and contingencies (notes 5, 10, 11 and 13)
                                                                                                 ------------------

                                                                                              $       1,650,527
                                                                                                 ==================
</TABLE>
See accompanying notes to consolidated financial statements.
                                      F-2
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

                      Consolidated Statements of Operations

                        Years ended May 31, 1996 and 1995
<TABLE>
<CAPTION>
                                                                                   1996                 1995
                                                                            ------------------   ------------------
<S>                                                                      <C>                          <C>      
Service revenues (note 10):
    Administration fees                                                  $       4,170,599            4,381,548
    Provider fees                                                                  198,895              277,300
    Buying group                                                                 1,554,757            1,588,775
    Other                                                                           95,645              103,483
                                                                            ------------------   ------------------
           Total service revenues                                                6,019,896            6,351,106

Cost of services                                                                 3,916,304            3,832,519
                                                                            ------------------   ------------------

           Income from services                                                  2,103,592            2,518,587

General and administrative expenses                                              1,275,537            1,209,799

Selling and marketing expenses (note 11)                                           914,853              944,579
                                                                            ------------------   ------------------

           Income (loss) from operations                                           (86,798)             364,209
                                                                            ------------------   ------------------

Non-operating income (expense):
    Gain on sale of investment                                                          --              171,469
    Interest income                                                                 26,546                6,050
    Interest expense (note 12)                                                     (29,786)             (36,817)
    Other income (expense)                                                         (34,821)                 500
                                                                            ------------------   ------------------
           Total non-operating income                                              (38,061)             141,202
                                                                            ------------------   ------------------

           Income (loss) before income taxes                                      (124,859)             505,411

Income taxes (note 7)                                                                   --                   --
                                                                            ------------------   ------------------

           Net income (loss)                                                      (124,859)             505,411

Preferred stock dividends                                                         (349,162)            (349,162)
                                                                            ------------------   ------------------

           Net income (loss) available to common shareholders            $        (474,021)             156,249
                                                                            ==================   ==================

Net income (loss) per common and equivalent share                        $           (.12)                 .02
                                                                            ==================   ==================

Weighted average common and equivalent shares outstanding                        4,079,530            7,516,160
                                                                            ==================   ==================
</TABLE>
See accompanying notes to consolidated financial statements.
                                      F-3
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

                 Consolidated Statements of Stockholders' Equity

                        Years ended May 31, 1996 and 1995
<TABLE>
<CAPTION>
                                            Preferred stock                         Additional                          Total       
                               ---------------------------------------   Common      paid-in      Accumulated       stockholders'
                                Series 1     Series 2      Series 3      stock       capital        deficit           equity
                               ----------- ------------  ------------------------ -------------  ----------------  ---------------
<S>                         <C>            <C>           <C>              <C>     <C>            <C>               <C>
Balance, May 31, 1994       $         --        3,882            --       40,754    9,924,409     (9,614,897)         354,148

Net income                            --           --            --           --           --        505,411          505,411
                               ----------- ------------  ------------------------ -------------  ----------------  ---------------

Balance, May 31, 1995                 --        3,882            --       40,754    9,924,409     (9,109,486)         859,559

Net loss                              --           --            --           --           --       (124,859)        (124,859)

Issuance of common stock              --           --            --          250       24,750             --           25,000
                               ----------- ------------  ------------------------ -------------  ----------------  ---------------

