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 June 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)
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 [ ]
The number of outstanding shares of the registrant's Common Stock on July 26,
2000 was 7,619,297.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(Check One) [ ] Yes [X] No
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVESIS INCORPORATED
BALANCE SHEET
JUNE 30, 2000
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,229,226
Receivables, net 436,643
Prepaid expenses and other 178,536
------------
Total current assets 2,844,405
Property and equipment, net 478,019
Intangibles, net of amortization 530,883
Deposits and other assets 555,879
------------
$ 4,409,186
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 581,172
Current installments of obligations under capital lease 10,288
Accrued expenses-
Compensation 32,965
Other 53,859
Deferred income 26,425
------------
Total current liabilities 704,709
Obligations under capital lease, excluding current installments 7,384
------------
Total liabilities 712,093
------------
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 $34,875 of dividends
in arrears at $6.98 per share; dividends accrue at $.225
per share per calendar quarter 50
Common stock of $.01 par value, authorized 30,000,000 shares;
7,619,297 shares issued and outstanding 76,193
Additional paid-in capital 10,524,189
Accumulated deficit (6,906,323)
------------
Total stockholders' equity 3,697,093
------------
$ 4,409,186
============
The accompanying notes are an integral part of these statements.
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<PAGE>
AVESIS INCORPORATED
STATEMENTS OF OPERATIONS
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Service revenues:
Administration fees $ 1,790,120 $ 2,089,337 $ 3,297,140 $ 4,234,916
Provider fees 24,689 40,111 50,046 72,441
Buying group 378,174 428,251 812,623 871,192
Other 1,961 1,337 4,449 5,000
----------- ----------- ----------- -----------
Total service revenues 2,194,944 2,559,036 4,164,258 5,183,549
Cost of services 1,525,398 1,681,779 2,727,052 3,437,976
----------- ----------- ----------- -----------
Income from services 669,546 877,257 1,437,206 1,745,573
General and administrative expenses 354,787 286,690 698,373 563,924
Selling and marketing expenses 209,666 283,143 432,093 569,916
----------- ----------- ----------- -----------
Income from operations 105,093 307,424 306,740 611,733
----------- ----------- ----------- -----------
Non-operating income:
Other income 485 586 1,816 47,619
Interest income 33,730 28,864 67,775 52,548
Interest expense (526) (957) (1,136) (1,884)
Loss on asset disposal -- (18,466) -- (18,466)
----------- ----------- ----------- -----------
Net non-operating income 33,689 10,026 68,455 79,816
----------- ----------- ----------- -----------
Income before income taxes and cumulative effect of
change in accounting principle 138,782 317,450 375,195 691,549
Income taxes -- (38,000) 23,641 (38,000)
----------- ----------- ----------- -----------
Income before cumulative effect of change in accounting
principle 138,782 355,450 351,554 729,549
Cumulative effect of change in accounting principle, net
of income taxes of $51,000 -- 470,000 -- 470,000
----------- ----------- ----------- -----------
Net income $ 138,782 $ 825,450 $ 351,554 $ 1,199,549
=========== =========== =========== ===========
Preferred stock dividends 23,928 26,535 47,856 53,071
Net income available to common stockholders $ 114,854 $ 798,915 $ 303,698 $ 1,146,478
=========== =========== =========== ===========
Basic earnings per share:
Income before cumulative effect of change in accounting
principle $ 0.02 $ 0.04 $ 0.04 $ 0.09
Cumulative effect of change in accounting principle -- 0.06 -- 0.06
----------- ----------- ----------- -----------
Net income $ 0.02 $ 0.10 $ 0.04 $ 0.15
=========== =========== =========== ===========
Diluted earnings per share:
Income before cumulative effect of change in accounting
principle $ 0.01 $ 0.03 $ 0.03 $ 0.07
Cumulative effect of change in accounting principle -- 0.05 -- 0.05
----------- ----------- ----------- -----------
Net income $ 0.01 $ 0.08 $ 0.03 $ 0.12
=========== =========== =========== ===========
Weighted average common and equivalent shares outstanding -
Basic 7,617,484 7,356,297 7,448,275 7,356,297
=========== =========== =========== ===========
Weighted average common and equivalent shares outstanding -
Diluted 10,603,661 10,402,484 10,693,182 10,387,563
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
