The SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

     FORM 10-QSB MARK ONE:

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

     For the quarter ended September 30, 2000

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]



                         Commission file number 0-12850

                     DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
        (Exact name of small business issuer as specified in its charter)

           Delaware                                    13-3185553
--------------------------------                   ---------------------
(State or other jurisdiction of                       (IRS Employer
incorporation or organization)                      Identification No.)

                   6416 VARIEL AVE., WOODLAND HILLS, CA 91367
                    (Address of principal executive offices)

         Issuer's telephone number, including area code (818) 932-2300.


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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Number of shares of registrant's common stock outstanding as of November 10,
2000: 12,614,900 Transitional Small Business Disclosure Format
                                 Yes [ ] No [X]


<PAGE>


            DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

                               FORM 10-QSB REPORT

                               September 30, 2000

<TABLE>
<CAPTION>
 PART I - FINANCIAL INFORMATION                                                          PAGE
<S>                                                                                      <C>
       Item 1.  Interim Condensed Consolidated Financial Statements (Unaudited)

            Condensed Consolidated Balance Sheet as of September 30, 2000                3

            Condensed Consolidated Statements of Operations                              4
                For the Three and Nine Month Periods Ended September 30, 2000 and 1999

            Condensed Consolidated Statements of Cash Flows                              5
                 For the Nine Month Periods Ended September 30, 2000 and 1999

            Consolidated Statements of Comprehensive Loss                                6
                 For the Three and Nine Month Periods Ended September 30, 2000 .and
            1999

          Notes to Interim Condensed Consolidated Financial Statements                   7


       Item 2.  Management's Discussion and Analysis or Plan of Operation               11


 PART II - OTHER INFORMATION

          Item 1.  Legal Proceedings                                                    21
          Item 2.  Changes in Securities and Use of Proceeds                            21
          Item 3.  Defaults in Senior Securities                                        22
          Item 4.  Submission of Matters to Vote of Security Holders                    22
          Item 5.  Other Information                                                    22
          Item 6.  Exhibits and Reports on Form 8-K                                     22

                      (a)  Exhibits                                                     22
                      (b)  Reports on Form 8-K                                          22

          Signatures                                                                    22
</TABLE>


                                     Page 2
<PAGE>


PART I - FINANCIAL INFORMATION

    ITEM 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

            DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            AS OF SEPTEMBER 30, 2000
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                   ASSETS
 Current assets:
<S>                                                                                    <C>
   Cash and cash equivalents                                                           $   561,267
   Restricted cash                                                                          71,031
   Accounts receivable, net                                                              1,292,234
   Inventories                                                                           5,933,019
   Prepaid expenses and other current assets                                             2,471,840
                                                                                       -----------
        Total current assets                                                            10,329,391

 Property and equipment, net of accumulated depreciation                                 1,519,127
 Intangible assets, net of accumulated amortization                                        951,147
 Other assets                                                                            1,209,551
                                                                                       -----------
 Total assets                                                                          $14,009,216
                                                                                       ===========

                   LIABILITIES AND STOCKHOLDERS' DEFICIT
 Current liabilities:
   Current portion of capital lease obligations                                        $     3,801
   Borrowings under line of credit                                                       4,323,121
   Accounts payable                                                                      4,197,171
   Accrued liabilities                                                                   1,080,965
   Customer deposits                                                                       445,498
                                                                                       -----------
        Total current liabilities                                                       10,050,556
   Capital lease obligations                                                                99,254
                                                                                       -----------
 Total liabilities                                                                      10,149,810
                                                                                       -----------

 Commitments and contingencies

 Conversion obligation to preferred stockholders                                        4,216,330

 Stockholders' deficit:
 Preferred stock, par value $.01 per share;
     1,000,000 shares authorized, none issued and
     outstanding                                                                                 -
 Common stock, par value $.01
      per share; 20,000,000 shares authorized:
      12,614,900 shares issued and outstanding                                             126,149

Subscription receivable                                                                   (100,000)

Additional paid in capital                                                              23,590,968

 Accumulated deficit                                                                   (23,272,012)

 Cumulative translation adjustment                                                        (702,029)
                                                                                       -----------
 Total stockholders' deficit                                                              (356,924)

 Total liabilities and stockholders' deficit                                          $ 14,009,216
                                                                                      ============
</TABLE>

     The accompanying notes are an integral part of these interim condensed
                       consolidated financial statements.


                                     Page 3
<PAGE>


<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED SEPT. 30,                NINE MONTHS ENDED SEPT. 30,
                                                        -----------------------------                ---------------------------
                                                              2000                 1999                 2000              1999
                                                              ----                 ----                 ----              ----


<S>                                                   <C>                  <C>                 <C>                 <C>
Net sales                                             $    3,356,537       $    6,447,961      $    16,996,800     $   27,626,340
Cost of sales                                              3,372,826            4,331,978           12,679,225         14,471,503
                                                    --------------------------------------------------------------------------------

Gross profit (loss)                                          (16,289)           2,115,983            4,317,575         13,154,837

Selling, general and administrative expenses               4,346,694            4,785,244           14,350,460         12,256,043
Abandoned offering costs                                           -              566,893                    -            566,893
Research and development expenses                            311,308              228,712              884,087            447,974
                                                    --------------------------------------------------------------------------------
Total operating expenses                                   4,658,002            5,580,849           15,234,547         13,270,910

Operating loss                                            (4,674,291)          (3,464,866)         (10,916,972)          (116,073)

Interest and other income                                     11,683               85,284               69,911            216,714
Interest and other expense                                  (237,258)            (141,880)            (255,755)          (773,053)
Amortization of debt issuance costs                          (44,523)                   -              (44,523)           (64,519)
                                                    --------------------------------------------------------------------------------

Loss before income taxes                                  (4,944,389)          (3,521,462)         (11,147,339)          (736,931)

Provision (benefit) for income taxes                          10,373             (141,080)             (46,843)            20,000
                                                    --------------------------------------------------------------------------------
Net loss                                                  (4,954,762)          (3,380,382)         (11,100,496)          (756,931)

Charges relating to manditorily redeemable
preferred stock:
   Accretion of conversion obligation                      2,799,645                                 2,799,645
   Preferred dividends                                        21,551                    -               91,491                  -
   Beneficial conversion feature relating to
       Series B preferred stock                                    -                    -               97,478                  -
                                                    --------------------------------------------------------------------------------
Net loss attributable to common
   Stockholders                                       $   (7,775,958)      $   (3,380,382)     $   (14,089,110)     $    (756,931)
                                                    =================      ==============      ===============    ===============
Loss per share
   Basic and diluted                                  $        (0.84)      $        (0.54)     $         (1.88)     $       (0.13)

Weighted average number of shares:
   Basic and diluted                                       9,301,393            6,205,709            7,501,502          5,656,592
</TABLE>


          The accompanying notes are an integral part of these interim
                  condensed consolidated financial statements.