Balance, May 31, 1996       $         --        3,882            --       41,004    9,949,159     (9,234,345)         759,700
                               =========== ============  ======================== =============  ================  ===============
</TABLE>
See accompanying notes to consolidated financial statements.
                                      F-4
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                        Years ended May 31, 1996 and 1995
<TABLE>
<CAPTION>
                                                                                   1996                 1995
                                                                            ------------------   ------------------
<S>                                                                      <C>                            <C>    
Cash flows from operating activities:
    Net income (loss)                                                    $        (124,859)             505,411
                                                                            ------------------   ------------------
    Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
      Depreciation and amortization                                                143,001               90,297
      Provision for losses on accounts receivable                                   17,090               17,055
      Gain on sale of fixed assets                                                  (8,006)                (500)
      Gain on sale of marketable securities                                             --             (171,469)
      Gain on repurchase of debentures                                             (10,257)                  --
      Common stock issued for professional services                                 25,000                   --
      Changes in assets and liabilities:
        Decrease (increase) in receivables                                           7,130              (91,804)
        Increase in prepaid expenses and other                                     (25,736)             (52,377)
        Decrease (increase) in deposits                                             51,053              (23,861)
        Increase (decrease) in accounts payable                                    (77,883)             105,410
        Decrease in deferred income                                                (20,352)             (13,069)
        Increase in accrued rent                                                    16,710               17,020
        Increase in other accrued expenses                                          58,805               26,162
                                                                            ------------------   ------------------
           Net cash provided by operating activities                                51,696              408,275
                                                                            ------------------   ------------------

Cash flows from investing activities:
    Purchases of property and equipment                                           (379,687)            (281,108)
    Proceeds from dispositions of property and equipment                             8,250                  500
    Proceeds from sale of marketable securities                                         --              340,219
                                                                            ------------------   ------------------
           Net cash provided by (used in) investing activities                    (371,437)              59,611
                                                                            ------------------   ------------------

Cash flows from financing activities:
    Repurchase of convertible subordinated debentures                              (59,743)                   --
                                                                            ------------------   ------------------
           Net cash used in financing activities                                   (59,743)                  --
                                                                            ------------------   ------------------

           Net increase (decrease) in cash and cash equivalents                   (379,484)             467,886

Cash and cash equivalents, beginning of year                                       815,567              347,681
                                                                            ------------------   ------------------

Cash and cash equivalents, end of year                                   $         436,083              815,567
                                                                            ==================   ==================

Supplemental information:

Interest paid during the year was $30,602 in 1996 and 1995.
</TABLE>
See accompanying notes to consolidated financial statements.
                                      F-5
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                              May 31, 1996 and 1995





(1)    Summary of Significant Accounting Policies

       Nature of Business and Consolidation Policy

       Avesis  Incorporated,   a  Delaware  Corporation,  and  its  wholly-owned
       subsidiary,  a  District  of  Columbia  Corporation  (collectively,   the
       Company),  markets and  administers  vision,  hearing and dental discount
       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
       and  dentists  (providers).  The  Company  also  makes  available  to its
       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.
       Through July 1995, the Company also provided claims  processing  services
       for a company which operates a  pharmaceutical  benefit plan. The Company
       receives a fee for its services  which varies  according to the volume of
       activity.  The consolidated  financial statements include the accounts of
       Avesis  Incorporated  and its  wholly-owned  subsidiary.  All significant
       intercompany   balances  and   transactions   have  been   eliminated  in
       consolidation.

       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.

       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.  Leasehold  improvements  are  amortized  over the  shorter of
       either the asset's  useful life or the  related  lease term.  Software is
       amortized over the estimated useful life of six years.

       Revenue Recognition

       Administrative  fee  revenue  is  recognized  on  an  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.
       Provider fee revenue, based on member utilization, is recognized when the
       service is performed. Buying group revenue is recognized in the month the
       providers purchase merchandise through the Company.

       Stock Options and Warrants

       All stock  options  and  warrants  are  granted at fair  market  value or
       greater on the date of grant (notes 8 and 9).
                                      F-6
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


       Net Income (Loss) Per Common and Equivalent Share

       For  fiscal  year  1996,  net loss per  common  and  equivalent  share is
       calculated  by dividing  net loss,  after giving  appropriate  effect for
       preferred  stock  dividends,  by the  weighted  average  number of common
       shares outstanding during the year.

