SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2001

                                       or

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

             For the transition period from __________ to __________


                        Commission File Number: 0-15304


                               AVESIS INCORPORATED
                 (Name of small business issuer in its charter)


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


  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 [ ]
<PAGE>
     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. [ ]

     State issuer's revenues for its most recent fiscal year: $9,564,051.

     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 8, 2002 was  $965,650.  Shares of
Common  Stock held by each officer and director and by each person who owns more
than 5% 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
8, 2002 was 7,618,425.

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
                               AVESIS INCORPORATED
                            FORM l0-KSB ANNUAL REPORT
                          YEAR ENDED DECEMBER 31, 2001

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                     PART I

ITEM l.  Description of Business ..............................................1
ITEM 2.  Description of Properties ............................................7
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............11
ITEM 7.  Financial Statements ................................................18
ITEM 8.  Changes In and Disagreements with Accountants on Accounting
         and Financial Disclosure ............................................19

                                    PART III

ITEM 9.  Directors, Executive Officers, Promoters, and Control Persons;
         Compliance with Section 16(a) of the Exchange Act ...................19
ITEM 10. Executive Compensation ..............................................22
ITEM 11. Security Ownership of Certain Beneficial Owners and Management ......24
ITEM 12. Certain Relationships and Related Transactions.......................26
ITEM 13. Exhibits and Reports on Form 8-K ....................................27
SIGNATURES ...................................................................28
<PAGE>
                                     PART I

ITEM I. DESCRIPTION OF BUSINESS

GENERAL

     Avesis Incorporated, a Delaware corporation (together with its
subsidiaries, the "Company"), is an ancillary healthcare management firm,
organized in 1978. The Company markets and administers vision, dental and
hearing managed care and discount programs ("Programs") nationally and operates
AbsoluteCare, Inc. ("AbsoluteCare"), an infectious disease medical center. 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 the Company's independent network of providers such as
ophthalmologists, optometrists, opticians, dentists and hearing specialists
("Providers"). AbsoluteCare was established in 2000 to create infectious disease
treatment centers, with a current emphasis on HIV/AIDS treatment, potentially on
a national basis.

Total service revenue has been derived from the product lines in the following
percentages:

<TABLE>
<CAPTION>
                                                                                   (unaudited)
                                      Year Ended             Year Ended             Year Ended
                                  December 31, 2001      December 31, 2000      December 31, 1999
                                  -----------------      -----------------      -----------------
<S>                               <C>                    <C>                    <C>
Vision and Hearing Program               63%                    73%                    74%
Dental Program                            1%                     7%                     9%
Buying Group Program                     12%                    18%                    16%
AbsoluteCare                             24%                    --                     --
Other                                    --                      2%                     1%

Total Service Revenue                 $9,564,051             $7,808,695             $9,957,445
</TABLE>

ABSOLUTECARE, INC.

     On July 24, 2000, the Company founded AbsoluteCare, a wholly owned
subsidiary, in Delaware. AbsoluteCare combines all of the primary health
services that HIV patients need in one facility. These include professional
care, in-house pharmacy and laboratory services.

                                       1
<PAGE>
AbsoluteCare's first medical center opened in Atlanta, Georgia (the first HIV
medical center to open in Atlanta in almost a decade), in late November of 2000.
The center has seen its patient base grow to approximately 1,470 patients as of
March 21, 2002, from 310 patients as of March 28, 2001. AbsoluteCare provides
medical services to patients with private health insurance, Medicaid/Medicare or
to those who privately pay for such services.

     During February 2002, the Company signed a lease for a second AbsoluteCare
location in the Atlanta Metro area. The second location will utilize the
pharmacy and laboratory at the initial site and is expected to open for patient
visits during April 2002.

VISION PROGRAM

     The Company offers provider networks and administrative services for group
vision programs ("Vision Program"). The 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 Vision Program, a Member is entitled to discount 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 the
Company a periodic enrollment fee for each Member.

     If the Program has insured or self-funded benefits, the Sponsor determines
the products and services that 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.

                                       2
<PAGE>
The table below sets forth the approximate numbers of Providers and Members
enrolled in the Vision Program at the dates indicated:

                           Number of           Number of          Number of
     Date                  Providers            States             Members
     ----                  ---------            ------             -------
December 31, 2001            8,805                50              1,474,000
December 31, 2000            7,064                48              1,401,000
December 31, 1999            6,700                46                687,000

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 may not include all 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 generally below wholesale prices. 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, greater than 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 a Member's spouse,
children, parents and grandparents.

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
fee schedules that the Providers have accepted. 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.

                                       3
<PAGE>
     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:

                           Number of           Number of          Number of
     Date                  Providers            States             Members
     ----                  ---------            ------             -------
December 31, 2001            9,229                43                31,000
December 31, 2000            9,149                43                25,000
December 31, 1999            8,945                43                73,000

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

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 because
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.

                                       4
<PAGE>
     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.

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

     The Company's three largest Sponsors accounted for 14%, 11% and 11% of
total service revenues for the year ended December 31, 2001. The Company's four
largest Sponsors accounted for 22%, 15%, 9% and 9% of total service revenues
during the year ended December 31, 2000. The Company is substantially dependent
on a limited number of Sponsors and may be materially adversely affected by
termination of any of its agreements with Sponsors.

     In an effort to minimize the Company's risk related to its dependence on a
limited number of Sponsors, the Company has developed the Avesis Advantage
Vision Program and the Avesis Advantage Dental Program. These insured products
allow the Company to market and contract directly with employers, unions and
other groups either through the Company's internal sales staff or the broker
community. The Company derived its first revenues from its Avesis Advantage
Vision Program in December 1999, and had approximately 9,500 Members as of
January 1, 2001 and approximately 106,800 as of January 1, 2002, including
approximately 62,100 and 24,500 Members from two employee groups. These two
groups arose from direct contracts with single employers. In most instances the
sizes of the groups participating in the Avesis Advantage Vision Program are
significantly smaller. As with the Company's traditional vision business, the
Company may be materially adversely affected by the loss of a large group
participating in the Avesis Advantage Vision Program.

                                       5
<PAGE>
     During July 2001, the Company hired three salespeople, located in Georgia,
Pennsylvania and Massachusetts, to market the Company's products, concentrating
on sales of the Avesis Advantage Vision Program. Additionally, the Company
increased its marketing support staff and network development personnel to
further the sales efforts. The Company expects to derive its first revenues from
the Avesis Advantage Dental Program during the first half of calendar year 2002.
The Company originally anticipated deriving its first revenues from the Avesis
Advantage Dental Program during the second half of calendar year 2001, but it
has delayed the rollout of the product, as its resources have been concentrated
on the geographic expansion of sales of the Avesis Advantage Vision Program.

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.

REGULATION

     Certain registration and licensing laws and regulations (including those
applicable to third party administrators, reinsurers, 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 the
Company understands 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.

                                       6
<PAGE>
EMPLOYEES

     As of March 13, 2002, the Company had 49 full-time employees as compared to
46 full-time employees as of March 12, 2001. The Company believes that its
relationship with its employees is good. There are no employees represented by a
union.

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.
The property is covered by two lease agreements, one for approximately 3,200
square feet and one for approximately 6,700 square feet, for a total of
approximately 9,900 square feet. The term of the leases run concurrently and
will expire on September 30, 2002.

     The Company maintains sales and administrative offices at 10324 S. Dolfield
Road, Owings Mills, Maryland 21117, 790 Turnpike Street, Suite 202, North
Andover, Massachusetts 01845, 2398 Lenora Church Road, Suite 200, Snellville,
Georgia 30078 and at 5321 First Place NE, Washington, D.C. 20011. The DC office
is used pursuant to a verbal agreement with a non-affiliated 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
entity owned by Messrs. Cohn and Blum, Jr., with the terms being no less
favorable than an arm's length transaction. The amounts incurred under the sales
office lease agreements in Massachusetts and Georgia are not significant on a
monthly basis. 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."

     On August 9, 2000, AbsoluteCare entered into a lease agreement for
approximately 5,000 square feet at 2581 Piedmont Road, Suite A400, Atlanta,
Georgia 30324, with an unrelated party. The lease term is for three years and
began November 1, 2000. AbsoluteCare's first infectious disease center is
located on the premises. During February 2002, the Company entered into a lease
agreement for a second AbsoluteCare location, at 3565-9 Martin Luther King, Jr.
Drive, Atlanta, Georgia 30331, with an unrelated party. The lease is for
appromiately 2,000 square feet, has a three-year term and began March 1, 2002.

ITEM 3. LEGAL PROCEEDINGS

     The Company currently is not a party to any material pending legal
proceedings.