                                     Page 4
<PAGE>


            DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
          FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                        2000              1999
                                                                                        ----              ----
<S>                                                                                 <C>              <C>
        Cash flows from operating activities:
        Net loss                                                                    $(11,100,496)    $  (756,931)

        Adjustments to reconcile net loss to net cash used by operating
        activities:
          Depreciation and amortization                                                  630,356         613,262
          Inventory write-down                                                                 -         310,000
          Amortization of debt discount                                                   44,523         348,435
          Allowance for doubtful accounts                                                 27,210               -
        Changes in operating assets and liabilities:
          Restricted cash                                                                (71,031)              -
          Accounts receivable                                                          4,467,258      (2,303,260)
          Inventories                                                                  1,769,651      (3,942,943)
          Prepaid expenses and other                                                  (1,097,448)     (2,354,109)
          Other assets                                                                  (221,092)       (183,403)
          Accounts payable                                                              (283,107)      1,311,605
          Accrued liabilities and income taxes                                        (1,482,888)        292,683
          Customer deposits                                                              240,396         720,000
                                                                                       ---------       ---------
        Net cash used by operating activities                                         (7,076,668)     (5,944,661)
                                                                                       ---------      ----------
        Cash flows from investing activities:
          Payment of patent registration costs                                           (26,349)              -
          Purchase of property and equipment                                            (527,481)       (512,883)
                                                                                       ---------      ----------
        Net cash used in investing activities                                           (553,830)       (512,883)
                                                                                       ---------      ----------
        Cash flows from financing activities:
          Borrowings from revolving line of credit                                             -       4,000,000
          Net proceeds from issuance of notes payable                                          -       2,953,890
          Repayment of notes payable                                                           -      (4,957,362)
          Repayment of lines of credit                                                (2,490,440)              -
          Principal payments on capital lease obligations                                (14,753)        (22,232)
          Issuance of preferred stock                                                  2,042,480               -
          Issuance of common stock through exercise of options                                 -         174,192
          Net proceeds from issuance of common stock                                   3,227,500       4,991,540
                                                                                       ---------       ---------
        Net cash provided by financing activities                                      2,764,787       7,140,028
                                                                                       ---------       ---------

        Net increase (decrease) in cash and  cash equivalents                         (4,685,711)        682,484
        Effect of exchange rate changes on cash and cash equivalents                     811,477         156,535
        Cash and cash equivalents, beginning of period                                 4,615,501       3,941,305
                                                                                       ---------       ---------
        Cash and cash equivalents, end of period                                       $ 561,267     $ 4,780,324
                                                                                       =========     ===========
        Non-cash investing and financing activities:
        Acquisitions of businesses
          Issuance of common stock                                                            -      $ 1,143,750
          Forgiveness of receivables                                                                     592,497
        Acquisitions of intangibles through issuance of common stock                                     200,000
        Acquisitions of furniture & equipment through capital lease
        financing                                                                      $ 99,138                -

        Supplemental cash flow information:
          Interest paid                                                                $ 58,501        $ 316,698
          Income taxes paid                                                              14,691           48,840

          The accompanying notes are an integral part of these interim
                  condensed consolidated financial statements.
</TABLE>


                                     Page 5
<PAGE>


            DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED SEPT. 30,         NINE MONTHS ENDED SEPT. 30,
                                                   ----------------------------         ---------------------------
                                                      2000              1999              2000             1999
                                                      ----              ----              ----             ----
<S>                                               <C>              <C>                 <C>            <C>
     Net loss                                     $(4,954,762)     $(3,380,382)        $(11,100,496)  $   (756,931)
     Other comprehensive income (loss):
        Foreign currency  translation adjustment      (34,741)         312,391             (373,956)       162,725
                                                  ------------    -------------        -------------  ------------
     Comprehensive loss                           $(4,989,503)     $(3,067,991)        $(11,474,452)  $   (594,206)
                                                  ============     ===========         ============   ============
</TABLE>


          The accompanying notes are an integral part of these interim
                       consolidated financial statements.


                                     Page 6
<PAGE>


            DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. General

     The accompanying unaudited interim condensed consolidated financial
     statements include the accounts of Dental/Medical Diagnostic Systems, Inc.
     and subsidiaries (the "Company"). All significant intercompany accounts and
     transactions have been eliminated in the consolidated financial statements.
     The interim consolidated financial statements have been prepared in
     accordance with generally accepted accounting principles for interim
     financial information and with instructions to Form 10-QSB and Item 10 of
     Regulation S-B. Accordingly, they do not include all of the information and
     footnotes required by generally accepted accounting principles for complete
     financial statements. In the opinion of management, all adjustments
     (consisting of normal recurring accruals) considered necessary for a fair
     presentation have been included. Operating results for the three- and
     nine-month periods ended September 30, 2000 are not necessarily indicative
     of the results that may be expected for the year ending December 31, 2000.
     For further information, refer to the consolidated financial statements and
     footnotes thereto included in the Company's annual report on Form 10-KSB
     for the period ended December 31, 1999.