       For fiscal  year 1995,  net  income  per common and  equivalent  share is
       calculated by dividing net income,  after giving  appropriate  effect for
       preferred stock dividends, by the weighted average number of common stock
       and dilutive common stock equivalent shares outstanding during the year.

       Dilutive common  equivalent  shares consist of stock options and warrants
       (computed using the treasury stock method) and the assumed  conversion of
       subordinated  convertible debentures into common stock. Fully diluted net
       income (loss) per common and  equivalent  share  approximates  net income
       (loss) per common and equivalent share.

       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.

       Convertible Debentures

       The Company  incurred  debenture  issuance costs which have been deferred
       and  are  being  amortized  over  the  term  of  the  debentures  on  the
       straight-line  basis.  Debenture  discount is being amortized as interest
       expense over the life of the debentures using the interest method.

       Use of Estimates

       Management  of the Company has made  certain  estimates  and  assumptions
       relating to the  reporting  of assets and  liabilities  and  revenues and
       expenses to prepare the financial statements in conformity with generally
       accepted  accounting  principles.  Actual results could differ from those
       estimates.


 (2)   Receivables

       At May 31, 1996 receivables consists of:

            Trade                                            $        335,407
            Less allowance for doubtful accounts                      (20,000)
                                                               -----------------

                                                             $        315,407
                                                               =================
                                      F-7
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(3)    Property and Equipment

       At May 31, 1996 property and equipment consists of:

            Furniture and fixtures                           $        223,497
            Equipment                                                 809,873
            Leasehold improvements                                     72,650
            Software                                                  508,964
                                                               -----------------
                                                                    1,614,984
            Less accumulated depreciation and amortization         (1,015,686)
                                                               -----------------

                                                             $        599,298
                                                               =================



(4)    Convertible Subordinated Debentures

       The Company's 9-1/2% convertible subordinated debentures are due December
       1, 1997 and require semi-annual  interest payments on June 1 and December
       1. The debentures  are  convertible  into shares of the Company's  common
       stock at any time prior to maturity,  unless  previously  redeemed,  at a
       conversion  price of $5 per share,  subject to  adjustment  under certain
       circumstances.

       The  debentures  are  redeemable at the Company's  option at any time, in
       whole or in part, at a redemption  price of 101% of the principal  amount
       and  declining  annually  to 100% of such  principal  amount  on or after
       December  1,  1996.  The  debentures  are   subordinated  to  all  senior
       indebtedness,  as defined in the debenture agreement.  During fiscal year
       1996, the Company  repurchased  $70,000 of the debentures  from a related
       party.  The resulting gain on the  repurchase,  after taking into account
       the  related   write-offs  of  deferred   debenture  issuance  costs  and
       unamortized debenture discount, was $10,257.


(5)    Operating Leases

       The  Company  leases  office  space  under  an  agreement  which  expires
       September  30, 2000.  The Company is  obligated to pay its  proportionate
       share of the building's  operating  costs not to exceed stated  maximums.
       The  Company  also  leases  equipment  under  long-term  operating  lease
       agreements.  For the years ended May 31, 1996 and 1995,  rent expense for
       all operating leases was $244,130 and $288,104, respectively.

       The  Company  records  rent  expense  using  the  straight-line   method.
       Accordingly, the difference between rent expense and actual rent paid has
       been recorded as accrued rent for financial reporting purposes.
                                      F-8
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


       Future minimum cash lease payments for operating leases are as follows:

                      Years ending May 31,

                              1997                            $        227,936
                              1998                                     232,034
                              1999                                     244,242
                              2000                                     182,091
                           Thereafter                                  119,464
                                                                ----------------

               Total future minimum lease payments            $      1,005,767
                                                                ================




(6)    Fair Value of Financial Instruments

       SFAS No. 107,  "Disclosures  About Fair Value of Financial  Instruments,"
       requires the Company to disclose  estimated fair values for its financial
       instruments.  The  following  table  presents  the  carrying  amounts and
       estimated fair values of the Company's  financial  instruments at May 31,
       1996,  together with a description of the  methodologies  and assumptions
       used to determine such amounts.