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

     None submitted during the fourth quarter of fiscal year 2001.

                                       7
<PAGE>
                                    PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     The Company's Common Stock is quoted in the over-the-counter market.
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 Common Stock as reported by the National Quotation
Bureau, Inc. for each quarterly period during the fiscal years ended December
31, 2000 and 2001. Such market quotations reflect inter-dealer prices, without
retail markup, markdown or commission and may not represent actual transactions.
The Company's Class A Nonvoting Cumulative Convertible Preferred Stock, Series 2
("Series 2 Shares"), and Its 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.

                                                    Bid Quotation Range
                                                   ---------------------
Fiscal Year Ended December 31, 2000                   High         Low
-----------------------------------                ---------     -------
First Quarter ended March 31, 2000                 $ 2.50        $0.38
Second Quarter ended June 30, 2000                   0.875        0.51
Third Quarter ended September 30, 2000               0.51         0.51
Fourth Quarter ended December 31, 2000               0.625        0.40

Fiscal Year Ended December 31, 2001
-----------------------------------
First Quarter ended March 31, 2001                 $ 0.65625     $0.4375
Second Quarter ended June 30, 2001                   0.53125      0.51
Third Quarter ended September 30, 2001               0.52         0.49
Fourth Quarter ended December 31, 2001               0.51         0.49

The Company has evaluated whether the benefits of remaining a reporting entity
under the securities laws and having its stock registered under the Securities
Exchange Act of 1934 and traded on the OTC Bulletin Board exceed the costs. As a
result of this evaluation, the Company has decided to deregister its Common
Stock and Series 2 Preferred Stock. The Company's Series A Preferred Shares are
not registered under the Securities Exchange Act of 1934. As a reporting
company, the Company incurs additional costs complying with the reporting
standards. Also, the Company is required to disclose information publicly it
would not otherwise have to disclose and which it might prefer, for competitive
reasons, not to disclose publicly. The Company also believes that there could be
other advantages of deregistering its stock and believes, based upon the current
number of holders and advice of counsel, that it is permitted. When the Company
deregisters, the stock may still trade in the OTC pink sheets, from time to
time, although the Company cannot assume a market will exist. The Company
anticipates the filing of the Securities and Exchange Commission Form 15,
Certification and Notice of Termination of Registration under Section 12(g) of
the Securities and Exchange Act of 1934 or Suspension of Duty to File Reports
Under Sections 13 and 15(d) of the Securities Exchange Act of 1934, the first
week of April 2002.

                                       8
<PAGE>
COMMON STOCK

     As of March 8, 2002, there were 7,618,425 shares of Common Stock
outstanding held by approximately 155 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.

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 the
Series 2 Shares with respect to the payment of annual dividends and redemptions.
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 occurs (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. 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.

CONVERSION OF PREFERRED STOCK TO COMMON STOCK

     Each share of the Company's Series A Preferred Stock is currently
convertible at any time at the option of the holder of the Series A Preferred
Stock into 10 shares of Common Stock of the Company. Each share of the Company's
Series 2 Preferred Stock is currently convertible at any time at the option of
the holder of the Series 2 Preferred Stock into 2.5 shares of Common Stock of
the Company. The conversion ratios are subject to adjustment for stock splits
and combinations, stock dividends, reclassifications, exchanges or substitutions
relating to the Company's Common Stock, and any reorganization, merger,
consolidation or sale of assets of the Company.

                                       9
<PAGE>
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 fiscal years ended December 31, 2001 and 2000, the
Transition Period ended December 31, 1999 and the two fiscal years ended May 31,
1999 and 1998, have been derived from the Company's audited financial
statements. The selected financial data are included herein as additional
information.

<TABLE>
<CAPTION>
                                Fiscal Year Ended December 31,                 Fiscal Years Ended May 31,
                                ------------------------------   Transition    ---------------------------
Selected Operating Data:             2001            2000          Period          1999           1998
------------------------         ------------    ------------   ------------   ------------   ------------
<S>                              <C>             <C>            <C>            <C>            <C>
Total service revenue            $  9,564,051    $  7,808,695   $  5,614,154   $ 10,206,467   $  8,336,631
Cost of services &
  operating expenses               10,995,966       7,755,404      5,024,537      9,300,195      8,010,021
Net income (loss) (1)              (1,367,471)        184,443      1,045,838      1,006,265        313,875
Net income (loss) per share of
  Common Stock - Basic (2)              (0.19)            .01            .13            .13            .06

                                               As of December 31,                      As of May 31,
                                 -------------------------------------------   ---------------------------
Selected Balance Sheet Data:         2001            2000           1999           1999           1998
----------------------------     ------------    ------------   ------------   ------------   ------------
Working capital                  $    594,857    $  1,955,011   $  2,198,148   $  1,651,410   $    350,418
Current assets                      1,317,198       2,793,938      2,961,887      3,197,248      1,588,969
Total assets                        2,696,580       4,323,594      3,905,999      3,897,255      2,241,705

Current liabilities                   722,341         838,927        763,739      1,545,838      1,238,551
Long term obligations                      --             274         13,614         20,368         90,475
Total liabilities                     722,341         839,201        777,353      1,566,206      1,329,026
Total stockholders' equity          1,974,239       3,484,393      3,128,646      2,331,049        912,679
</TABLE>

(1)  Transition Period net income includes the cumulative effect of a change in
     accounting method that increased income by $521,000 ($470,000 after taxes).

(2)  After provision for preferred stock dividends as follows: $90,873 in 2001;
     $95,409 in 2000; $61,049 in the Transition Period; $107,936 in 1999 and
     $63,270 in 1998.

                                       10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 may 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, the expansion of the
AbsoluteCare concept 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. AbsoluteCare recognizes
revenue during the month the medical and laboratory services are provided and
the pharmaceuticals are dispensed to the patient.

     On March 24, 2000 the Company purchased substantially all of the assets of
Southern States Eye Care, LLC ("SSEC"), including but not limited to the name
"Southern States Eye Care", service marks, trade marks, trade names, current
client contracts, provider contracts and managed care contracts. The aggregate
purchase price for the acquisition of $549,324, was $250,000 in cash, 350,000
shares of the Company's Common Stock and $36,842 of transaction-related costs.
The Company used its existing cash to finance the purchase. The acquisition of
SSEC broadened the Company's client base and increased the Company's vision
provider network in Georgia, Alabama and North Carolina. The Company is using
the acquired assets to continue SSEC's lines of business, which the Company is
operating out of its corporate headquarters in Phoenix, Arizona.

                                       11
<PAGE>
RESULTS OF OPERATIONS

     The following table details the Company's major revenue and expense
categories for the years ended December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                Year Ended                      Year Ended
                                             December 31, 2001               December 31, 2000            Increase/(Decrease)
                                        ---------------------------     ---------------------------    ------------------------
                                                          % of                            % of
                                                      Total Service                   Total Service
                                                         Revenue                         Revenue                       % Change
                                                         -------                         -------                       --------
<S>                                     <C>           <C>               <C>           <C>              <C>             <C>
Revenue:
Total Service Revenue                   $ 9,564,051        100%         $ 7,808,695        100%        $ 1,755,356         22%
Vision & Hearing Program                  5,919,584         62%           5,693,485         73%            226,099          4%
Dental Program                              129,012          1%             559,193          7%           (430,181)       (77%)
Buying Group Program                      1,123,817         12%           1,418,740         18%           (294,923)       (21%)
AbsoluteCare, Inc.                        2,340,040         24%              35,847          0%          2,304,193       6428%
Other                                        51,598          1%             101,430          1%            (49,832)       (49%)

Expenses:
Cost of Services - Avesis
Incorporated & Subsidiaries
excluding AbsoluteCare, Inc.              5,675,196         59%           5,289,352         68%            385,844          7%
Cost of Services - AbsoluteCare, Inc.     2,296,583         24%             114,933          1%          2,181,650       1898%
General & Administrative                  1,853,470         19%           1,527,518         20%            325,952         21%
Selling & Marketing                       1,170,717         12%             823,601         11%            347,116         42%

Loss from Operations
- AbsoluteCare, Inc.                       (448,692)        (5%)           (214,525)        (3%)          (234,167)       109%
Income/(Loss) from Operations
- Avesis Incorporated &
Subsidiaries excluding
AbsoluteCare, Inc.                         (983,223)       (10%)            267,816          3%         (1,251,039)      (467%)
Net Income/(Loss)                        (1,367,471)       (14%)            184,443          2%         (1,551,914)      (841%)
</TABLE>

     Past and future revenues for 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. Additionally,
pricing will differ depending on whether a benefit is designed to be provided to
all members of a group, employer/Sponsor paid, or offered to all members on a
voluntary enrollment basis. A substantial portion of the Company's Member base
is derived from a limited number of Sponsors.