2. Summary of Significant Accounting Policies

    Basis for Presentation

     The accompanying consolidated financial statements have been prepared on a
     going concern basis, which contemplates the realization of assets and the
     satisfaction of liabilities in the normal course of business. During the
     third quarter, the Company received notice from Series A and Series B
     preferred stockholders to convert their preferred stock to shares of common
     stock. As the Company had not obtained stockholder approval to issue 20% or
     more of common stock in a single transaction and because the preferred
     stockholders had already converted preferred stock to common stock of the
     maximum of 19.9%, the Company is obligated to pay the conversion requests
     in cash of approximately $4.2 million. In addition, the Company's
     forbearance agreement from Imperial Bank expires on December 29, 2000.
     These items raise substantial doubt about the Company's ability to continue
     as a going concern. The Company's continuation as a going concern is
     dependent upon its ability to generate sufficient cash flows from its new
     and existing products to meet its obligations on a timely basis and to
     obtain additional financing or refinancing as may be required until the
     Company ultimately attains profitability and positive cash flows. The
     financial statements do not include any adjustments that might arise from
     the outcome of this uncertainty.

    Principles of Consolidation

     The consolidated financial statements include the accounts of Dental
     Medical Diagnostics Systems, Inc. and its wholly owned subsidiaries. All
     intercompany balances and transactions have been eliminated.

    Concentration of Credit Risk and Major Customers

     Financial instruments that potentially subject the Company to significant
     concentrations of credit risk consist principally of trade accounts
     receivable. Also, at various times throughout the year, cash balances are
     maintained in excess of Federally insured deposit limits.

     For the three-month periods ended September 30, 2000 and 1999,
     international customers accounted for 44% and 38% of sales, respectively.
     For the nine-month periods ended September 30, 2000 and 1999, international
     customers accounted for 50% and 46% of sales, respectively. International
     customers accounted for approximately 56% and 72% of trade accounts
     receivable at September 30, 2000 and 1999, respectively. There was one
     customer that accounted for more than 10% of revenues for the nine-month
     period ended September 30, 2000. There were no customers that accounted for
     more than 10% of revenues for the three-month periods ended September 30,
     2000 and 1999 and for the nine-month period ended September 30, 1999. Five
     customers accounted for 31% of the Company's accounts receivable at
     September 30, 2000.

     The Company performs ongoing credit evaluations of its customers' financial
     condition and generally does not require collateral. Estimated credit
     losses and returns have been provided for in the financial statements.

     The majority of the Company's current customers consist of dental
     professionals and independent distributors. Certain of the dental
     professionals lease the Company's products through third party leasing
     companies. Under the terms of the sales, the leasing companies have no
     recourse against the Company.


                                     Page 7
<PAGE>


    Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities at
     the date of the financial statements and the reported amounts of revenues
     and expenses during the reporting period. The significant estimates made in
     the preparation of the consolidated financial statements relate to the
     assessment of the carrying value of accounts receivable, inventories and
     estimated provision for warranty provisions. Actual results could differ
     from those estimates.

    Risks and Uncertainties

     The Company buys certain key components from one supplier or from a limited
     number of suppliers. Although there are a limited number of suppliers of
     the key components, management believes that other suppliers could provide
     similar components on comparable terms. Changes in key suppliers could
     cause delays in manufacturing and distribution of products and a possible
     loss in sales, which could adversely affect operating results.

     The Company has derived substantially all of its revenues from the sales of
     four product families. The Company believes that the inability to attract
     new customers, the loss of one or more of its major customers, a
     significant reduction in business from such customers, or the
     uncollectibility of amounts due from any of its larger customers, could
     have a material adverse affect on the Company.

     On April 7, 2000, Boston Marketing filed suit in Los Angeles Superior Court
     making numerous claims including the allegation that we failed to make
     minimum purchases for fiscal year 1999 and 2000, and further claiming that
     the Company failed to pay certain commissions to Boston Marketing. The
     complaint seeks unspecified damages. The Company intends to defend the
     action vigorously and believes that it has meritorious defenses to the
     suit. However, because the discovery process is still ongoing, the Company
     is unable to estimate the extent of liability, if any, that could result.

    Revenue Recognition

     The Company recognizes revenue from the sales of systems and supplies at
     the time of shipment, net of an allowance for estimated sales returns. The
     Company generally provides warranties on its systems for one year. A
     provision for estimated future costs relating to warranty is recorded when
     systems are shipped.

    Intangible Assets

     In accordance with SFAS No. 121, the Company reviews for impairment of
     long-lived assets when events or changes in circumstances indicate that an
     asset's carrying value may not be recoverable. In connection with the
     purchase of the Company's wholly owned subsidiaries, Midas (UK) Limited and
     DMDS GmbH, the Company recorded goodwill of approximately $1,115,338, which
     was being amortized over the estimated useful live of 3 years. During the
     quarter ended September 30, 2000, management decided to sell the direct
     sale businesses of Midas (UK) Limited and DMDS GmbH and accordingly
     determined that the goodwill carrying value was not recoverable. The
     Company wrote of unamortized goodwill of $559,024 in the third quarter
     ended September 30, 2000.

    Computation of Earnings Per Share

     Basic net income (loss) per common share is computed by dividing net income
     (loss) attributable to common stockholders by the weighted average number
     of shares of common stock outstanding during the period. Net income (loss)
     per common share attributable to common stockholders assuming dilution is
     computed by dividing net income by the weighted average number of shares of
     common stock outstanding plus the number of additional common shares that
     would have been outstanding if all dilutive potential common shares had
     been issued. Potential common shares related to stock options and stock
     warrants are excluded from the computation when their effect is
     antidilutive.

     Common shares related to stock options and stock warrants that are
     antidilutive amounted to approximately 8,200,472 and 5,515,363 for the
     three and nine month periods ended September 30, 2000 and 1999,
     respectively.

Comprehensive Income

     SFAS 130 "Reporting Comprehensive Income" establishes standards for
     reporting and displaying comprehensive income and its components (revenues,
     expenses, gains and losses) in financial statements. SFAS 130 requires that
     all items that are required to be recognized under accounting standards as
     components of comprehensive income be reported in a financial statement
     that is displayed with the same prominence as other financial statements.

     No tax effect has been allocated to the foreign currency translation
adjustment for the periods presented.


