United States Securities and Exchange Commission Washington D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ___________ to ____________ Commission File Number 0-15304 AVESIS INCORPORATED --------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 86-0349350 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 3724 North Third Street, Suite 300 Phoenix, Arizona 85012 --------------------------------------------------------- (Address of principal executive offices) (602) 241-3400 --------------------------- (Issuer's telephone number) The number of outstanding shares of the registrant's Common Stock on November 6, 2000 was 7,619,297. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One) [ ] Yes [X] No PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AVESIS INCORPORATED BALANCE SHEET AS OF SEPTEMBER 30, 2000 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,968,968 Receivables, net 487,667 Prepaid expenses and other 190,940 ----------- Total current assets 2,647,575 Property and equipment, net 554,908 Intangibles, net of amortization 513,716 Deposits and other assets 538,635 ----------- $ 4,254,834 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 476,873 Current installments of obligations under capital lease 10,288 Accrued expenses- Compensation 27,976 Other 10,578 Deferred income 26,277 ----------- Total current liabilities 551,992 Obligations under capital lease, excluding current installments 4,139 ----------- Total liabilities 556,131 ----------- Stockholders' equity: Preferred stock $.01 par value, authorized 12,000,000 shares: $3.75 Class A, senior nonvoting cumulative convertible preferred stock, Series A, $.01 par value; authorized 1,000,000 shares; 270,260 issued and outstanding (liquidation preference of $3.75 per share) 2,703 $10 Class A, nonvoting cumulative convertible preferred stock, Series 2, $.01 par value; authorized 1,000,000 shares; 5,000 shares issued and outstanding (liquidation preference of $10 per share) and $36,000 of dividends in arrears at $7.20 per share; dividends accrue at $.225 per share per calendar quarter 50 Common stock of $.01 par value, authorized 20,000,000 shares; 7,619,297 shares issued and outstanding 76,193 Additional paid-in capital 10,524,189 Accumulated deficit (6,904,432) ----------- Total stockholders' equity 3,698,703 ----------- $ 4,254,834 =========== The accompanying notes are an integral part of these statements. 2 AVESIS INCORPORATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) Quarters Ended Nine Months Ended ------------------------------ ------------------------------ September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Service revenues: Administration fees $ 1,510,515 $ 2,071,843 $ 4,807,655 $ 6,306,760 Provider fees 22,197 37,685 72,243 110,126 Buying group 332,952 330,984 1,145,575 1,202,176 Other 1,932 2,744 6,381 7,744 ----------- ----------- ----------- ----------- Total service revenues 1,867,596 2,443,256 6,031,854 7,626,806 Cost of services 1,321,290 1,684,641 4,048,342 5,122,617 ----------- ----------- ----------- ----------- Income from services 546,306 758,615 1,983,512 2,504,189 General and administrative expenses 343,950 284,458 1,042,323 848,382 Selling and marketing expenses 188,390 277,169 620,483 847,085 Startup costs, license fees related to new operations 37,537 -- 37,537 -- ----------- ----------- ----------- ----------- Income from operations (23,571) 196,988 283,169 808,722 ----------- ----------- ----------- ----------- Non-operating income: Other income 620 714 2,436 48,333 Interest income 35,498 28,905 103,273 81,453 Loss on asset disposal -- -- -- (18,466) Interest expense (438) (773) (1,574) (2,657) ----------- ----------- ----------- ----------- Net non-operating income 35,680 28,846 104,135 108,663 ----------- ----------- ----------- ----------- Income before income taxes and cumulative effect of change in accounting principle $ 12,109 $ 225,834 $ 387,304 $ 917,385 Income taxes 10,500 -- 34,141 (38,000) ----------- ----------- ----------- ----------- Income before cumulative effect of change in accounting principle 1,609 225,834 353,163 955,385 Cumulative effect of change in accounting principle, net of income taxes of $51,000 -- -- -- 470,000 ----------- ----------- ----------- ----------- Net Income $ 1,609 $ 225,834 $ 353,163 $ 1,425,385 =========== =========== =========== =========== Preferred stock dividends (23,928) (26,240) (71,785) (78,720) Net income (loss) available to common stockholders $ (22,319) $ 199,594 $ 281,378 $ 1,346,665 =========== =========== =========== =========== Basic earnings per share: Income before cumulative effect of change in accounting principle $ 0.00 $ 0.03 $ 0.04 $ 0.12 Cumulative effect of change in accounting principle -- -- -- 0.06 ----------- ----------- ----------- ----------- Net Income $ 0.00 $ 0.03 $ 0.04 $ 0.18 =========== =========== =========== =========== Diluted earnings per share: Income before cumulative effect of change in accounting principle $ 0.00 $ 0.02 $ 0.03 $ 0.08 Cumulative effect of change in accounting principle -- -- -- 0.05 ----------- ----------- ----------- ----------- Net Income $ 0.00 $ 0.02 $ 0.03 $ 0.13 =========== =========== =========== =========== Weighted average common and equivalent shares outstanding - Basic 7,619,297 7,352,482 7,505,698 7,355,011 =========== =========== =========== =========== Weighted average common and equivalent shares outstanding - Diluted 10,487,259 10,550,903 10,668,726 11,342,356 =========== =========== =========== =========== The accompanying notes are an integral part of these statements. 