AVESIS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 351,554 $ 1,199,549
----------- -----------
Adjustments to reconcile net income to net
cash provided by in operating activities:
Depreciation and amortization 98,729 67,500
Provision for losses of accounts receivable (3,901) (1,488)
Loss on fixed asset disposal -- 18,245
Increase (decrease) in cash resulting from changes in:
Accounts receivable (131,694) (26,540)
Prepaid expenses and other (1,436) (21,357)
Deposits and other assets (123,371) 26,062
Accounts payable (98,479) (732,938)
Accrued expenses 27,086 46,396
Deferred income 12,361 (3,435)
Accrued rent -- (33,344)
----------- -----------
Total adjustments (220,705) (660,899)
----------- -----------
Net cash provided by operating activities 130,849 538,650
----------- -----------
Cash flows from investment activities:
Purchases of property and equipment (46,684) (129,834
Proceeds from dispositions of property and equipment -- 9,745
Asset acquisition (286,842) --
----------- -----------
Net cash used in investing activities (333,526) (120,089)
----------- -----------
Cash flows from financing activities:
Principal payments under capital lease obligation (6,230) (5,482)
Payment of dividend on preferred stock (45,606) (50,821)
Payments for repurchase of common and preferred stock -- (16,255)
----------- -----------
Net cash used in financing activities (51,836) (72,558)
----------- -----------
Net (decrease) increase in cash and cash equivalents (254,513) 346,003
Cash and cash equivalents, beginning of period 2,483,739 2,181,385
----------- -----------
Cash and cash equivalents, end of period 2,229,226 2,527,388
=========== ===========
Non-cash investing activities:
Net assets acquired, financed through the issuance of
Common Stock $ 262,500 $ --
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
AVESIS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 Third Party Administrators, Inc., Avesis Reinsurance Incorporated
and Avesis of New York, 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 quarter and six month periods ended June 30, 2000 and
1999 follows:
<TABLE>
<CAPTION>
Quarter ended Quarter ended
June 30, 2000 June 30, 1999
----------- -----------
<S> <C> <C>
Income before cumulative effect of change in
accounting principle $ 138,782 $ 355,450
Less: preferred stock dividends 23,928 26,535
----------- -----------
Income available to common stockholders $ 114,854 $ 328,915
=========== ===========
Basic EPS - weighted average shares outstanding 7,617,484 7,356,297
=========== ===========
Basic earnings per share before cumulative effect
of change in accounting principle $ 0.02 $ 0.04
=========== ===========
Basic EPS - weighted average shares outstanding 7,617,484 7,356,297
Effect of dilutive securities:
Stock Purchase Options - common stock 269,264 15,071
Convertible preferred stock 2,716,913 3,031,116
----------- -----------
Dilutive EPS - weighted average shares outstanding 10,603,661 10,402,484
Income before cumulative effect of change in
accounting principle $ 138,782 $ 355,450
----------- -----------
Diluted earnings per share before cumulative
effect of change in accounting principle $ 0.01 $ 0.03
=========== ===========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 2000 June 30, 1999
----------- -----------
<S> <C> <C>
Income before cumulative effect of change in
accounting principle $ 351,554 $ 729,549
Less: preferred stock dividends 47,856 53,071
----------- -----------
Income available to common stockholders $ 303,698 $ 676,478
=========== ===========
Basic EPS - weighted average shares outstanding 7,448,275 7,356,297
=========== ===========
Basic earnings per share before cumulative effect
of change in accounting principle $ 0.04 $ 0.09
=========== ===========
Basic EPS - weighted average shares outstanding 7,448,275 7,356,297
Effect of dilutive securities:
Stock Purchase Options - common stock 520,323 4,694
Convertible preferred stock 2,724,584 3,026,573
----------- -----------
Dilutive EPS - weighted average shares outstanding 10,693,182 10,387,564
Income before cumulative effect of change in
accounting principle $ 351,554 $ 729,549
----------- -----------
Diluted earnings per share before cumulative effect
of change in accounting principle $ 0.03 $ 0.07
=========== ===========
</TABLE>
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 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").
-6-
<PAGE>
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.
As previously reported on a Form 8-K filed on April 7, 2000, 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.