                                     Page 8
<PAGE>


     The following is a reconciliation of accumulated other comprehensive income
     balance for the nine-month period ended September 30, 2000:

<TABLE>
<CAPTION>
<S>                                                            <C>
                Beginning balance                              $ (328,073)
                Current period change                            (373,956)
                Ending balance                                 $ (702,029)
                                                               ===========
</TABLE>

3. Inventories

     Inventories consisted of the following at September 30, 2000:

<TABLE>
<CAPTION>
                                 <S>                         <C>
                                 Raw materials               $2,621,302
                                 Work in process                172,975
                                 Finished goods               3,138,742
                                                             ----------
                                                             $5,933,019
                                                             ==========
</TABLE>

4. Capital Transactions and Conversion Obligations

     On November 23, 1999 the Company sold an aggregate of 2,000 shares of
     Series A Exchangeable Preferred Stock, 2,500 shares of Common Stock and
     Warrants to purchase up to 40,000 shares of common stock. The Company
     received $2,000,000 in gross proceeds less costs of approximately $100,000.
     The net proceeds of $1,900,000 were allocated based on the relative fair
     value to the mandatorily redeemable preferred stock ($1,816,343) and to the
     common stock and warrants ($83,657).

     On February 29, 2000 the Company sold an aggregate of 2,250 shares of
     Series B Exchangeable Preferred Stock and Warrants to purchase up to
     675,000 shares of common stock. The Company received $2,250,000 in gross
     proceeds less costs of $207,520. The net proceeds of $2,042,480 were
     allocated based on the relative fair value to the mandatorily redeemable
     preferred stock ($1,253,757) and to the warrants ($788,723).

     In connection with the issuance of the Series B Preferred Stock, the
     Company recorded additional paid in capital of $97,478 offset by a non-cash
     charge to equity relating to the beneficial conversion feature of the
     Series B Preferred Stock. This charge is calculated using the fair value of
     the common stock on the commitment date for the issuance of the Series B
     Preferred Stock, subtracting the conversion price and then multiplying the
     resulting amount by the number of shares of common stock into which the
     Series B Preferred Stock are convertible. This non-cash charge resulted in
     an increase in the Company's net loss per share attributable to common
     stockholders for the nine-month period ended September 30, 2000.

     During the nine month period ended September 30, 2000, $1,245,684 stated
     value of Series A Exchangeable Preferred stock has been converted into
     1,270,216 shares of common stock, while $937,000 stated value of Series B
     Exchangeable Preferred stock has been converted into 1,288,467 shares of
     common stock.

     Under the rules and regulations of the Nasdaq Stock Market, stockholder
     approval is required to issue 20% or more of our outstanding common stock
     in a single transaction. Therefore, pursuant to the Exchangeable Preferred
     Stock Purchase Agreement for the Series A Preferred Stock and the Series B
     Preferred Stock, the Company agreed that it would seek stockholder approval
     of these potential issuances at its 2000 Annual Meeting of Stockholders.
     Prior to receiving stockholder approval, or if stockholder approval was not
     obtained, any attempted exchange of shares of Series A Preferred Stock or
     Series B Preferred Stock in excess of 19.9% of the outstanding common stock
     of the Company must be paid in cash within three (3) business days to the
     holder of the Series A Preferred Stock or Series B Preferred Stock. Both
     the Series A Preferred Stock and the Series B Preferred Stock contain
     provisions that call for a conversion price to common stock, which varies,
     based upon the preceding 30 days closing prices of the common stock.

     On September 15, 2000, all of the remaining Series A Preferred Stockholders
     and Series B Preferred Stockholders submitted conversion notices to
     exchange their remaining balance of preferred stock for common stock.
     However, because the Company had already issued common stock in exchange
     for Series A Preferred Stock in an amount equal to 19.9% of the outstanding
     common stock, and had issued common stock in exchange for Series B
     Preferred Stock in an amount equal to 19.9% of the outstanding common
     stock, no further conversions can be made and the Company is obligated to
     honor such conversion requests with cash. This cash obligation amounts to
     approximately $4,200,000 and is now currently due and payable. The
     preferred stock has been accreted to the cash obligation amount resulting
     in a non-cash charge to net loss


                                     Page 9
<PAGE>


     attributable to common stockholders of $2,799,645 in the third quarter.
     Currently, the Company does not have sufficient liquid funds to honor such
     a request, and as a result, the Series A Preferred Stockholders, together
     with the Series B Preferred Stockholders, will be treated as creditors of
     the Company.

     The Company is now negotiating with the former Series A Preferred
     Stockholders and Series B Preferred Stockholders for settlement of their
     claims. Management believes that a settlement will be reached and that such
     settlement may encompass an issuance of common stock. No assurances can be
     given that a favorable settlement will be reached.

     On September 7, 2000, the Company completed a $1,920,000 private placement,
     selling an aggregate of 2,157,308 shares of common stock at $0.89 a share,
     and warrants to purchase 719,103 shares of common stock. In connection with
     this transaction, a) the placement agent received a placement fee of
     $49,500, and b) the placement received warrants to purchase 92,697 shares
     of common stock of the Company.

     On July 21, 2000, the Company completed a $1,550,000 private placement,
     selling an aggregate of 1,396,396 shares of common stock at $1.11 a share,
     and warrants to purchase 465,465 shares of common stock. In connection with
     this transaction, a) the placement agent received a placement fee of
     $93,000, and b) the placement agent and certain individuals affiliated with
     the placement agent received warrants to purchase 339,640 shares of common
     stock of the Company.

5. Bank Borrowings

     As of September 30, 2000, the Company has outstanding borrowing of
     approximately $4.3 million under its bank credit facilities. At September
     30, 2000 and June 30, 2000, the Company was not in compliance with certain
     financial covenants of its credit agreement with Imperial Bank. On November
     14, 2000, the Company obtained a forbearance agreement providing that so
     long as the Company remains current in its payments of principal and
     interest, Imperial Bank will not exercise any remedies it may have
     resulting from such lack of compliance until December 29, 2000. If the
     Company is not able to remain current in our payments, Imperial Bank can
     declare the loans in default and require the Company to pay the balance of
     the loan, which is currently approximately $4.3 million. In such event, the
     Company would seek to obtain alternative financing. There can be no
     assurance, however, that alternative financing, whether from equity or debt
     financing agreements, will be available, if at all, on favorable terms to
     the Company or its stockholders.