                                                          Carrying      Fair
                                                           Amount       Value
                                                      -------------  -----------

        Financial assets:
          Cash and cash equivalents                   $   436,083      436,083
          Receivables (net)                               315,407      315,407

        Financial liabilities:
          Accounts payable and accrued expenses           410,279      410,279
          Convertible subordinated debentures (net)       185,982      185,982
          Notes payable to stockholders                   160,000      144,618


       The carrying amount of cash and cash equivalents  approximates fair value
       because their maturity is generally less than three months.  The carrying
       amount of receivables, accounts payable and accrued expenses approximates
       fair value since they are expected to be collected or paid within 90 days
       of  year-end.  The fair  values  of notes  payable  to  stockholders  are
       estimated by discounting the future cash flows at rates currently offered
       to the Company for similar debt instruments.


(7)    Income Taxes

       Income tax expense for 1996 differs from the amount  computed by applying
       the federal  income tax rate of 34% to income  before income taxes due to
       an offsetting valuation allowance.
                                       F-9
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


       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)             $     2,648,000
          Accrued expenses                                            29,000
          Property and equipment                                      10,000
          Valuation allowance                                     (2,687,000)
                                                               ---------------

        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 year ended
       May 31,  1996 was an  increase  of  $47,000.  The net change for the year
       ended May 31, 1995 was a decrease of $409,000.

       The Company's federal NOLs of $7,300,000 expire between 1999 and 2010.


(8)    Stock Options and Warrants

       The Company has reserved  600,000  shares of common stock for exercise of
       options  under a 1993 stock  option  plan which  includes  incentive  and
       non-qualified  stock  options.  At  May  31,  1996,  there  were  180,000
       incentive  options  outstanding  under this plan  exercisable at $.48 per
       share, and 300,000  nonqualified  options  exercisable at $.40 per share.
       All of the  outstanding  options are  exercisable  for 10 years after the
       date of grant.

       At May 31, 1996,  all incentive  stock options and 255,000  non-qualified
       options outstanding under this plan were exercisable.  The vesting period
       of the  non-qualified  options  was 25% at the  time of  grant  with  the
       remaining 75% in equal increments over the next 10 calendar quarters.

       The Company has also reserved 520,000 shares of common stock for exercise
       of options under an incentive  stock option plan. At May 31, 1996,  there
       were  options  to  purchase  1,325  shares  outstanding  under this plan,
       exercisable  for 5 years  after  date of grant  at a price  of $1.00  per
       share.  At May 31,  1996,  all options  outstanding  under this plan were
       exercisable.  The options expire on July 23, 1996.  Management intends to
       issue no new options under this plan.

       In connection with the Long-Term Management Agreement (note 11), National
       Health Enterprises, Inc. of Owing 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.
                                      F-10
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


       The following table summarizes stock option activity:

                                                          Common Stock
                                                --------------------------------
                                                                    Per Share
                                                    Options       Exercise Price
                                                ---------------  ---------------

         Balance outstanding, May 31, 1994         4,856,325        $.40-1.00
         Options granted                              50,000          $.48
         Options exercised                                --
         Options canceled                                 --
                                                ---------------

         Balance outstanding, May 31, 1995         4,906,325
                                                ===============


       At May 31, 1995,  options to purchase  4,861,325 shares at prices ranging
       from $.40 to $1.00 were exercisable.

                                                         Common Stock
                                                --------------------------------
                                                                    Per Share
                                                   Options        Exercise Price
                                                ---------------  ---------------

         Balance outstanding, May 31, 1995         4,906,325          $.40-1.00
         Options granted                                  --
         Options exercised                                --
         Options canceled                             25,000
                                                ---------------

         Balance outstanding, May 31, 1996         4,881,325
                                                ===============


       At May 31, 1996,  options to purchase  4,881,325 shares at prices ranging
       from $.40 to $1.00 were exercisable.