3 AVESIS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) 2000 1999 ----------- ----------- Cash flows from operating activities: Net income $ 353,163 $ 1,425,383 ----------- ----------- Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 155,234 103,942 Cumulative effect of change in accounting principle -- (521,000) Provision for losses on receivables (3,901) (3,488) Loss on disposal of fixed assets -- 18,245 Increase (decrease) in cash resulting from changes in: Receivables (182,718) (4,384) Prepaid expenses and other (13,840) 24,574 Other assets (106,127) (85,969) Accounts payable (202,776) (228,604) Accrued expenses (21,184) (12,001) Deferred income 12,213 1,776 Accrued rent -- (33,344) ----------- ----------- Total adjustments (363,099) (740,253) ----------- ----------- Net cash (used in) provided by operating activities (9,936) 685,130 ----------- ----------- Cash flows from investment activities: Purchases of property and equipment (162,913) (189,685) Asset acquisition (286,842) -- Proceeds from dispositions of property and equipment -- 9,745 ----------- ----------- Net cash used in investing activities (449,755) (179,940) ----------- ----------- Cash flows from financing activities: Principal payments under capital lease obligation (9,474) (8,392) Payment of dividend on preferred stock (45,606) (50,821) Payments for repurchase of common and preferred stock -- (40,125) ----------- ----------- Net cash used in financing activities (55,080) (99,338) ----------- ----------- Net (decrease) increase in cash and cash equivalents (514,771) 405,852 Cash and cash equivalents, beginning of period 2,483,739 2,181,385 ----------- ----------- Cash and cash equivalents, end of period $ 1,968,968 $ 2,587,237 =========== =========== Non-cash investing activities: Net assets acquired, financed through the issuance of Common Stock $ 262,500 $ -- =========== =========== The accompanying notes are an integral part of these statements. 4 AVESIS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Avesis Incorporated, and its wholly-owned subsidiaries, Avesis of Washington, D.C., Avesis of New York, Inc., Avesis Third Party Administrators, Inc., Avesis Reinsurance Incorporated and AbsoluteCare, Inc. (collectively, the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for a complete financial statement presentation. In the opinion of Management, such unaudited interim information reflects all adjustments, consisting only of a normal recurring nature, necessary to present the Company's financial position and the results of operations and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full fiscal year. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-KSB, for the seven month transition period ended December 31, 1999. Note 2. Earnings per Share A summary of the reconciliation from basic earnings per share to diluted earnings per share for the quarters and nine months ended September 30, 2000 and 1999 follows: Quarter ended Quarter ended September 30, 2000 September 30, 1999 ------------------ ------------------ Income before cumulative effect of change in accounting principle $ 1,609 $ 225,834 Less: preferred stock dividends 23,928 26,240 ------------ ----------- Income (loss) available to common stockholders (22,319) 199,594 ============ =========== Basic EPS - weighted average shares outstanding 7,619,297 7,352,482 ============ =========== Basic earnings per share before cumulative effect of change in accounting principle $ 0.00 $ 0.03 ============ =========== Basic EPS - weighted average shares outstanding 7,619,297 7,352,482 Effect of dilutive securities: Stock Purchase Options - common stock 152,862 185,734 Convertible preferred stock 2,715,100 3,012,687 ------------ ----------- Dilutive EPS - weighted average shares outstanding 10,487,259 10,550,903 Income before cumulative effect of change in accounting principle $ 1,609 $ 225,834 ------------ ----------- Diluted earnings per share before cumulative effect of change in accounting principle $ 0.00 $ 0.02 ============ =========== 5 Nine Months ended Nine Months ended September 30, 2000 September 30, 1999 ----------- ----------- Income before cumulative effect of change in accounting principle $ 353,163 $ 955,385 Less: preferred stock dividends 71,785 78,720 ----------- ----------- Income available to common stockholders 281,378 876,665 =========== =========== Basic EPS - weighted average shares outstanding 7,505,698 7,355,011 =========== =========== Basic earnings per share before cumulative effect of change in accounting principle $ 0.04 $ 0.12 =========== =========== Basic EPS - weighted average shares