6. Segment Information

     The Company operates in one segment - dental medical equipment which, at
     September 30, 2000, comprised five main products: TeliCam Systems - an
     intraoral camera and dental networking system; ApolloTM tooth whitening and
     curing system; other accessories including the Apollo Secret(R) whitening
     product and ASAP composite materials; MPDxTM digital x-ray systems; and
     Forever WhiteTM home-whitening product. Accordingly no separate segment
     information is provided other than enterprise wide disclosures as required
     by SFAS No. 131.

     The following are sales by product lines for the three- and nine-month
periods ended September 30, 2000 and 1999:

<TABLE>
<CAPTION>
                                 Three months    Three months      Nine months      Nine months
                                    ended           ended             ended            ended
                                Sept. 30, 2000  Sept. 30, 1999   Sept. 30, 2000    Sept. 30, 1999
                                --------------  --------------   --------------    --------------
<S>                             <C>             <C>              <C>               <C>
  TeliCam                        $  296,846      $ 1,310,786     $ 2,266,435       $   4,032,140
  ApolloTM                        1,457,554        4,245,330       8,362,682          20,606,269
  MPDxTM                            645,651           72,100       3,106,995              72,100
  Consumables                       285,575          488,464       1,420,181           1,934,690
  Forever WhiteTM                   196,387                -         260,061                   -
  Other                             474,524          331,281       1,580,446             981,141
                                -----------      -----------     -----------       -------------
                                $ 3,356,537      $ 6,447,961     $16,996,800       $  27,626,340
                                ===========      ===========     ===========       =============
</TABLE>


                                    Page 10
<PAGE>


     The Company ships products from its operations in the US and Europe. The
     following are sales by its US and European locations for the three- and
     nine-month periods ended September 30, 2000 and 1999:

<TABLE>
<CAPTION>
<S>                          <C>               <C>                <C>              <C>
                               Three months     Three months       Nine months      Nine months
                                  ended            ended              ended            ended
                              Sept. 30, 2000   Sept. 30, 1999    Sept. 30, 2000    Sept. 30, 1999
                             ---------------- -----------------  ---------------- ----------------
Sales by geography:
United States                  $2,801,126       $4,047,578         $12,253,460       $18,103,182
Europe                            555,411        2,400,383           4,743,340         9,523,158
                             --------------    -------------      -------------     --------------
                               $3,356,537       $6,447,961         $16,996,800       $27,626,340
                             ==============    =============      =============     ==============
</TABLE>


        The following is long-lived asset information by geographic area as of
September 30, 2000:

<TABLE>
<CAPTION>
                 <S>                          <C>
                                              September 30, 2000
                                             ----------------------
                 Long Lived assets:
                 United States                    $1,108,427
                 Europe                              410,700
                                                ------------
                                                  $1,519,127
</TABLE>

7.       Sale of direct sale business

     In September 2000, the Company sold certain assets (accounts receivable,
     inventory and accounts payable) associated with the direct sale business of
     Midas (UK) Limited, the Company's wholly owned subsidiary. The sales price
     was satisfied through the issuance of a note receivable of approximately
     $622,000, equal to the net tangible assets of the business. As a result the
     goodwill was written off. The note receivable is repayable at $73,935 per
     quarter and is recorded in prepaid and other current assets and other
     assets.

8.       Subsequent Event

     In October 2000, the Company finalized a five-year licensing agreement with
     GC Corporation of Japan for its new patented light emitting diode (LED)
     high speed curing technology. In connection with the agreement, the Company
     received prepaid license fees of $750,000 covering the first 5,000 licenses
     to be ordered. The agreement establishes a minimum of 25,000 licenses to be
     purchased over the five-year period, at $150 a license, with 15,000
     guaranteed and non-revocable.

     In November 2000, the Company finalized the acquisition of Chrysalis
     Dental, Inc., the developer and manufacturer of its whitening products
     (Apollo Secret and Forever White), for 550,000 shares of common stock.


Item 2. - Management's Discussion and Analysis or Plan of Operation

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND NOTES THERETO INCORPORATED
ELSEWHERE IN THIS FORM 10-QSB.

EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES AND ARE BASED
UPON JUDGMENTS CONCERNING VARIOUS FACTORS THAT ARE BEYOND OUR CONTROL. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD LOOKING
STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THE FACTORS DESCRIBED BELOW UNDER
THE CAPTION "CAUTIONARY STATEMENTS AND RISK FACTORS."

INTRODUCTION

We design, develop, manufacture and sell high technology dental equipment and
related consumables. Our product with the highest gross sales is the tooth
curing and whitening device known as the "ApolloTM." We also market and sell a
line of whitening products known as "Apollo Secret(R)" for use in conjunction
with the ApolloTM. In September 1999, we began marketing and selling the MPDxTM
digital x-ray system. In addition, we continue to manufacture and sell intraoral
camera systems, known as the "TeliCam II System," and "TeliCam Elite," and a
multi-operatory intraoral camera system, known as the "InTELInet," for use in
connection with the TeliCam II System and TeliCam Elite.


                                    Page 11
<PAGE>


From early 1996 to mid-1998, we were primarily involved in designing,
developing, manufacturing, and marketing intra-oral camera systems referred to
as the "TeliCam Systems." The first shipments to customers of the TeliCam System
commenced in early February 1996.

On October 2, 1997, we purchased the assets of S.E.D., a company organized under
the laws of France. Among the acquired assets was a patent for S.E.D.'s
"Biotron" soft tissue surgical device. From this technology, we developed the
"ApolloTM," a unique, visible-light curing instrument, the plasma-arc lamp,
which is designed for two different applications: the hardening of tooth-colored
dental composite materials in three seconds or less and for single appointment,
in-office tooth whitening in less than forty minutes. This plasma-arc lamp uses
a high-frequency electrical field to generate plasma energy, which is ideal for
the fast-curing (hardening) of photosensitive composites. The ApolloTM also
produces light and heat which, when used in conjunction with the Apollo
Secret(R) whitening materials, activates the whitening chemicals in the Apollo
Secret(R). The result of this activation is dramatic whitening of stained teeth.
We believe the rapid performance of the ApolloTM in both hardening composite
materials and whitening teeth should enable an average dental practice to save
about 5 to 8 hours per month of a dentist's time.