     The Company had approximately 1,474,000 vision and 19,000 hearing Members
as of December 31, 2001 compared to approximately 1,401,000 vision and 13,000
hearing Members as of December 31, 2000. The increase in vision and hearing
revenue during the year ended December 31, 2001 as compared to the year ended
December 31, 2000 was primarily the result of the growth of the Avesis Advantage
vision plan, partially offset by the loss of Members from three vision plan
Sponsors during the second half of fiscal 2001. The three Sponsors collectively
had a total of approximately 55,000 Members as of January 1, 2001. Other changes
in the number of vision and hearing Members occurred due to Sponsors' employee
or Member fluctuations in the normal course of business.

                                       12
<PAGE>
     The Company had approximately 31,000 dental Members as of December 31,
2001, compared to approximately 25,000 dental Members as of December 31, 2000.
The Company's Dental Program revenue declined by $430,181, from $559,193 for the
year ended December 31, 2000 to $129,012 for the year ended December 31, 2001.
The decline of the Company's Dental Program revenue resulted from the loss of
approximately 45,000 Members, during the fourth quarter of the year ended
December 31, 2000, from three Sponsors who did not renew their contracts with
the Company. Therefore, their membership numbers were not reflected in the end
of year total for the prior year. The loss in membership has been partially
offset by the growth in membership of two existing Sponsors. The majority of the
Company's current dental membership is enrolled in programs that provide a lower
level of benefit, and therefore the Sponsors pay a lower per member per month
fee, compared to the three Sponsors, mentioned above, who did not renew their
contracts.

     In an effort to minimize the Company's risk related to its dependence on a
limited number of Sponsors, the Company has developed the Avesis Advantage
Vision Program and the Avesis Advantage Dental Program. These insured products
allow the Company to market and contract directly with employers, unions and
other groups either through the Company's internal sales staff or the broker
community. An insurance carrier underwrites the Avesis Advantage Programs and
provides the Company access to the required licensure to sell products to the
above-mentioned markets. Prior to the access to the previously mentioned
licensure, the Company was only able to market its programs to entities that
possessed their own insurance licenses or provided self-funded benefits. The
Company derived its first revenues from its Avesis Advantage Vision Program in
December 1999, and had approximately 9,500 Members as of January 1, 2001 and
approximately 106,800 as of January 1, 2002, including approximately 62,100 and
24,500 Members from two employee groups. These two groups arose from direct
contracts with single employers. In most instances the sizes of the groups
participating in the Avesis Advantage Vision Program are significantly smaller.
As with the Company's traditional vision business, the Company may be materially
adversely affected by the loss of a large group participating in the Avesis
Advantage Vision Program.

     During July 2001, the Company hired three salespeople, located in Georgia,
Pennsylvania and Massachusetts, to market the Company's products, concentrating
on sales of the Avesis Advantage Vision Program. Additionally, the Company
increased its marketing support staff and network development personnel to
further the sales efforts. The Company expects to derive its first revenues from
the Avesis Advantage Dental Program during the first half of calendar year 2002.
The Company originally anticipated deriving its first revenues from the Avesis
Advantage Dental Program during the second half of calendar year 2001, but it
has delayed the rollout of the product, as its resources have been concentrated
on the geographic expansion of sales of the Avesis Advantage Vision Program.

     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. Historically, the Company has not actively marketed its buying

                                       13
<PAGE>
group program. The Company began promoting its buying group program to its
vision Providers during the first quarter of 2001. Although the Company has seen
an increase in Providers applying to become members of the buying group, it has
seen a 21% decrease in sales. Due to recent competitive pressures by certain
eyeglass frame manufacturers to sell their products directly to the provider
community, the Company is considering the ongoing viability of its buying group
program. The buying group program to date has never generated a significant
contribution to income and is administered by the Company only as a benefit to
its providers.

     Costs of Services for Avesis Incorporated and its subsidiaries, excluding
AbsoluteCare, primarily relate to servicing Members, Providers, and Sponsors
under the Company's vision, hearing and dental 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 also includes AbsoluteCare's employee
salaries, medical supplies, laboratory consumables and pharmaceuticals
dispensed. Cost of Services increased as a percentage of total service revenues,
excluding AbsoluteCare revenue, during the year ended December 31, 2001, as
compared to the year ended December 31, 2000. The increase primarily resulted
from service costs higher than historical amounts related to a Sponsor who began
offering the Company's vision program to its Members during the fourth quarter
of fiscal 2000, and higher service costs from a second Sponsor whose Members
participated in the Company's vision program from October 1, 2000 through August
31, 2001. The Company successfully modified the participating provider network
and reduced the fee schedule reimbursement for the first Sponsor with the higher
service costs as of the end of fiscal 2001. The benefits of the modifications
should be realized beginning in the first quarter of fiscal 2002.

     General and Administrative expenses decreased slightly as a percentage of
total service revenue but increased in amount during the year ended December 31,
2001 compared to the year ended December 31, 2000. The increase in expenses
primarily relates to the development of AbsoluteCare.

     Selling and Marketing expenses include marketing fees, broker commissions,
inside sales and marketing salaries and related expenses, travel related to the
Company's sales activities and an allocation of related overhead expenses. A
significant amount of the Company's marketing activities has been outsourced to
management consultants, National Health Enterprises, Inc. (an affiliate).
Selling and marketing expenses increased as a percentage of total service
revenue during the year ended December 31, 2001 as compared to the year ended
December 31, 2000. The increase primarily resulted from the payroll and
associated expenses related to the new salespeople and support staff hired
during July 2001, as previously mentioned, revenues from which commence later
than the related expenses and the marketing expenses related to AbsoluteCare,
which were not significant in the prior year. See Item 12 - "Certain
Relationships and Related Transactions - Agreements with National Health
Enterprises, Inc."

                                       14
<PAGE>
The following table details AbsoluteCare's patient revenues by quarter from its
inception in November 2000:

                                                               Cost of
                           Clinic              Cost of       Services as
  Quarter ended:       Patient Revenue        Services      a % of Revenue
  --------------       ---------------        --------      --------------
December 31, 2000         $ 35,847            $114,933           321%
  March 31, 2001          $269,950            $321,892           119%
  June 30, 2001           $455,021            $466,077           102%
September 30, 2001        $734,483            $684,862            93%
December 31, 2001         $880,586            $823,752            94%

     The Company began billing for internal laboratory services during June
2001, which allows the Company to generate revenues for laboratory services from
approximately 90% of its patient base, compared to 30% of the patient base
previous to internalizing the laboratory services. The Company increased its
marketing and public relations efforts during the second quarter of calendar
year 2001 in an effort to educate potential patients about the services
AbsoluteCare offers. Based upon the Company's business plan, the Company
anticipates that the growth of its patient base and the revenue from its
laboratory services will enable AbsoluteCare at least to break even and generate
positive cash flow in fiscal 2002. Because the ultimate result will depend on
factors outside the Company's control, there can be no assurances of this
result.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In July 2001, the FASB issued Statement No. 141, BUSINESS COMBINATIONS, and
Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies the
criteria which intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF.

     The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior to July
1, 2001, which it may account for using the pooling-of-interests method, and
Statement 142 effective January 1, 2002. The Company did not initiate any
business combinations prior to July 1, 2001 that were pending as of that date.

                                       15
<PAGE>
Furthermore, any goodwill and any intangible assets determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized prior
to the adoption of Statement 142.

     Statement 141 will require upon the Company's adoption of Statement 142
that the Company evaluate its existing intangible assets and goodwill that were
acquired in a prior purchase business combination and make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
142 within the first interim period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.

     In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.

     As of the date of adoption, the Company has unamortized goodwill in the
amount of $427,881, which will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $52,793 for
the year ended December 31, 2000 and $68,668 for the year ended December 31,
2001. Because of the extensive effort needed to comply with adopting Statements

                                       16
<PAGE>
141 and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether any transitional impairment losses will be required to
be recognized as the cumulative effect of a change in accounting principle.

     On October 3, 2001, the FASB issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, it
retains many of the fundamental provisions of that Statement.