       During  fiscal 1993, a former  employee was granted  warrants to purchase
       100,000 shares of common stock.  The purchase price is $.50 per share for
       50,000 shares and $1.00 per share for the remaining  50,000  shares.  The
       warrants expire on February 1, 1998.

       The management  agreement  discussed above and related  transactions with
       NHE and certain other  substantial 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,  which received cash  consideration of $50,000 and ten-year
       warrants to purchase  400,000  shares of common  stock.  At May 31, 1996,
       127,273  warrants were exercisable at an exercise price of $.40 per share
       and 272,727  warrants were  exercisable  at an exercise price of $.48 per
       share.  At May 31, 1996,  160,000 of these  warrants had been assigned to
       William L. Richter.
                                      F-11
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(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 Preferred)
       with a par value of $.01 per share and  quarterly  dividends at the fixed
       annual rate of $.90 per share.  In August 1993, the Board of Directors of
       the Company  resolved that no dividends would be declared or paid without
       its specific authorization.  The Series 2 Preferred is 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.  The Series 2
       Preferred  may be  redeemed  at any  time,  in whole  or in part,  by the
       Company,  at its option at $10 per share plus all the  accrued but unpaid
       dividends.

       No  dividends  may be paid on common  stock unless all accrued and unpaid
       dividends have been paid on the Series 2 Preferred.


(10)   Major Customers

       The  Company's  programs and services are offered  throughout  the United
       States.  Most of the Company's  customers are located in the southwestern
       states,  the D.C.  metropolitan  area, and Florida.  Two major  customers
       provided 27% and 13% of total service revenues in 1996 and 36% and 13% in
       1995, respectively.


(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  is  five  years  and is
       renewable  for two  two-year  periods.  The Company  paid NHE $220,000 in
       fiscal 1994 and is obligated to pay $200,000  each year  thereafter.  NHE
       also received options to purchase up to 4,400,000 shares of the Company's
       common stock.

       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.  The Company
       paid  approximately  $85,000  and  $66,000 to NHE under the terms of this
       agreement in fiscal 1996 and 1995, respectively.


(12)   Related Party Transactions

       In March 1993,  the Company  obtained loans in the amount of $80,000 each
       from two  stockholders of the Company who are also affiliates of NHE. The
       entire principal of the notes is due March 18, 1998 and bears interest at
       the rate of 6% per annum.  Repayment on the notes may be  accelerated  by
       the  holders  if the  Company  terminates  the NHE  Management  Agreement
       without cause.  Interest is payable  semiannually,  in arrears. The notes
       are  subordinated  to the Company's  outstanding  9-1/2%  debentures  and
       future indebtedness of the Company.  The Company paid $10,442 in interest
       under the terms of these notes in fiscal 1996 and 1995.
                                      F-12
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


       During  fiscal  1996,  the Company  purchased  approximately  $326,000 in
       software and related  programming  services  from a company  owned by the
       President and two  stockholders of the Company who are also affiliates of
       NHE.  Additionally,  the Company has contracted  with the same Company to
       lease its computer system for approximately $2,500 per month.

       The  Company   entered  into  a   Registration   Rights   Agreement  (the
       "Registration  Rights Agreement")  effective March 18, 1993 with NHE, and
       two Directors.  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 marketing prices.

       The Company  entered into an agreement with a director of the Company,  a
       principal of NHE, and an individual who provides  marketing  services for
       the Company  through an  arrangement  with NHE, with respect to potential
       liabilities  and expenses in connection  with a suit  initiated by United
       HealthCare,  Inc. ("United") against the Company and these individuals in
       June 1994 and a  countersuit  filed  against  United in December  1994 by
       these  individuals.   The  agreement  provided  that  the  Company  would
       indemnify the individuals in an amount based upon the gross profit earned
       on the contract which was the subject of the action brought by United and
       overall Company pretax  profitability and gave the Company an interest in
       any net  proceeds  received  in  connection  with  the  countersuit.  All
       litigation  between the parties was dismissed  with prejudice in May 1995
       pursuant to a  settlement.  The Company  paid  approximately  $140,000 in
       legal fees during  fiscal 1995 pursuant to the  agreement,  which did not
       exceed the gross profit earned on the contract in question.