On October 10, 1997, we entered into an agreement with Suni Imaging
Microsystems, Inc. ("Suni") to develop digital x-ray technology for
incorporation into a digital x-ray system for the dental market. We have
obtained exclusive rights to market products to the dental market incorporating
the digital x-ray technology developed by Suni. Suni will retain the rights to
the developed microchip technology underlying the x-ray system. Digital x-ray
systems, including those currently on the market, reduce radiation exposure
compared to conventional x-ray systems and allow dentists to view x-ray images
in real-time without the time-consuming process of film development while
eliminating the need to use and dispose of chemicals required to develop
conventional x-ray film. The resulting MPDxTM digital x-ray system was
introduced in September 1999.

In April 2000, we established Forever White, Inc. as a wholly-owned subsidiary
to market our home tooth whitening system, Forever WhiteTM. The product is being
marketed through short infomercials in a national advertising campaign on both
national cable and select regional network television stations. Test marketing
of the product began June 9, 2000 in select areas and national coverage began in
August 2000.

     We are in the process of introducing a new product known as "Apollo e"
(patent applied for), a wireless, fast curing device that cures (hardens) dental
fillings without heat, and will be phasing out our current model, the Apollo
95E, which originally sold for $4,500. The Apollo e will be priced at $2,495,
will be fully portable and will be programmable by bar code or by the Internet
for any particular composite material. We expect to launch the Apollo e during
the fourth quarter of fiscal year 2000 which will replace the Apollo 95E
product, and have scheduled our launch of another new product, the wireless
"Apollo Cam" handheld intraoral camera, which will replace the Telicam for the
first quarter of fiscal year 2001.

RESULTS OF OPERATIONS

     We derive our revenues primarily from the sale of five product lines:
TeliCam intraoral camera systems, ApolloTM curing and whitening devices, Apollo
Secret(R) tooth whitening chemicals, which began shipping in the fourth quarter
of 1998, the MPDxTM digital x-ray system, which began shipping at the end of the
third quarter of 1999, and the Forever WhiteTM home-whitening kits, which began
shipping at the end of the second quarter of 2000 on a test basis, but which was
fully launched in the beginning of the 3rd quarter of 2000. Through September
30, 2000, the sales of Forever WhiteTM have been less than 2% of total sales. In
addition, by the end of November, we anticipate the launch of Apollo E, a
wireless, fast curing device that cures dental fillings without heat, while in
the first quarter of 2001, we anticipate the launch of Apollo Cam, a wireless,
handheld intraoral camera.

    Revenues by product line for the three- and nine-month periods ended
September 30, 2000 and 1999, are reflected in the following table:

<TABLE>
<CAPTION>
                          FOR THE THREE-MONTH PERIODS ENDED SEPT. 30,            FOR THE NINE-MONTH PERIODS ENDED SEPT. 30,
                          -------------------------------------------            ------------------------------------------
                          2000            %           1999          %            2000          %          1999           %
                          ----            -           ----          -            ----          -          ----           -
<S>                      <C>              <C>         <C>          <C>          <C>            <C>    <C>              <C>
     ApolloTM            $1,457,554       43%         $4,245,330   66%          $8,362,682     49%    $20,606,269      75%
     TeliCam                296,846        9%          1,310,786   20%           2,266,435     13%      4,032,140      15%
     MPDxTM                 645,651       19%             72,100    1%           3,106,995     18%         72,100        -
     Consumables            285,575        9%            488,464    8%           1,420,181      9%      1,934,690        7%
     Forever White          196,387        6%               -        -             260,061      2%          -            -
     Other                  474,524       14%            331,281    5%           1,580,446      9%       981,141         3%
                         ----------     -----     --------------   ---        ------------   -----    ----------       ----
                         $3,356,537      100%         $6,447,961  100%         $16,996,800    100%   $27,626,340        100%
                         ===========     ====         ==========  ====        ============    ====   ===========       ====
</TABLE>


                                    Page 12
<PAGE>


    NET SALES. Net sales for the three-month periods ended September 30, 2000
and 1999, were $3,356,537 and $6,447,961, respectively. Net sales for the
nine-month periods ended September 30, 2000 and 1999, were $16,996,800 and
$27,626,340, respectively.

     Net sales for the three-month period ended September 30, 2000 decreased
approximately 48% from the three-month period ended September 30, 1999. Net
sales for the nine-month period ended September 30, 2000 decreased approximately
38% from the same period in 1999. For the three-month periods ended September
30, 2000 and 1999, TeliCam System sales represented 9% and 20% of total sales,
respectively. Telicam System sales represented 13% and 15% of total sales for
the nine-month periods ended September 30, 2000 and 1999, respectively. For the
three-month periods ended September 30, 2000 and 1999, ApolloTM represented 43%
and 66% of total sales, respectively. For the nine-month periods ended September
30, 2000 and 1999, Apollo represented 49% and 75% of total sales, respectively.
For the three-month periods ended September 30, 2000 and 1999, MPDxTM
represented 19% and 1% of total sales, respectively. For the nine-month periods
ended September 30, 2000 and 1999, MDPx represented 18% and less than 1% of
total sales, respectively. Comparing product line sales in dollars for the
three-month period ended September 30, 1999 to the three-month period ended
September 30, 2000, ApolloTM sales decreased $2,787,776, TeliCam sales decreased
$1,013,941, consumables decreased $202,889. Comparing product line sales in
dollars for the nine-month period ended September 30, 1999 to the nine-month
period ended September 30, 2000, Apollo sales decreased $12,243,587, TeliCam
sales decreased $1,765,705, and consumables decreased $514,509. The decrease in
Apollo sales from 1999 to 2000 was caused by the competitor's lamps curing time
becoming closer to that of the ApolloTM. In addition, the composite material
companies and several lecturing dentists still question the curing properties of
high intensity curing lamps. Sales decreased for both the Telicam and the Apollo
from 1999 to 2000 due to reduced pricing to make room for the new products being
introduced in November and the first quarter of 2001 as well as due to reduced
unit sales. Consumables decreased in from third quarter 1999 to third quarter
2000 due to the decrease in Apollo unit sales. We anticipate that the sales of
both the TeliCam and the ApolloTM will decrease in the future but will be
replaced by the comparable new products. However, we believe consumable sales
will increase with the release of the new products. No assurance can be given
that consumable sales will increase with the release of the new products. No
assurance can be given that the MPDxTM sales growth will continue in the future
or that the new products will be successful.