RESULTS OF OPERATIONS:
The following tables detail the Company's major revenue and expense
categories for the quarters and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
June 30, 2000 June 30, 1999 Increase/(Decrease)
--------------------------- --------------------------- --------------------
% of Total % of Total %
Service Revenue Service Revenue Change
--------------- --------------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Total Service Revenue $2,194,944 100% $2,559,036 100% $(364,092) (14%)
Vision & Hearing Program 1,610,948 73% 1,884,501 74% (273,553) (15%)
Vision Provider Fee 24,689 1% 40,111 2% (15,422) (38%)
Dental Program 179,065 8% 204,827 8% (25,762) (13%)
Buying Group Program 378,174 17% 428,251 17% (50,077) (12%)
EXPENSES:
Cost of Services 1,525,398 69% 1,681,779 66% (156,381) (9%)
General & Administrative 354,787 16% 286,690 11% 68,097 24%
Selling & Marketing 209,666 10% 283,143 11% (73,477) (26%)
Income from Operations 105,093 5% 307,424 12% (202,331) (66%)
Net Income 138,782 6% 825,450 32% (686,668) (83%)
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999 Increase/(Decrease)
--------------------------- --------------------------- --------------------
% of Total % of Total %
Service Revenue Service Revenue Change
--------------- --------------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Total Service Revenue $4,164,258 100% $5,183,549 100% $(1,019,291) (20%)
Vision & Hearing Program 2,948,979 71% 3,794,705 73% (845,726) (22%)
Vision Provider Fee 50,046 1% 72,441 1% (22,395) (31%)
Dental Program 348,053 8% 440,190 8% (92,137) (21%)
Buying Group Program 812,623 20% 871,192 17% (58,569) (7%)
EXPENSES:
Cost of Services 2,727,052 65% 3,437,976 66% (710,924) (21%)
General & Administrative 698,373 17% 563.924 11% 134,449 24%
Selling & Marketing 432,093 10% 569,916 11% (137,823) (24%)
Income from Operations 306,740 7% 611,733 12% (304,993) (50%)
Net Income 351,554 8% 1,199,549 23% (847,995) (71%)
</TABLE>
Past and future revenues in all lines of business are directly related to
the number of Cardholders 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 28% and 14% of total service revenues in the six months
ended June 30, 2000, and two major Sponsors accounted for 48% and 14% of total
service revenues in the six months ended June 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.
The decrease in total service revenues in the six months ended June 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 June 30, 2000, the Company had approximately
79,000 Members from this Sponsor, as compared to approximately 192,000 Members
as of December 31, 1999 and approximately 229,000 Members as of June 30, 1999.
The Company expects to lose a significant portion of the remaining 79,000
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 $1,300,000 during the six months ended June 30, 2000 as compared
to the six months ended June 30, 1999.
The Company had approximately 1,770,000 vision and 12,300 hearing Members
as of June 30, 2000, compared to approximately 699,000 vision and 7,500 hearing
Members as of June 30, 1999. The vision Member count for June 30, 2000 includes
approximately 1,174,000 Members received through the transaction with SSEC. The
vision and hearing revenue derived from the Sponsors from the SSEC transaction
accounted for 15% of the Company's total service revenues for the quarter ended
June 30, 2000, and 9% of the Company's total service revenues for the six months
ended June 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 current quarter and six months was largely
the result of the vision plan Sponsor mentioned above. Other changes in the
number of vision and hearing cardholders occurred due to Sponsors' employee or
Member fluctuations in the normal course of business. The vision provider fee
revenue decreased in the quarter and six month period ended June 30, 2000 due to
reduced claims experience in the benefit programs under which Providers pay a
marketing fee.
-8-
<PAGE>
The Company had approximately 73,000 dental Members as of June 30, 2000 and
153,000 dental Members as of June 30, 1999. The decline of the Company's dental
program revenue and membership resulted from two Sponsors' discontinuation of a
benefit program that resulted in a loss of approximately 55,000 Members who
participated in the Company's dental program. 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 1,100 Members as of June
30, 2000. The Company expects to derive its first revenues from the Avesis
Advantage Dental Program in the fourth quarter of calendar 2000.
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 as compared to the same 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 six months ended June 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.
Selling and marketing expenses declined slightly as a percentage of total
service revenue during the quarter and six months ended June 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. A significant amount of
the Company's marketing activities has been outsourced to a management
consultant, National Health Enterprises (an affiliate).
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $2,229,226 as of June 30,
2000, compared to $2,483,739 as of December 31, 1999. The decrease of $254,513
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 25, 2000. Current cash
on hand and cash provided from operations is expected to allow the Company to
sustain operations for the foreseeable future.