     Statement No. 144 also supersedes the accounting and reporting provisions
of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - REPORTING THE
EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND
INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, for the disposal of a segment of
a business. However, it retains the requirement in Opinion No. 30 to report
separately discontinued operations and extends that reporting to a component of
an entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. By broadening the
presentation of discontinued operations to include more disposal transactions,
the FASB has enhanced managements' ability to provide information that helps
financial statement users to assess the effects of a disposal transaction on the
ongoing operations of an entity. Statement No. 144 is effective for fiscal years
beginning after December 15, 2001. At the current time, management does not
believe that the adoption of this statement on January 1, 2002 will have a
material impact on the Company's financial position.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had cash and cash equivalents of $586,610 as of December 31,
2001, compared to $1,898,534 as of December 31, 2000. The decrease of $1,311,924
is primarily due to the Company's loss from operations caused by the increase in
cost of services, the hiring of new employees to accelerate the development of
the Avesis Advantage Vision Program, the loss from operations during the
start-up of AbsoluteCare, repurchases of the Company's capital stock, payment of
the semi-annual dividend on the Company's Series A Preferred Stock and capital
expenditures related to the development of AbsoluteCare's laboratory. Current
cash on hand and cash provided from operations is expected to allow the Company
to sustain operations for the foreseeable future, subject to AbsoluteCare's
maintaining of positive cash flow, which is projected for calendar year 2002,
expansion of Avesis' vision and hearing programs at projected gross margins and
a diminution of the losses related to Avesis' vision and hearing programs, which
is also projected.

                                       17
<PAGE>
     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, 2001, the Company had $650,094 of Accounts Payable,
compared to $769,813 as of December 31, 2000. The decrease in Accounts Payable
primarily relates to the payment of the initial expenses of AbsoluteCare's
pharmacy and medical office. Claims reserves of $270,975 as of December 31, 2001
and $273,364 as of December 31, 2000 are included in Accounts Payable. The
reserves are for incurred but not reported claim reimbursements to Providers who
participate in certain managed care programs. The Company believes this reserve
is adequate based upon historical trends and its experience.

     The Company expects to pay dividends of approximately $43,000 on the Series
A Shares to holders of record on May 31, 2002.

     The Company anticipates that it will file the necessary document to
deregister its Common Stock and Series 2 Preferred Stock during the first week
of April 2002. See Item 5 - "Market for Common Equity and Related Stockholder
Matters" for additional information.

ITEM 7. FINANCIAL STATEMENTS

     Financial Statements appear commencing at page F-1 hereafter.

                                       18
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
Independent Auditors' Report                                                 F-1

Financial Statements:

  Consolidated Balance Sheets                                                F-2

  Consolidated Statements of Operations                                      F-3

  Consolidated Statements of Stockholders' Equity                            F-4

  Consolidated Statements of Cash Flows                                      F-5

  Notes to Consolidated Financial Statements                                 F-6
<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, 2001 and 2000, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  years  then  ended.  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 auditing standards generally accepted
in the  United  States of  America.  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  as of December  31,  2001 and 2000,  and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
accounting principles generally accepted in the United States of America.


                                  /s/ KPMG LLP


Baltimore, Maryland
March 1, 2002

                                      F-1
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                      ASSETS                                               2001            2000
                                                                                       ------------    ------------
<S>                                                                                    <C>             <C>
Current assets:
  Cash and cash equivalents                                                            $    586,610       1,898,534
  Accounts receivable, net (note 2)                                                         537,299         478,517
  Inventory                                                                                  87,550         114,973
  Income taxes receivable                                                                        --          27,141
  Prepaid expenses and other                                                                105,739         274,773
                                                                                       ------------    ------------
      Total current assets                                                                1,317,198       2,793,938

Property and equipment, net (note 3)                                                        586,467         666,713
Goodwill, net of accumulated amortization of $121,461                                       427,881         496,549
Deposits and other assets                                                                   365,034         366,394
                                                                                       ------------    ------------
      Total assets                                                                     $  2,696,580       4,323,594
                                                                                       ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                                     $    650,094         769,813
  Current installments of obligations under capital leases                                       --          10,288
  Accrued expenses                                                                           60,479          45,030
  Deferred income                                                                            11,768          13,796
                                                                                       ------------    ------------
      Total current liabilities                                                             722,341         838,927

Obligations under capital leases, excluding current installments                                 --             274
                                                                                       ------------    ------------
      Total liabilities                                                                     722,341         839,201
                                                                                       ------------    ------------

Stockholders' equity:
  Preferred stock, $.01 par value. Authorized 12,000,000 shares (note 8):
    $3.75 Class A, senior nonvoting cumulative convertible preferred
      stock, Series A. Authorized 1,000,000 shares; 256,721 and 270,160
      shares issued and outstanding at December 31, 2001 and 2000,
      respectively (liquidation preference of $3.75 per share)                                2,568           2,702
    $10 Class A, nonvoting cumulative convertible preferred stock,
      Series 2. Authorized 1,000,000 shares; 4,700 shares issued and
      outstanding (liquidation preference of $10 per share)                                      47              47
  Common stock of $.01 par value. Authorized 30,000,000 shares; 7,618,425
    and 7,621,047 shares issued and outstanding at December 31, 2001 and
    2000, respectively                                                                       76,184          76,210
  Additional paid-in capital                                                             10,472,760      10,524,176
  Accumulated deficit                                                                    (8,577,320)     (7,118,742)
                                                                                       ------------    ------------
      Total stockholders' equity                                                          1,974,239       3,484,393

Commitments and contingencies (notes 4, 10, 11, 12, 13 and 16)
                                                                                       ------------    ------------
                                                                                       $  2,696,580       4,323,594
                                                                                       ============    ============
</TABLE>

See accompanying notes to consolidated financial statements

                                      F-2
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                      Consolidated Statements of Operations
                     Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                       2001            2000
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Service revenues:
  Administration fees                                              $  6,048,596       6,252,678
  Clinic patient revenues                                             2,340,040          35,847
  Buying group                                                        1,123,817       1,418,740
  Other                                                                  51,598         101,430
                                                                   ------------    ------------
      Total service revenues                                          9,564,051       7,808,695

Cost of services                                                      7,971,779       5,404,285
                                                                   ------------    ------------
      Income from services                                            1,592,272       2,404,410

General and administrative expenses                                   1,853,470       1,527,518
Selling and marketing expenses                                        1,170,717         823,601
                                                                   ------------    ------------
      Income (loss) from operations                                  (1,431,915)         53,291
                                                                   ------------    ------------
Non-operating income (expense):
  Interest income                                                        50,262         136,583
  Interest expense                                                         (472)         (1,394)
  Other                                                                  14,654           2,963
                                                                   ------------    ------------
      Total non-operating income                                         64,444         138,152
                                                                   ------------    ------------
      Income (loss) before income taxes                              (1,367,471)        191,443

Income taxes                                                                 --           7,000
                                                                   ------------    ------------
      Net income (loss)                                              (1,367,471)        184,443

Preferred stock dividends                                                90,873          95,409
                                                                   ------------    ------------
      Net income (loss) available to common stockholders           $ (1,458,344)         89,034
                                                                   ============    ============
Earnings (loss) per share:
  Basic                                                            $      (0.19)           0.01
  Diluted                                                          $      (0.19)           0.01
                                                                   ============    ============
Weighted average common and equivalent shares outstanding:
  Basic                                                               7,619,553       7,534,420
  Diluted                                                             7,857,120       7,924,639
                                                                   ============    ============
</TABLE>