     COST OF SALES. Cost of sales for the three-month periods ended September
30, 2000 and 1999, were $3,372,826, or 100% of net sales, and $4,331,978, or 67%
of net sales, respectively. Cost of sales for the nine-month periods ended
September 30, 2000 and 1999, were $12,679,225 or 75% of net sales, and
$14,471,503, or 52% of net sales, respectively. Cost of sales as a percentage of
net sales for the three- and nine-month periods ended September 30, 2000
increased from the same periods in 1999 primarily due to a decrease in the
margins on the TeliCam and Apollo resulting from increased market saturation. In
addition, royalty fees increased from $60,667 during the nine-month period ended
September 30, 1999 to $822,420 for the same period in 2000 due to royalties
incurred on sales of digital x-ray systems and consumables. We expect that
margins on the sale of the TeliCams and Apollos will continue to shrink, and
thus the cost of sales of the TeliCams and Apollos as a percentage of net sales
is expected to continue to increase in the future. However, we anticipate better
margins on our replacement products.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses totaled $4,346,694, or 129% of net sales, and
$4,785,244, or 74% of net sales, for the three-month periods ended September 30,
2000 and 1999, respectively. For the nine-month periods ended September 30, 2000
and 1999, selling, general and administrative expenses totaled $14,350,460, or
84% of net sales, and $12,256,043, or 44% of net sales, respectively. The
absolute dollar decrease in this expense category for the three-month period
ended September 30, 2000 is primarily attributed to a combination of decreased
commissions and decreased advertising costs. Commissions decreased from $590,471
during the third quarter of 1999 to $242,471 for the same period in 2000, and
advertising costs decreased from $1,273,248 during the third quarter of 1999 to
$648,022 for the same period in 2000. The increase in selling, general and
administrative expenses as a percentage of net sales for the three-and
nine-month periods ended September 30, 2000 versus 1999 is mainly due to the
decrease in sales. The absolute dollar increases in this expense category for
the nine-month periods ended September 30, 2000 versus 1999 is due to the
increase in salaries, and increased marketing costs resulting from the
introduction of the Forever White home whitening kits which began selling late
in the second quarter 2000, enhanced marketing efforts on our other products
earlier in the year and the write-off of goodwill of $559,024 related to the
Midas and DMD GmbH businesses during the third quarter. Salaries and employee
benefits increased from $2,783,239 during the first nine months of 1999 to
$3,378,432 during the same period in 2000, and advertising and marketing costs
increased from $3,337,398 during the first nine months of 1999 to $3,621,412
during the same period of 2000. The remaining increase in selling, general, and
administrative expenses consisted primarily of increased travel and
entertainment expenses of $448,584 due to an increased number of trade shows
attended. As a result of the increased costs discussed above, we have reassessed
our corporate structure and methods of operations in the areas of headcount and
marketing. We reorganized our operations to increase efficiency and reduce costs
through personnel reductions and have reevaluated our marketing strategy with a
corresponding reduction in monthly marketing and advertising budgets. While
these initiatives will be fully realized in 2001, the quarterly selling,
general, and administrative expenses have already decreased approximately
$439,000 for the third quarter of 2000 when compared with the third quarter of
1999.


                                    Page 13
<PAGE>


     ABANDONED OFFERING COSTS. During the quarter ended September 30, 1999, we
wrote-off $566,893 of costs related to an abandoned secondary offering.

    RESEARCH AND DEVELOPMENT. Research and development expenses totaled
$311,308, or 9% of net sales, and $228,712, or 4% of net sales, for the
three-month periods ended September 30, 2000 and 1999, respectively. For the
nine-month periods ended September 30, 2000 and 1999, research and development
costs totaled $884,087, or 5% of net sales, and $447,974, or 2% of net sales,
respectively. The increase in research and development from third quarter 1999
is due to continued development of a new cordless camera and a hand-held curing
light. We expect research and development expenses to increase in future periods
as we continue to pursue the development of new technologies.

    INTEREST AND OTHER INCOME. Interest and other income totaled $69,911, and
$216,714 for the nine-month periods ended September 30, 2000 and 1999. This
income is primarily attributable to the interest earned by investing available
cash in a short-term money market account through Imperial Bank.

    INTEREST AND OTHER EXPENSE. Interest and other expense totaled $237,258, and
$141,880 for the three-month periods ended September 30, 2000 and 1999,
respectively. For the nine-month periods ended September 30, 2000 and 1999, the
interest and other expense totaled $255,755 and $773,053, respectively. This
expense category includes interest paid on capital lease obligations, on bridge
notes, on our senior subordinated notes and amortization of debt discount. The
substantial decrease in the nine-month period ended September 30, 2000 is
primarily due to the repayment of the $4.5 million of Senior Subordinated Notes,
which were repaid in January 1999 with proceeds from the new credit facility
with Imperial Bank and the corresponding full amortization of the debt discount
associated with the warrants issued with the $4.5 million notes

    Amortization of debt issuance costs were $44,523 and $0 for the three-month
periods ended September 30, 2000 and 1999, respectively. Amortization of debt
issuance costs were $44,523 and $64,519 for the nine-month periods ended
September 30, 2000 and 1999, respectively. Third quarter 2000 represents the
amortization of the costs incurred in connection with the extension of the
credit facility with Imperial Bank to May 31, 2001. The costs in 1999 represent
the amortization of the issuance costs incurred in connection with the $4.5
million Senior Subordinated Notes issued in March 1998. These costs were
amortized over the term of the Notes, with the remaining unamortized costs
written-off in January 1999 when we repaid the Senior Subordinated Notes out of
the proceeds of our new credit facility with Imperial Bank.