       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.

       RCI provides  substantial ongoing financial management and other services
       to the Company at no charge.  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.
                                      F-13
<PAGE>
                       AVESIS INCORPORATED AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(13)   Commitments and Contingencies

       In June 1992,  the  California  Department of  Corporations  notified the
       Company to cease and desist from operating in California as a health care
       service  plan  without  a  license  under  California's  Knox-Keene  Act.
       Approximately  5% of the  Company's  revenue is derived  from  California
       related business. Since that time, the Company has sold its pharmacy line
       of business and taken certain other steps to restructure  portions of its
       business  in  California  so as to be  exempt  from  coverage  under  the
       Knox-Keene  Act.  The  Department  has  taken no  further  action in this
       matter,  however,  there can be no  assurance  that  these  steps will be
       considered  sufficient  by the  Department  in the  event  of any  future
       challenge by the  Department.  A material  interruption  of the Company's
       California  business  would  materially  adversely  affect the  Company's
       financial position and results of operations.

       The Company is involved in various other claims and legal actions arising
       in the ordinary  course of business.  In the opinion of  management,  the
       ultimate  disposition  of these matters will not have a material  adverse
       effect on the Company's financial position or results of operations.


(14)   Liquidity

       The Company has suffered  recurring  losses from  operations and negative
       cash flows.  Management is currently  seeking methods to maximize service
       revenues and control operating expenses;  however, management anticipates
       it will incur negative cash flows throughout  fiscal 1997. If the Company
       is required to obtain  additional  financing,  there can be no assurances
       that  sources of financing  will be  available on terms  favorable to the
       Company, if at all.
                                      F-14
<PAGE>
                                     PART IV
                                     -------

Item 13.     Exhibits and Reports on Form 8-K

             (a)      See Exhibit  index  following  Signatures  Page  which  is
             incorporated herein by this reference.

             (b)      Reports on Form 8-K.

                              Not applicable.

                                   Page 4 of 5
<PAGE>
                                   SIGNATURES

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


                               AVESIS INCORPORATED
               - - - - - - - - - - - - - - - - - - - - - - - - - -
                                  (Registrant)



Date:         2/05/97                       /s/ Neal A. Kempler
    ----------------------------          --------------------------------------
                                           Neal A. Kempler, Vice President
                                           and Secretary



Date:         2/05/97                          /s/ Joel H. Alperstein
    ----------------------------         ---------------------------------------
                                         Joel H. Alperstein, Director of Finance
                                         (Principal Financial Officer)

                                   Page 5 of 5
<PAGE>
EXHIBIT INDEX TO
AMENDMENT NO. 1 TO
FORM 10-KSB/A

The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
  No.        Description
-------      -----------
<C>          <C>
3(a)         Amended and Restated Certificate of Incorporation of the Company, as amended (4)

3(b)         Bylaws of the Company (l)

3(c)         Amendments to Bylaws adopted December 6, 1991 (6)

4(a)         Indenture between the Company and Continental Stock Transfer & Trust Company, as Trustee, 
             including form of Convertible Subordinated Debenture (4)

4(b)         Statement of Designations, Preferences, Privileges, Voting Powers, Restrictions, Qualifications and
             Rights of the Series l Preferred (5)

4(c)         Statement of Designations, Preferences, Privileges, Voting Powers, Restrictions, Qualifications and
             Rights of the Series 2 Preferred (8)

4(d)         Specimen Certificate representing $.0l par value Common Stock (l)