See accompanying notes to consolidated financial statements

                                      F-3
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                     Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                   PREFERRED STOCK                        ADDITIONAL                       TOTAL
                                             --------------------------       COMMON        PAID-IN      ACCUMULATED   STOCKHOLDERS'
                                              SERIES A       SERIES 2         STOCK         CAPITAL        DEFICIT        EQUITY
                                             -----------    -----------    -----------    -----------    -----------    -----------
<S>                                          <C>            <C>            <C>            <C>            <C>            <C>
Balance, December 31, 1999                   $     2,722             50         72,503     10,265,360     (7,211,989)     3,128,646
Conversion of 2,000 shares
  of preferred stock, Series A
  for 20,000 shares of common stock
  and 300 shares of preferred stock,
  Series 2 for 750 shares of common stock            (20)            (3)           207           (184)            --             --
Issuance of 350,000 shares of common stock
  in connection with business
  acquisition (note 13)                               --             --          3,500        259,000             --        262,500
Dividends paid on preferred stock,                    --             --             --             --        (91,196)       (91,196)
  Series A
Net income                                            --             --             --             --        184,443        184,443
                                             -----------    -----------    -----------    -----------    -----------    -----------
Balance, December 31, 2000                         2,702             47         76,210     10,524,176     (7,118,742)     3,484,393
Stock repurchase, 2,622 shares
  of common stock                                     --             --            (26)        (1,311)            --         (1,337)
Stock repurchase, 13,439 shares
  of preferred stock, Series A                      (134)            --             --        (50,105)            --        (50,239)
Dividends paid on preferred stock,                    --             --             --             --        (91,107)       (91,107)
  Series A
Net loss                                              --             --             --             --     (1,367,471)    (1,367,471)
                                             -----------    -----------    -----------    -----------    -----------    -----------
Balance, December 31, 2001                   $     2,568             47         76,184     10,472,760     (8,577,320)     1,974,239
                                             ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                     Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                    2001            2000
                                                                                ------------    ------------
<S>                                                                             <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                                             $ (1,367,471)        184,443
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                                  318,990         224,407
      Increase (decrease) in cash resulting from changes in:
        Accounts receivable                                                          (58,782)       (177,469)
        Inventory                                                                     27,423        (114,973)
        Income tax receivable                                                         27,141         (27,141)
        Prepaid expenses and other                                                   169,034         (97,673)
        Deposits and other assets                                                      1,360          66,114
        Accounts payable                                                            (119,719)         90,164
        Accrued expenses                                                              15,449         (14,708)
        Deferred income                                                               (2,028)           (268)
                                                                                ------------    ------------
          Net cash provided by (used in) operating activities                       (988,603)        132,896
                                                                                ------------    ------------
Cash flows from investing activities:
  Purchases of property and equipment                                               (170,076)       (326,723)
  Payments for acquisition                                                                --        (286,842)
                                                                                ------------    ------------
          Net cash used in investing activities                                     (170,076)       (613,565)
                                                                                ------------    ------------
Cash flows from financing activities:
  Payment of dividend on preferred stock                                             (91,107)        (91,196)
  Repurchase of capital stock                                                        (51,576)             --
  Principal payments under capital lease obligations                                 (10,562)        (13,340)
                                                                                ------------    ------------
          Net cash used in financing activities                                     (153,245)       (104,536)
                                                                                ------------    ------------
          Net decrease in cash and cash equivalents                               (1,311,924)       (585,205)

Cash and cash equivalents, beginning of year                                       1,898,534       2,483,739
                                                                                ------------    ------------
Cash and cash equivalents, end of year                                          $    586,610       1,898,534
                                                                                ============    ============
Supplemental disclosures of cash flow information:
  Cash paid for interest                                                        $        472           1,394
                                                                                ============    ============
Supplemental disclosure of noncash investing and
  financing activities: During 2000, 350,000 shares
  of common stock valued at $262,500 were issued in
  connection with an acquisition
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  NATURE OF BUSINESS, CONSOLIDATION POLICY AND GOING CONCERN ASSUMPTION

          Avesis Incorporated, a Delaware Corporation, and its wholly owned
          subsidiaries, Avesis of Washington, D.C., a District of Columbia
          Corporation, Avesis Reinsurance Incorporated, an Arizona Corporation,
          Avesis of New York, Inc., a New York Corporation, and Avesis Third
          Party Administrators, Inc., an Arizona Corporation (collectively, the
          Company) market and administer vision, hearing and dental 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
          vision providers a buying group program that enables the provider to
          purchase frames from the manufacturers at discounts from wholesale
          costs. 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 Company incorporated
          AbsoluteCare, Inc. (AbsoluteCare) in July 2000 to operate infectious
          disease centers, with a current concentration on HIV/AIDS treatment
          and opened a clinic in Atlanta, Georgia in November 2000. 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.

          The accompanying consolidated financial statements have been prepared
          assuming that the Company will continue as a going concern. They do
          not include adjustments relating to the recoverability of recorded
          asset amounts and classification of recorded assets and liabilities
          that might result if the Company were unable to continue as a going
          concern.

          The Company reported a net loss from operations of approximately $1.4
          million and negative cash flows from operating activities of
          approximately $989,000 for the year ended December 31, 2001. These
          conditions raise doubt about the Company's ability to continue as a
          going concern.

          The Company has developed an operating plan which reflects the
          addition of new contracts and growth in patient volumes at
          AbsoluteCare. In addition, the Company has available a revolving line
          of credit for an amount not to exceed $100,000. The Company's existing
          working capital resources, its available credit line and the
          anticipated results of its operating plan for 2002 indicate that the
          Company has the ability to continue as a going concern for a period of
          at least 12 months. Also, the Company intends to identify other
          sources of capital to fund its operations, if needed. However, there
          can be no assurance that the Company will be successful in achieving
          its operating plan for 2002 or in securing any additional capital.

     (b)  USE OF ESTIMATES

          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States of America 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.

                                      F-6                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


     (c)  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.

     (d)  INVENTORY

          Inventory consists of drugs, topicals and other medical supplies of
          AbsoluteCare.

          Inventory is stated at the lower of cost or market. Cost is determined
          using the first-in, first-out method.

     (e)  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. Leasehold improvements are amortized over the
          lesser of the lease term or the estimated useful lives of the
          respective assets, generally three years.

     (f)  GOODWILL

          Goodwill, which represents the excess of purchase price over fair
          value of net tangible assets acquired, is amortized on a straight-line
          basis over the expected periods to be benefited. The Company assesses
          the recoverability of goodwill by determining whether the amortization
          of the goodwill over its remaining life can be recovered through
          undiscounted future operating cash flows of the acquired operation.
          The amount of goodwill impairment, if any, is measured based on
          projected future operating cash flows using a discount rate reflecting
          the Company's average cost of funds. The assessment of the
          recoverability of goodwill will be impacted if estimated future
          operating cash flows are not achieved.

     (g)  CLAIMS PAYABLE

          Claims payable represent the liability for claims reported but not yet
          paid and claims incurred but not yet reported. Claims payable of
          $270,975 and $273,364 as of December 31, 2001 and 2000, respectively,
          are included in accounts payable.

     (h)  REVENUE RECOGNITION

          Clinic patient revenue is reported at the estimated net realizable
          amounts from patients, third-party payors and others for services
          rendered. Net clinic patient revenue is adjusted in subsequent periods
          based on final settlements. Administrative fee revenue is recognized
          on the accrual basis 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.

     (i)  DEFERRED REVENUE

          Deferred revenue represents cash received on membership fees received
          from sponsors in advance of services being rendered, as allowed under
          fee agreements.

                                      F-7                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


     (j)  EARNINGS PER SHARE (EPS)

          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.

     (k)  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.

     (l)  STOCK OPTIONS AND WARRANTS

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

     (m)  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.

     (n)  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The fair value of cash equivalents, accounts receivable, accounts
          payable, and accrued expenses approximates the carrying value due to
          the short-term nature of these instruments.

     (o)  COMPREHENSIVE INCOME

          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 years ended December 31, 2001 and 2000.

                                      F-8                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


     (p)  SEGMENT REPORTING

          The Company has two operating business segments, one of which markets
          and administers vision, hearing and dental programs and one of which
          operates an infectious disease clinic.

     (q)  RECLASSIFICATION

          Certain 2000 amounts have been reclassified to conform with the 2001
          presentation.

(2)  ACCOUNTS RECEIVABLE

     Accounts receivable consists of the following at December 31:

                                                      2001           2000
                                                   ----------     ----------
Trade accounts receivable                          $  561,659        502,877
Less allowance for doubtful accounts                   24,360         24,360
                                                   ----------     ----------
                                                   $  537,299        478,517
                                                   ==========     ==========

(3)  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at December 31:

                                                      2001           2000
                                                   ----------     ----------
Furniture and fixtures                             $  295,255        292,240
Leasehold improvements                                135,208        132,663
Equipment                                             756,811        620,333
Software                                              550,802        522,764
                                                   ----------     ----------
                                                    1,738,076      1,568,000

Less accumulated depreciation and amortization      1,151,609        901,287
                                                   ----------     ----------
                                                   $  586,467        666,713
                                                   ==========     ==========

(4)  LEASES

     On June 3, 1999, the Company entered into a lease agreement with KA Real
     Estate Associates, LLC, (a related party) for office space in Owings Mills,
     Maryland. This operating lease expires in November 2004. The Company paid
     $28,172 and $23,393 in rent and related expenses during the years ended
     December 31, 2001 and 2000, respectively.

     The Company also leases other office space and equipment under
     non-cancelable operating leases. For the years ended December 31, 2001 and
     2000, rent expense for all operating leases was $251,998 and $221,137
     respectively.

                                      F-9                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000

     Future minimum lease payments for all operating leases are as follows for
the years ending December 31:

                    2002                               $225,813
                    2003                                106,474
                    2004                                 38,218
                    2005                                  3,000
                                                       --------
                                                       $373,505
                                                       ========

(5)  INCOME TAXES

     For the years ended December 31, 2001 and 2000, income tax expense amounted
     to $0 and $7,000, respectively.