outstanding 7,505,698 7,355,011 Effect of dilutive securities: Stock Purchase Options - common stock 441,629 962,448 Convertible preferred stock 2,721,399 3,024,897 ----------- ----------- Dilutive EPS - weighted average shares outstanding 10,668,726 11,342,356 Income before cumulative effect of change in accounting principle $ 353,163 $ 955,385 ----------- ----------- Diluted earnings per share before cumulative effect of change in accounting principle $ 0.03 $ 0.08 =========== =========== Note 3. Use of Estimates Management of the Company has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses to prepare the financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Note 4. Accounting for Southern States Eye Care, LLC Asset Acquisition On March 24, 2000, the Company purchased substantially all of the assets of 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 comprised $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. Results of operations are being recorded from the date of acquisition. The Company recorded preliminary purchase accounting adjustments based on the relative fair value of the assets acquired. Goodwill is being amortized over eight years on a straight-line basis. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 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 members, viability of the Company, cash flows and marketability of the Company constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which could cause actual results to differ materially from the forward-looking statements. Management's anticipation is based upon assumptions regarding the market in which the Company operates, the level of competition, the level of demand for services, the stability of costs, the retention of Sponsors and Members enrolled in the Company's benefit programs, the relevance of the Company's historical performance and the stability of the regulatory environment. Any of these assumptions could prove inaccurate, and therefore there can be no assurance that the forward-looking information will prove to be accurate. Avesis Incorporated, a Delaware corporation (together with its subsidiaries, the "Company"), incorporated in June 1978, markets and administers vision, dental, chiropractic and hearing managed care and discount programs ("Programs") nationally. The Programs are designed to enable participants ("Members"), who are enrolled through various sponsoring organizations such as insurance carriers, HMOs, Blue Cross and Blue Shield organizations, corporations, unions and various associations ("Sponsors"), to realize savings on purchases of services and products through networks of providers such as ophthalmologists, optometrists, opticians, dentists, chiropractors and hearing specialists ("Providers"). 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. 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 was $250,000 and 350,000 shares of the Company's Common Stock. The Company used its existing cash to finance the purchase. The acquisition of SSEC broadens the Company's client base and increases the Company's vision provider network in Georgia, Alabama and North Carolina. The Company is using the acquired assets to continue SSEC's current lines of business, which the Company is operating out of its corporate headquarters in Phoenix, Arizona. On July 24, 2000, the Company incorporated AbsoluteCare, Inc. ("AbsoluteCare" or "Centers"), a wholly owned subsidiary, in Delaware. AbsoluteCare was established to create infectious disease centers, with a 7 current concentration on HIV/AIDS treatment, on a national basis. The Centers will perform medical services, laboratory and pharmaceutical services. The Company's Board of Directors authorized a maximum of $500,000 to be allocated to the initial startup and operational expense of the venture, subject to certain oversight and approval by the Board. The first center is scheduled to open in Atlanta during November 2000. RESULTS OF OPERATIONS: The following tables detail the Company's major revenue and expense categories for the quarters and nine months ended September 30, 2000 and 1999 (unaudited): Quarter Ended Quarter Ended September 30, 2000 September 30, 1999 Increase/(Decrease) ---------------------------- --------------------------- ------------------------ % of Total % of Total Revenue: Service Revenue Service Revenue % Change - -------- --------------- --------------- -------- Total Service Revenue $ 1,867,596 100% $2,443,256 100% $ (575,660) (24%) Vision & Hearing Program 1,367,429 73% 1,865,228 76% (497,799) (27%) Vision Provider Fee 22,197 1% 37,685 2% (15,488) (41%) Dental Program 142,967 8% 206,607 8% (63,640) (31%) Buying Group Program 332,952 18% 330,984 14% 1,968 1% Expenses: Cost of Services 1,321,290 71% 1,684,641 69% (363,351) (22%) General & Administrative 343,950 18% 284,458 12% 59,492 21% Selling & Marketing 188,390 10% 277,169 11% (88,779) (32%) Income from Operations (23,571) (1%) 196,988 8% (220,559) (112%) Net Income 1,609 0% 225,834 9% (224,225) (99%) Nine Months Ended Nine Months Ended September 30, 2000 September 30, 1999 