4(e)         Specimen Certificate representing $10 Class A Nonvoting Cumulative Convertible Preferred Stock,
             Series 2 (7)

l0(a)*       Incentive Stock Option Plan of the Company, as amended (4)

l0(b)*       401(k) Plan of the Company (2)

10(c)*       Management Agreement dated March 18, 1993 between the Company and NHE (9)

10(d)*       Stock Option Grant to NHE dated March 18, 1993 relating to options for the purchase of 4,400,000
             shares of the Company's Common Stock (9)

10(e)        Subordinated Promissory Note dated March 18, 1993 in the amount of $80,000 payable by the
             Company to Mr. and Ms. Blum (9)

10(f)        Subordinated Promissory Note dated March 18, 1993 in the amount of $80,000 payable by the
             Company to Mr. and Mrs. Cohn (9)

10(g)        Registration Rights Agreement dated March 18, 1993 among NHE, Mr. Blum, and Alan S. Cohn
             (9)

10(h)*       Marketing Agreement dated March 18, 1993 between the Company and NHE (9)

10(i)        Option Transfer Documents dated March 31, 1993 (9)

10(j)*       Stock Purchase Warrant issued to Richter & Co., Inc. dated March 18, 1993 for the purchase of
             240,000 shares of the Issuer's Common Stock (9)
</TABLE>
<PAGE>
<TABLE>
<C>          <C>                      
10(k)*       Stock Purchase Warrant issued to William L. Richter dated March 18, 1993 for the purchase of 
             160,000 shares of the Issuer's Common Stock (9)

10(l)*       1993 Stock Option Plan (3)

10(m)        Lease Agreement between the Company and Phoenix City Square (11)

10(n)        Fee Agreement between the Company and Richter & Co., Inc. (11)

10(o)        Software Development Agreement between the Company and National Computer Services, Inc. (12)

11           Statement recomputation of per-share earnings (filed herewith)

21           Subsidiary of Registrant (13)

27           Amended Financial Data Schedule (filed herewith)


*            Identified as a compensatory arrangement as required by Item 13(a) of Form 10-KSB.


(1)          Incorporated by reference from the Company's Registration Statement on Form S-18 (No.
             33-6366-LA) filed July 11, 1986 and declared effective July 14, 1986.

(2)          Incorporated by reference from the Company's annual report on Form 10-K for the year ended May
             31, 1989 (File No. 1-9758).

(3)          Incorporated by reference from the Company's annual report on Form 10-KSB for the year ended 
             May 31, 1993 (File No. 1-9758).

(4)          Incorporated by reference from the Company's Registration Statement on Form S-1 (No. 33-17217)
             filed January 12, 1988, and declared effective January 12, 1988.

(5)          Incorporated by reference from the Company's report on Form 8-K filed July 9, 1988 (File No.
             l-9758).

(6)          Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended
             May 31, 1992 (File No. 1-9758).

(7)          Incorporated by reference from Amendment No. l to the Company's Registration Statement on
             Form S-l filed June 29, 1989 (No. 33-28756).

(8)          Incorporated by reference from the Company's Registration Statement on Form S-l filed May 17,
             1989 (No. 33-28756).

(9)          Incorporated by reference from the Company's report on Form 8-K dated March 18, 1993 (File No.
             1-9758).

(10)         Incorporated by reference from the Company's Report on Form 10-Q for the three months ended
             November 30, 1992 (File No. 1-9758).
</TABLE>
<PAGE>
<TABLE>
<C>          <C>                               
(11)         Incorporated by reference from the Company's Report on Form 10-QSB for the three months ended 
             February 28, 1995 (File No. 1-9758).

(12)         Incorporated by reference form the Company's Report on Form 10-QSB for the three months ended
             August 31, 1995 (File No. 1-9758).

(13)         Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended
             May 31, 1996 (File No. 1-9758).
</TABLE>