     Components of income tax expense for the years ended December 31, 2001 and
     2000 include:

                                      CURRENT     DEFERRED      TOTAL
                                      -------     --------     -------

     December 31, 2001:
       Federal                        $    --           --          --
       State                               --           --          --
                                      -------     --------     -------
                                      $    --           --          --
                                      =======     ========     =======
     December 31, 2000:
       Federal                        $    --           --          --
       State                            7,000           --       7,000
                                      -------     --------     -------
                                      $ 7,000           --       7,000
                                      =======     ========     =======

     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 years ended December 31, 2001
     and 2000, are as follows:

                                                       2001         2000
                                                    ---------    ---------
     Computed "expected" federal income
       tax expense (benefit)                        $(464,940)      65,091
     Change in valuation allowance                    542,212      (38,791)
     State taxes                                      (83,942)       5,489
     AMT credit carryforward                               --      (16,685)
     Other                                              6,670       (8,104)
                                                    ---------    ---------
                                                    $      --        7,000
                                                    =========    =========

                                     F-10                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


     The tax effects of temporary differences that give rise to significant
     portions of deferred tax assets and liabilities at December 31, 2001 and
     2000 are as follows:

                                                    2001            2000
                                                ------------    ------------
     Deferred tax assets:
       Net operating loss carryforwards (NOL)   $  2,420,686       1,920,319
       Accrued expenses and other                     93,725          64,661
       Property and equipment                        (46,015)        (58,796)
       Valuation allowance                        (2,468,396)     (1,926,184)
                                                ------------    ------------
           Net deferred tax liability           $         --              --
                                                ============    ============

     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 years ended
     December 31, 2001 and 2000, was an increase of $542,212 and a decrease of
     $38,791, respectively.

     The Company's federal NOLs of approximately $6,300,000 expire between 2004
     and 2021.

(6)  EARNINGS PER SHARE

     A summary of the reconciliation from basic earnings per share to diluted
     earnings per share for the years ended December 31, 2001 and 2000 follows:

                                                      2001           2000
                                                  -----------    -----------
     Net income (loss)                            $(1,367,471)       184,443
     Less preferred stock dividends                   (90,873)       (95,409)
                                                  -----------    -----------
           Net income (loss) available to
             common stockholders                  $(1,458,344)        89,034
                                                  ===========    ===========

     Basic EPS-- weighted average shares
       outstanding                                  7,619,553      7,534,420
     Effect of dilutive securities:
       Convertible preferred stock                         --             --
       Employee stock options                         237,567        390,219
                                                  -----------    -----------
           Diluted EPS-- weighted average
             shares outstanding                     7,857,120      7,924,639
                                                  ===========    ===========
     Earnings (loss) per share:
       Basic                                      $     (0.19)          0.01
       Diluted                                    $     (0.19)          0.01
                                                  ===========    ===========

     The effect of the conversion of convertible preferred stock is
     anti-dilutive and has been excluded in 2001 and 2000.

                                     F-11                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


(7)  STOCK OPTIONS AND WARRANTS

     The Company's stock option plan (the Plan) sets aside 900,000 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 date of grant. At December 31,
     2001, there were 255,000 incentive options outstanding under this plan (of
     which 223,334 were exercisable at prices ranging from $0.48 to $0.85 per
     share) and 135,000 non-qualified options outstanding under this plan (of
     which 135,000 were exercisable at prices ranging from $0.40 to $1.00 per
     share). At December 31, 2000, there were 265,000 incentive options
     outstanding under this plan (of which 195,002 were exercisable at prices
     ranging from $0.48 to $0.85 per share) and 120,000 non-qualified options
     outstanding under this plan (of which 110,000 were exercisable at prices
     ranging from $0.40 to $1.00 per share).

     As of December 31, 2001 and 2000, there were 758,000 NHE options
     outstanding which were exercisable at an option price of $0.48, as more
     fully discussed in note 10.

     A summary of stock option activity for the years ended December 31, 2001
     and 2000 follows:

                                                                    PRICE PER
                                                   OPTIONS           OPTION
                                                  ----------      -------------
     Balance outstanding, December 31, 1999        1,098,000
       Granted                                        45,000      $ 0.51 - 0.85
       Exercised                                          --
       Canceled                                           --
                                                  ----------
     Balance outstanding, December 31, 2000        1,143,000
       Granted                                        15,000      $   0.60
       Exercised                                          --
       Canceled                                      (10,000)     $   0.51
                                                  ----------
     Balance outstanding, December 31, 2001        1,148,000
                                                  ==========

     As of December 31, 2001 and 2000, options to purchase 1,116,334 and
     1,063,002 shares, respectively, were exercisable at prices ranging from
     $0.40 to $1.00.

                                     F-12                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


     A summary of stock options outstanding and exercisable at December 31, 2001
     follows:

                        OUTSTANDING                            EXERCISABLE
     -------------------------------------------------   -----------------------
                      NUMBER      WEIGHTED
         RANGE     OUTSTANDING     AVERAGE    WEIGHTED     NUMBER       WEIGHTED
          OF            AT        REMAINING    AVERAGE   EXERCISABLE     AVERAGE
       EXERCISE    DECEMBER 31,  CONTRACTUAL  EXERCISE   DECEMBER 31,   EXERCISE
         PRICE         2001         LIFE        PRICE       2001          PRICE
     ------------  ------------  -----------  --------   ------------   --------
     $       0.40      100,000       1.3        $0.40       100,000       $0.40
     $       0.48      978,000       2.3        $0.48       958,000       $0.48
     $  0.51-1.00       70,000       7.9        $0.66        58,334       $0.67
     ------------   ----------                  -----    ----------       -----
     $  0.40-1.00    1,148,000                  $0.48     1,116,334       $0.48
     ============   ==========                  =====    ==========       =====

     The weighted average fair value at date of grant for options granted during
     the years ended December 31, 2001 and 2000 was $0.53 and $0.30,
     respectively. The fair value of each option was estimated on the date of
     grant using the Black-Scholes pricing model with the following assumptions:

                                         2001           2000
                                        ------         ------
     Dividend yield                      0.00%          0.00%
     Expected volatility                71.45%         71.45%
     Risk-free interest rate             5.35%          5.56%
     Forfeiture rate                        0              0
     Expected term in years                10              6

     The Company applies APB Opinion No. 25 and related interpretations in
     accounting for its plan. Accordingly, no compensation cost has been
     recognized in the financial statements. Had compensation cost for the
     Company's stock-based compensation plan been determined consistent with
     FASB Statement No. 123, the Company's net income (loss) would have been
     changed to the pro forma amounts indicated below, for the year ended
     December 31:

                                            2001           2000
                                        -----------    ----------
     Net income (loss):
       As reported                      $(1,367,471)      184,443
       Pro forma                        $(1,372,729)      179,450
                                        ===========    ==========
     Earnings (loss) per share:
       Basic:
         As reported                    $     (0.19)         0.01
         Pro forma                      $     (0.19)         0.01
                                        ===========    ==========
       Diluted:
         As reported                    $     (0.19)         0.01
         Pro forma                      $     (0.19)         0.01
                                        ===========    ===========

                                     F-13                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


(8)  PREFERRED STOCK

     The senior nonvoting cumulative convertible preferred stock, Series A (the
     Series A shares) is senior in rights to annual dividends and redemptions to
     the nonvoting cumulative convertible preferred stock, Series 2 (the Series
     2 shares). The preferred stock, Series A is convertible at the rate of ten
     shares of common stock for each preferred share, and has a liquidation
     preference of $3.75 per share. 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. Each Series A share is entitled to receive an annual cumulative
     dividend of $0.3375, paid semi-annually at $0.16875 per share. 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 Series 2 shares provide for quarterly dividends at the fixed annual
     rate of $0.90 per share. The Series 2 shares are convertible into common
     stock at $4.00 per share, subject to adjustment under certain conditions.
     There is a liquidation preference of $10.00 per share plus all accrued and
     unpaid dividends, before any amounts are distributed to the holders of
     common stock. Dividends accrue at .225 per share each calendar quarter. As
     of December 31, 2001 and 2000, dividend arrearages on the Series 2 Shares
     were $8.325 per share and $7.425 per share, respectively, or $39,128 and
     $34,898, respectively. 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.
     The Company has not paid any dividends on its common stock since its
     inception.

(9)  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,
     Southwestern states, Southeastern states, and the D.C. metropolitan area.
     For the years ended December 31, 2001, three major customers provided 14%,
     11%, and 11% of total service revenues. For the year ended December 31,
     2000, four major customers provided 22%, 15%, 9% and 9% of total service
     revenues.