On July 18, 2000, the Company's Board of Directors approved a resolution
authorizing the Company to pursue the establishment of a new venture in HIV and
infectious disease treatment. The Company's Board further authorized a maximum
of $500,000 to be allocated to the initial start-up and operational expenses of
the venture, subject to certain oversight and approval by the Board. The Company
has allocated approximately $200,000 for the build-out of the facility and the
purchase of medical and office equipment, and approximately $150,000 to fund
negative cash flow prior to the opening of the first center and during the first
few months of its operation. The Company expects its first facility to be
operational in the fourth quarter of calendar 2000.
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 June 30, 2000, the Company had $581,172 of Accounts Payable, compared
to $679,649 as of December 31, 1999. Included in Accounts Payable are reserves
for claims of $332,819 as of June 30, 2000, and $489,814 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 results.
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.
-10-
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Conversion of Series A 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 holders of the Series A Preferred
Stock into 10 shares of Common Stock of the Company. The conversion ratio is
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. The following table provides information concerning the conversion of
Series A Preferred Stock during the quarter ended June 30, 2000, which has been
previously disclosed on the Company's Form 10-QSB for the quarter ended March
31, 2000.
Number of Shares of Number of Shares
Series A Preferred Stock of Common
Date Converted to Common Stock Stock Issued
---- ------------------------- ------------
April 11, 2000 1,500 15,000
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, places restrictions upon
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 July 2000 on shares of its Series 2
Preferred Stock. Such dividend is cumulative, and the total dividend
arrearage is $34,875, or $6.98 per share, as of June 30, 2000 for all 5,000
shares outstanding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders of the Company was held on July 21, 2000.
(b) The following nominees were elected for one-year terms as directors of the
Company:
William R. Cohen William L. Richter Gerald L. Cohen
Brent D. Layton Kenneth L. Blum, Sr. Kenneth L. Blum, Jr.
Alan S. Cohn
-11-
<PAGE>
(c) On the record date of June 5, 2000, 7,619,297 common shares were
outstanding.
The results of voting for Proposals 1, 2 and 3 were as follows:
1. Election of directors For Withheld Non-Votes
--------------------- --------- -------- ---------
William R. Cohen 6,544,990 15,500 1,058,807
Kenneth L. Blum Sr. 6,528,235 32,255 1,058,807
Gerald L. Cohen 6,526,485 34,005 1,058,807
Brent D. Layton 6,545,490 15,000 1,058,807
William L. Richter 6,545,490 15,000 1,058,807
Alan S. Cohn 6,545,490 15,000 1,058,807
Kenneth L. Blum, Jr. 6,545,490 15,000 1,058,807
For Against Abstain
--- ------- -------
2. Approve an Amendment to the Company's 6,542,195 16,900 1,395
Certificate of Incorporation to
increase the number of authorized
shares of Common Stock from 20,000,000
to 30,000,000
3. Approve amendments to the Company's 6,532,940 25,750 1,800
1993 Stock Option Plan, including an
increase in the number of shares
available under the Plan from 600,000
to 900,000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index following the Signatures page, which is incorporated
herein by reference.
(b) As previously disclosed in the Company's Form 10-QSB for the quarter ended
March 31, 2000, a report on Form 8-K was filed on April 7, 2000 to report
the acquisition of substantially all of the assets of Southern States Eye
Care, LLC.
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<PAGE>
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: 8/14/2000 /s/ Neal A. Kempler
----------------------------------------
Neal A. Kempler, Vice President
and Secretary
Date: 8/14/2000 /s/ Joel H. Alperstein
----------------------------------------
Joel H. Alperstein, Chief Financial
Officer and Treasurer
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<PAGE>
Avesis Incorporated
Exhibit Index
Form 10-QSB for the Six Months Ended June 30, 2000
Exhibit No. Description Incorporated by Reference from the:
----------- ----------- -----------------------------------
3.1 Amended and Restated Company's Registration Statement on
Certificate of Incorporation Form S-1 (File No. 33-17217) filed
of the Company, as amended January 12, 1988, and declared
effective January 12, 1988.
3.2 Certificate of Amendment of Filed herewith
the Certificate of
Incorporation of the Company
11 Statement re: Computation of Earnings per Share Computation, see
per Share Earnings Note 2 to the Notes to Condensed
Consolidated Financial Statements
27 Financial Data Schedule Filed herewith