Increase/(Decrease) ---------------------------- --------------------------- ------------------------ % of Total % of Total Revenue: Service Revenue Service Revenue % Change - -------- --------------- --------------- -------- Total Service Revenue $ 6,031,854 100% $7,626,806 100% $(1,594,952) (21%) Vision & Hearing Program 4,316,408 72% 5,659,933 74% (1,343,525) (24%) Vision Provider Fee 72,243 1% 110,126 1% (37,883) (34%) Dental Program 491,020 8% 646,797 8% (155,777) (24%) Buying Group Program 1,145,575 19% 1,202,176 16% (56,601) (5%) Expenses: Cost of Services 4,048,342 67% 5,122,617 67% (1,074,275) (21%) General & Administrative 1,042,323 17% 848,382 11% 193,941 23% Selling & Marketing 620,483 10% 847,085 11% (226,602) (27%) Income from Operations 283,169 5% 808,722 11% (525,553) (65%) Net Income 353,163 6% 1,425,385 19% (1,072,222) (75%) Past and future revenues in all lines of business are directly related to the number of Members enrolled in the Company's benefit programs. However, there may be significant pricing differences to Sponsors depending on whether the benefit offered is funded in part or whole by the plan Sponsor. Two major Sponsors accounted for 25% and 14% of total service revenues during the nine months ended September 30, 2000, and two major Sponsors accounted for 48% and 14% of total service revenues during the nine months ended September 30, 1999. The Company is substantially dependent on a limited number of Sponsors and may be materially adversely affected by termination of its agreements with those Sponsors. 8 The decrease in total service revenues in the nine months ended September 30, 2000 is principally due to a vision plan Sponsor that is not renewing the benefit for their Members upon their annual renewal but instead is providing a lesser benefit internally. As of September 30, 2000, the Company had approximately 44,000 Members from this Sponsor, as compared to approximately 192,000 Members as of December 31, 1999 and approximately 215,000 Members as of September 30, 1999. During September 2000, the Company entered into a contract with this Sponsor to provide benefits to approximately 25,000 of their Members on an ongoing basis. The Company is anticipating the loss of the remaining 19,000 Members from this Sponsor as they renew their benefits during the upcoming year. The Company's vision and hearing revenue received from this Sponsor decreased by approximately $2,150,000 during the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. Except for revenues from this sponsor, the Company's vision and hearing revenues increased by approximately $800,000 during the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999, of which approximately $695,000 was from former clients of SSEC. The Company had approximately 1,429,000 vision and 13,000 hearing Members as of September 30, 2000 compared to approximately 710,000 vision and 4,000 hearing Members as of September 30, 1999. The vision Member counts for September 30, 2000 include approximately 843,000 Members received through the transaction with SSEC. The vision and hearing revenue derived from the Sponsors from the SSEC transaction accounted for 18% of the Company's total service revenues for the quarter ended September 30, 2000, and 12% of the Company's total service revenues for the nine months ended September 30, 2000. The revenue and profit expected to be derived per Member under SSEC's vision benefit program, in general, is less than the revenue and profit derived from the Sponsor that decreased its Membership, as described above, due to the provision of a different level of benefit. The decrease in vision and hearing revenue during the quarter and nine months ended September 30, 2000 as compared to the same periods in the previous fiscal year was the result of the vision plan Sponsor mentioned above, partially offset by the revenue derived from the former clients of SSEC. Other changes in the number of vision and hearing Members occurred due to Sponsors' employee or Member fluctuations in the normal course of business. Vision provider fee revenue remained constant as a percentage of total service revenues from the nine months ended September 30, 1999 to the nine months ended September 30, 2000. The Company had approximately 67,000 dental Members as of September 30, 2000, compared to approximately 124,000 dental Members as of September 30, 1999. The decline of the Company's dental program revenue and membership resulted from two Sponsors' discontinuation of their dental benefit program that resulted in a loss of approximately 54,000 Members and the loss of approximately 2,000 Members from a Sponsor who did not renew its contract with the Company. There also have been reductions in Members from various Sponsors in the normal course of business. 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 1,800 Members as of September 30, 2000. The Company has revised its projection concerning the timeframe in which it expects to derive its first revenues from the Avesis Advantage Dental Program from the fourth quarter of calendar 2000 to the second half of calendar 2001. 