                                     F-14                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


(10) RELATED PARTY TRANSACTIONS

     The Company has a Long-Term Management Agreement with National Health
     Enterprises, Inc. of Owings Mills, Maryland (NHE) which provides for NHE to
     manage all aspects of the Company's business and which expires March 2003.
     In connection with the original agreement in 1993, 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 $0.40 per
     share were vested at inception, and the remaining options to purchase
     shares at an exercise price of $0.48 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 $0.48 per share to
     Richter & Co., Inc., a subsidiary of Richter Investment Corp. (RIC). For
     each of the years ended December 31, 2001 and 2000, payments of $300,000
     were made under the Long-Term Management Agreement.

     Additionally, the Company has 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 became obligated to pay
     approximately $96,185 in 2001 and $149,184 in 2000, under the terms of this
     agreement.

     The Company contracted with National Computer Services, Inc. (NCS) to lease
     its computer system for approximately $1,000 per month. The Company paid
     $1,000 in 2001 and $12,000 in 2000. This lease ended in January 2001.

     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 7 (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.

     The Company has retained RIC, an asset management and merchant banking
     firm, whose principal, William L. Richter, is a stockholder and member of
     the Company's board of directors, as exclusive financial advisor. RIC's
     fees under this arrangement include an annual retainer of $30,000 and
     additional payments that are payable generally 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 RIC 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 RIC. For the years
     ended December 31, 2001 and 2000, payments of $31,250 and $44,906,
     respectively, were made under this agreement. In the opinion of management,
     the terms of the Company's arrangements with RIC, NHE and NCS taken as a
     whole are at least as favorable to the Company as could be obtained from
     third parties.

                                     F-15                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000


     During the years ended December 31, 2001 and 2000, the Company made
     payments of $28,172 and $23,393 to KA Real Estate Associates for the lease
     of office space and related expenses, as discussed in note 4.

(11) 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 years ended December 31, 2001 and
     2000, the Company did not contribute to the plan.

(12) INDUSTRY SEGMENTS

     During 2000, the Company began operating in two reportable business
     segments, the marketing and administration of vision, hearing and dental
     services and the operation of an infectious disease clinic. The two
     segments have infrastructures that offer different products and services.
     The Company evaluates the performance of its operating segments based on
     income before income taxes, accounting changes and nonrecurring items.

     Summarized financial information concerning the Company's reportable
     segments is shown below:

<TABLE>
<CAPTION>
                                       VISION, HEARING     INFECTIOUS
                                         AND DENTAL          DISEASE       INTERSEGMENT
2001                                      SERVICES           CLINIC        ELIMINATIONS         TOTAL
                                       ---------------     ----------      ------------      -----------
<S>                                    <C>                 <C>             <C>               <C>
Revenues                                 $ 7,221,237        2,342,814               --        9,564,051
Segment profit (loss)                       (918,803)        (448,668)              --       (1,367,471)
Total assets                               3,241,999          753,332       (1,298,751)       2,696,580
Depreciation and amortization                230,746           88,244               --          318,990

2000

Revenues                                 $ 7,772,848           35,847               --        7,808,695
Segment profit (loss)                        405,970         (214,527)              --          191,443
Total assets                               4,379,123          415,687         (471,216)       4,323,594
Depreciation and amortization                212,766           11,641               --          224,407
</TABLE>

(13) ACQUISITION OF SOUTHERN STATES EYE CARE, LLC

     On March 24, 2000, the Company purchased Southern States Eye Care, LLC for
     an aggregate purchase price of $549,342, including transaction related
     costs of $36,842. The total purchase price for the acquisition consisted of
     $250,000 cash and the issuance of 350,000 shares of common stock valued at
     $0.75 per share. The acquisition was accounted for under the purchase
     method. There were no tangible assets or liabilities acquired in this
     purchase. The entire purchase price was treated as goodwill and is being
     amortized over eight years on a straight-line basis.

                                     F-16                            (Continued)
<PAGE>
                      AVESIS INCORPORATED AND SUBSIDIARIES
                        Consolidated Financial Statements
                           December 31, 2001 and 2000

     The following unaudited pro forma information presents a summary of
     consolidated results of operations of the Company as if the acquisition of
     Southern States Eye Care, LLC had occurred January 1, 2000, with pro forma
     adjustments together with related income tax effects. The pro forma results
     have been prepared for comparative purposes only and do not purport to be
     indicative of the results of operations that would actually have resulted
     had the combination been in effect on the date indicated.

                                              YEAR ENDED
                                             DECEMBER 31,
                                                 2000
                                             ------------
     Total revenues                           $8,140,173
     Net income                                  290,159
     Basic earnings per common share                0.03

(14) COMMITMENTS AND CONTINGENCIES

     Certificates of deposit aggregating $200,000 at December 31, 2001 and 2000
     are included in deposits and other assets and are restricted to meet
     regulatory requirements or contractual obligations related to Avesis
     Reinsurance, Inc. and the Avesis Advantage Vision Plan.

     The Company has available a revolving line of credit for an amount not to
     exceed $100,000, which expires October 2002. The line of credit bears
     interest at the bank's National Association Base rate plus 1%. As of
     December 31, 2001, the Company had not drawn on this line of credit.

                                      F-17
<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 (as of March 13,
2002) relating to them.

Name                          Age        Position(s) with Company
----                          ---        ------------------------
William R. Cohen              70         Co-Chairman and Director

William L. Richter            59         Co-Chairman and Director

Kenneth L. Blum, Sr.          75         Director, Former Acting President and
                                         CEO from September 1996 to May 1998

Gerald L. Cohen               57         Director

Brent D. Layton               34         Director

Alan S. Cohn                  46         President, CEO and Director

Kenneth L. Blum, Jr.          38         Director
                                         Corporate Secretary

Shannon R. Barnett            33         Controller

Joel H. Alperstein            33         Treasurer, Chief Financial Officer

                                       19
<PAGE>
     William R. Cohen, 70, 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, 59, 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 banking firm, (or its predecessor organization) for
the past twelve 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., 75, 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."

     Gerald L. Cohen, 57, 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 is
not related to William R. Cohen.

     Brent D. Layton, 34, became a Director of the Company as of April 2000. Mr.
Layton has been the President of Layton & Associates, Inc., a health care
consulting firm, since 1995, and has been a consultant to the Company since
September 1999. Most recently he was the General Manager of SouthernStates Eye
Care and has been an owner of five different IPAs. He served as a Deputy
Insurance Commissioner in Georgia from 1991 to 1995.

                                       20
<PAGE>
     Alan S. Cohn, 46, 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., 38, became the Corporate Secretary of the Company as
of November 2000 and has been a Director of the Company since 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."

     Shannon R. Barnett, 33, 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, 33, 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 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.

                                       21
<PAGE>
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."

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 year ended December 31, 2001,
except that Messrs. Cohn and Blum, Jr. each reported transactions from July 2001
on Form 4s dated February 8, 2002. 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 years ended December 31, 2001 and 2000,
     and the transition period ended December 31, 1999. No executive
     officer that was serving as an executive officer during the year ended
     December 31, 2001 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>
Alan S. Cohn, CEO (1)                  2001                  $0                                --
                                       2000                  $0                                --
                                Transition Period            $0
</TABLE>

(1)  Mr. Cohn is compensated through the Management Agreement with National
     Health Enterprises, Inc. The Company paid $300,000, $300,000 and $175,000
     under the Management Agreement during the years ended December 31, 2001 and
     2000, and the transition period ended December 31, 1999, respectively. The
     Company also incurred approximately $96,185, $149,184 and $155,167 under
     the Marketing Representation Agreement during the years ended December 31,
     2001 and 2000, and the transition period ended December 31, 1999,
     respectively.

     See also Item 12 -- "Certain Relationships and Related Transactions -
     Agreements with National Health Enterprises, Inc. -- Stock Option Grant"
     for a discussion of options transferred to Mr. Cohn by National Health
     Enterprises during 2001.

                                       22
<PAGE>
             Aggregated Option/SAR Exercises in Last Fiscal Year and
                       Fiscal Year-End Option/SAR Values

     The following table sets forth information for the Company's Chief
Executive Officer concerning the number and value of stock options outstanding
at the end of the fiscal year. The Company's CEO did not exercise any stock
options during fiscal year 2001. No SARs are outstanding.

<TABLE>
<CAPTION>
                                                    Number of Securities Underlying        Value of Unexercised
                                                      Unexercised Options/SARs at      In-the-Money Options/SARs at
                      Shares                              Fiscal Year-End (#)             Fiscal Year-End ($)(1)
                    Acquired on        Value        -------------------------------    ----------------------------
Name                Exercise (#)    Realized ($)    Exercisable    Unexercisable(2)    Exercisable    Unexercisable
----                ------------    ------------    -----------    ----------------    -----------    -------------
<S>                 <C>             <C>             <C>            <C>                 <C>            <C>
Alan S. Cohn, CEO        0               $0           169,000             0               $9,295            $0
</TABLE>

(1)  Based on the average of the December 31, 2001 bid and asked price of the
     common stock as such quotations are reported by the National Quotation
     Bureau, Inc. via the NASD Electronic Bulletin Board.
(2)  Represents unvested options at the end of fiscal 2001.

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 a grant in 1993.

     On April 5, 2000, the Board of Directors voted to compensate all outside
Directors $5,000 for their service to the Company during calendar year 1999. For
purposes of this vote, outside Directors were defined as Directors not otherwise
receiving compensation from the Company, including through any consulting
arrangement. All of the outside Directors, except Mr. Oolie, waived receipt of
the payment and no payment to present outside Directors was made. Mr. Oolie
retired from the Company's Board of Directors during April 2000.

                                       23
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of March 8, 2002 there were 7,618,425 shares of Common Stock, 4,700
Series 2 Preferred Shares and 256,721 Series A Preferred Shares outstanding. The
table below sets forth as of March 8, 2002, 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 more than 5% 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)
                                                              ---------------------------------------------------
                                                                             % of                   Total Common
                                                               Series A     Series A                 Beneficially      Percent of
                                       Common        % of     Preferred    Preferred                   Owned (1)       Common (2)
Name and Address                       Stock        Common      Stock        Stock      Options    (fully diluted)   (fully diluted)
----------------                       -----        ------      -----        -----      -------    ---------------   ---------------
<S>                                 <C>             <C>       <C>          <C>          <C>        <C>               <C>
Gerald L. Cohen*                      253,359         3.3       20,292        7.9            --          456,279            5.8

William R. Cohen*                     161,117 (3)     2.1       10,552        4.1            --          266,637            3.5

William L. Richter (4)              1,239,620        16.3       86,974       33.9            --        2,109,360           24.9
C/o Richter Investment Corp.
450 Park Ave., 28th Floor
New York, NY 10022

Kenneth L. Blum, Sr.                  185,000 (5)     2.4       38,875       15.1            --          573,750            7.2
17133 Ericarose Street
W. Boca Raton, FL  33496

Kenneth L. Blum, Jr.                1,814,750        23.8           --         --       169,000        1,983,750           25.5
10324 S. Dolfield Rd.
Owings Mills, MD 21117

Alan S. Cohn                        1,804,750        23.7           --         --       169,000        1,973,750           25.3
10324 S. Dolfield Rd.
Owings Mills, MD 21117

Brent D. Layton                        46,376         0.6%          --         --        25,000           71,376            0.9
3600 Dallas Highway, N.W.
Suite 230-393
Marietta, GA 30064

Sam Oolie                             220,021 (6)     2.9       24,023        9.4       100,000          560,251            7.0
Oolie Enterprises
11 Industrial Avenue
Upper Saddle River, NJ 07458

All directors and
Executive officers as
a group (9 persons)                 5,504,972 (3)    72.3      156,693       61.0       563,000       7,634,902            78.3
</TABLE>

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

                                       24
<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 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.

(4)  Includes 462,500 shares of Common Stock and shares of Common Stock issuable
     upon conversion of 40,713 shares of Series A indirectly owned via an
     affiliated corporation, Richter Investment Corp. ("RIC"), which thereby
     beneficially owns in its own name 869,630 shares or 10.8% of the Company's
     Common Stock. 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.

(5)  Includes 140,000 shares of Common Stock held by Mr. Blum's spouse.

(6)  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 of Common Stock owned by Mr. Oolie's wife, as to which Mr. Oolie
     disclaims beneficial ownership.

                                       25
<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 because of
their relationship with 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.

     The original provisions of the Stock Option Grant allowed for the
assignment of options to employees and consultants working for the Company. The
provisions of the assignments called for the reversion back of the options to
NHE should the individuals assigned the options cease to perform substantial
services for the Company. During May 2001, 348,000 options reverted back to NHE
and were equally distributed to Mr. Blum, Jr. and Mr. Cohn, for no value
received. These options are exercisable at $0.48 per share and will expire on
March 18, 2003. During July 2001, Mr. Blum, Jr. and Mr. Cohn each assigned 5,000
options to a consultant working with the Company. No profit was derived from
these transactions.

     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 years ended December 31, 2001 and 2000, the
Company paid approximately $96,000 and $149,000, respectively, to NHE under the
Marketing Agreement. For the years ended December 31, 2001 and 2000, the Company
paid approximately $13,800 and $13,700, respectively, in reimbursable marketing
expenses to NHE under the Marketing Agreement.

                                       26
<PAGE>
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
$28,172 and $23,393 in rent and related expenses during the years ended December
31, 2001 and 2000, respectively. See Item 2 - "Description of Properties."

INVESTMENT BANKING SERVICES

     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.

     During the years ended December 31, 2001 and 2000, Richter Investment Corp.
received fees of $3,750 and $14,906, respectively, under the Investment Banking
Agreement for services rendered related to the Southern States Eye Care, LLC
asset acquisition.

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 years ended December 31, 2001 and 2000. Additionally, the
Company had contracted with NCS to lease its computer system for approximately
$1,000 per month. The Company paid $1,000 and $12,000 of computer lease charges
for the years ended December 31, 2001 and 2000, respectively. The Company
terminated its computer system lease agreement with NCS as of January 31, 2001.
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.

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.

                                       27
<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: April 1, 2002                    By: /s/ Alan S. Cohn
                                           -------------------------------------
                                           Alan S. Cohn
                                           President and CEO
                                           (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, CEO (Principal           April 1, 2002
---------------------------    Executive Officer) and Director
Alan S. Cohn

/s/ Joel H. Alperstein         Treasurer and                       April 1, 2002
---------------------------    Chief Financial Officer
Joel H. Alperstein             (Principal Financial Officer)

/s/ Shannon R. Barnett         Controller                          April 1, 2002
---------------------------    (Principal Accounting Officer)
Shannon R. Barnett

/s/ William R. Cohen           Co-Chairman of the                  April 1, 2002
---------------------------    Board of Directors
William R. Cohen

/s/ William L. Richter         Co-Chairman of the                  April 1, 2002
---------------------------    Board of Directors
William L. Richter

/s/ Kenneth L. Blum, Sr.       Director                            April 1, 2002
---------------------------
Kenneth L. Blum, Sr.

/s/ Kenneth L. Blum, Jr.       Corporate Secretary and             April 1, 2002
---------------------------    Director
Kenneth L. Blum, Jr.

/s/ Gerald L. Cohen            Director                            April 1, 2002
---------------------------
Gerald L. Cohen

/s/ Brent D. Layton            Director                            April 1, 2002
---------------------------
Brent D. Layton
<PAGE>
                               AVESIS INCORPORATED
                                  EXHIBIT INDEX
                                   FORM 10-KSB
                      FOR THE YEAR ENDED DECEMBER 31, 2001

<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                  Company's Report on Form 10-KSB for the
                                                                                transition period ended December 31, 1999
                                                                                (File No. 0-15304)

    3.5         Certificate of Amendment of the Certificate of                  Company's Report on Form 10-QSB for the
                Incorporation of the Company                                    quarter ended June 30, 2000 (File No. 0-15304)

    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                          Company's Registration Statement on Form S-18
                par value 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,                     Company's Registration Statement on Form S-1
                as 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>
<PAGE>
<TABLE>
<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         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).

   10.6         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).

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

   10.8         1993 Stock Option Plan                                          Company's annual report on Form 10-KSB for the
                                                                                year ended May 31, 1993 (File No. 1-9758).

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

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

  10.11         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).

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

  10.13         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).

  10.14         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).

  10.15         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).
</TABLE>
<PAGE>
<TABLE>
<S>             <C>                                                             <C>
  10.16         Lease Agreement between the Company and                         Company's Report on Form 10-KSB for the
                KA Leasing, LLC                                                 transition period ended December 31, 1999
                                                                                (File No. 0-15304)

  10.17         Modified Investment Banking Agreement                           Company's Report on Form 10-KSB for the
                                                                                transition period ended December 31, 1999
                                                                                (File No. 0-15304)

  10.18         Lease Agreement between AbsoluteCare, Inc. and                  Company's Report on Form 10-QSB for the
                NORO-Broadview Holding Company, B.V.                            quarter ended September 30, 2000 (File No.
                                                                                0-15304)

   11           Statement recomputation of per-share earnings                   Earnings (Loss) per Share Computation, see
                                                                                Note 6 to the Notes to Consolidated Financial
                                                                                Statements.

   21           Subsidiary of Registrant                                        Filed herewith
</TABLE>

*    Identifies management contracts and executive compensation plans or
     arrangements required to be filed as exhibits pursuant to Item 13(a) of
     Form 10-KSB.