9 The Company makes available to its vision Providers a buying group program that enables the Provider to order 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. Costs of Services 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. The increase in Cost of Services as a percentage of total service revenues in the current quarter, compared to the corresponding period in the prior year resulted from an increase in claims experience as a percentage of revenue from the newly acquired accounts from SSEC, as mentioned above. General and Administrative expenses increased as a percentage of total service revenue during the quarter and nine months ended September 30, 2000 compared to the corresponding periods in the prior year due to increases in depreciation and amortization related to the Company's new computer systems, amortization of goodwill created by the SSEC transaction, increases in payroll related to administrative functions and increases in the payments under the Company's Management Agreement and Investment Advisor Agreement, both with affiliated entities. 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 a management consultant, National Health Enterprises (an affiliate). Selling and marketing expenses declined slightly as a percentage of total service revenue during the quarter and nine months ended September 30, 2000 as compared to the corresponding periods in the prior year due to the absence of sales commissions on the newly acquired SSEC accounts. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of $1,968,968 as of September 30, 2000, compared to $2,483,739 as of December 31, 1999. The decrease of $514,771 is primarily due to the Company's cash payment of $250,000 for the acquisition of the assets of Southern States Eye Care, LLC on March 24, 2000 and the capital expenditures related to the development of AbsoluteCare. Current cash on hand and cash provided from operations is expected to allow the Company to sustain operations for the foreseeable future. The Company is party to a revolving credit facility for an amount not to exceed $100,000. The credit facility allows the Company to better manage its cash liquidity. To date, the Company has never drawn funds on the credit facility. As of September 30, 2000, the Company had $476,873 of Accounts Payable, compared to $679,649 as of December 31, 1999. Included in Accounts Payable are reserves for claims for managed care accounts of approximately $ 331,000 as of September 30, 2000, and approximately $451,000 as of December 31, 1999. 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. 10 The Company expects to pay dividends of approximately $46,000 on the Series A Preferred Stock on December 1, 2000. YEAR 2000 COMPLIANCE The Company so far has experienced no disruptions in the operation of its internal information systems during the transition to the year 2000. The Company is not aware that any of its vendors or clients experienced any disruptions during their transition to the year 2000 or that there has been any year 2000 issues with its services provided. The Company will continue to monitor the transition to year 2000 and will act promptly to resolve any problems that occur. If the Company or any third parties with which it has business relationships experience problems related to the year 2000 transition that have not yet been discovered, it could have a material adverse impact on the Company. 11 PART II OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES (b) The Certificate of Designation for the Company's Class A, Senior Nonvoting Cumulative Convertible Preferred Stock, Series A, restricts the payment of dividends on the Company's Series 2 Preferred Stock and Common Stock. Accordingly, the Company may not pay the quarterly dividend otherwise scheduled for payment during October 2000, on shares of its Series 2 Preferred Stock. Such dividend is cumulative, and the total dividend arrearage is $36,000, or $7.20 per share, as of September 30, 2000 for all 5,000 shares outstanding. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index following the Signatures page, which is incorporated herein by reference. (b) No reports on Form 8-K were filed during the quarter ended September 30, 2000. 12 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AVESIS INCORPORATED ------------------- (Registrant) Date: 11/13/00 /s/ Alan S. Cohn -------- ---------------------------------------- Alan S. Cohn, Chief Executive Officer and President Date: 11/13/00 /s/ Joel H. Alperstein -------- ---------------------------------------- Joel H. Alperstein, Chief Financial Officer and Treasurer 13 Avesis Incorporated Exhibit Index Form 10-QSB for the Quarter Ended September 30, 2000 Incorporated by Exhibit No. Description Reference from the: - ----------- ----------- ------------------- 10.22 Lease Agreement between Absolute Filed herewith Care, Inc. and NORO-Broadview Holding Company, B.V. 11 Statement re: Computation of per Earnings (Loss) per Share Share Earnings Computation, see Note 2 to the Notes to Condensed Consolidated Financial Statements 27 Financial Data Schedule Filed herewith