    NET LOSS. Net loss for the three month periods ended September 30, 2000 and
1999 totaled $4,954,762 and $3,380,382, respectively. Net loss for the
nine-month periods ended September 30, 2000 and 1999 totaled $11,100,496 and
$756,931, respectively. Net loss attributable to common stockholders for the
three month periods ended September 30, 2000 and 1999 totaled $7,775,958 or
$0.84 per share on a diluted basis and $3,380,382 or $0.54 per share on a
diluted basis, respectively. Net loss attributable to common stockholders for
the nine-month periods ended September 30, 2000 and 1999 totaled $14,089,110 or
$1.88 per share on a diluted basis and $756,931 or $0.13 on a diluted basis,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

    For the nine-month period ended September 30, 2000, we used net cash of
approximately $7.1 million in operations as compared to $5.9 million for the
nine-month period ended September 30, 1999. Accounts receivable decreased from
$5,756,048 at the prior year-end to $1,292,234 at September 30, 2000, primarily
as a result of the decrease in sales during the nine-month period ended
September 30, 2000 and increased collections efforts. Accounts payable and
accrued liabilities totaling $5,278,136 at September 30, 2000 decreased from
$6,765,718 at the prior year-end primarily due to a decrease in inventory
purchases. Inventory levels decreased approximately $1,902,358. Cash and cash
equivalents on hand for the nine-month period ended September 30, 2000 were
$561,267 as compared to $4,780,324 for the nine-month period ended September 30,
1999.

    Capital expenditures for the nine-month period ended September 30, 2000 were
approximately $527,000, with approximately $179,000 spent for the purchase of
software, approximately $83,000 spent for computer equipment, and approximately
$132,000 spent on furniture and fixtures, and approximately $30,000 spent on
tooling with the remainder consisting of equipment, and leasehold improvements.

    For the nine-month period ended September 30, 2000, we received net cash of
approximately $2,765,000 from financing activities as compared to $7,140,000 for
the nine-month period ended September 30, 1999. On February 29, 2000 the Company
sold an aggregate of 2,250 shares of Series B Exchangeable Preferred Stock, B-1
Warrants to purchase up to 225,000 shares of Common Stock and B-2 Warrants to
purchase up to 450,000 shares of common stock. The Company received $2,250,000
in gross proceeds less costs of $207,520. On July 21, 2000 the Company sold an
aggregate of 1,396,396 shares of common stock and warrants to purchase 465,465
shares of common stock. The Company received $1,550,000 in gross proceeds less
costs of


                                    Page 14
<PAGE>


$93,000. On September 7, 2000 the Company sold an aggregate of 2,157,308 shares
of common stock and warrants to purchase 719,103 shares of common stock. The
Company received $1,920,000 in gross proceeds less costs of $49,500.

    On January 4, 1999, the Company replaced its credit agreements with Comerica
with a $6,950,000 facility with Imperial Bank ("Imperial"). The Imperial
facility was comprised of a $2,500,000 fixed rate non-revolving line of credit
due May 31, 2000; a $4,000,000 variable rate revolving line of credit loan due
May 31, 2000 and a $450,000 variable interest rate loan repayable in 16 monthly
installments through May 31, 2000. The facilities are collateralized by the
assets of the Company. The credit facility also requires the Company to comply
with certain financial and non-financial covenants. The Company has used the
credit facilities for working capital, capital expenditures and general
corporate purposes. On January 21, 1999, the Company borrowed against the
Imperial facility to repay the balance owed to Comerica capital credit line of
$343,890 plus accrued interest of $1,120. On January 25, 1999, the Company
borrowed against the Imperial facility to repay the $4,500,000 12% Senior
Subordinated Notes plus accrued interest of $189,000.

    On March 24, 2000, the Company amended its facility with Imperial Bank to
modify certain of its financial covenants and extend the repayment terms. Under
this amendment, the fixed rate non-revolving line of credit is due in monthly
installments of $100,000 commencing March 31, 2000, and will be fully paid by
the end of December 2000. Interest under this line of credit increased to 10.0%
per annum. The $4,000,000 variable rate revolving line of credit and the
variable rate loan repayment dates were extended to May 31, 2001, with no
principal payments required at any earlier dates. The interest rate under the
variable rate revolving line of credit was amended to 0.5% plus the bank's index
rate. In addition, the Company granted the bank 75,000 warrants at an exercise
price of $2.50 per share. At September 30, 2000, $134,000, $4,000,000, and
$189,121 was outstanding under the fixed rate non-revolving line of credit, the
variable revolving line of credit, and the variable rate loan, respectively.

     At September 30, 2000 and June 30, 2000, the Company was not in compliance
with certain financial covenants of its credit agreement with Imperial Bank. On
November 14, 2000, the Company obtained a forbearance agreement providing that
so long as we remain current in our payments of principal and interest, Imperial
Bank will not exercise any remedies it may have resulting from such lack of
compliance until December 29, 2000. If we are not able to remain current on our
payments, Imperial Bank can declare the loans in default and require us to pay
the balance of the loan, which is currently approximately $4.3 million. In such
event, we would seek to obtain alternative financing. There can be no assurance,
however, that alternative financing, whether from equity or debt financing
agreements, will be available, if at all, on favorable terms to us or our
stockholders.

     As of September 30, 2000, the minimum purchase obligations under the
manufacturing agreement with Suni Microsystems, the minimum purchase obligations
under the Exclusive License Agreement with Chrysalis Dental, and the two
facility leases are significant future commitments. On January 25, 2000, the
Company leased a second facility under an operating lease that expires in 2005.
The leases require the Company to pay taxes, maintenance fees, and insurance and
provide for periodic fixed rent increases based on a published price index.

     At this time, we also owe $4.2 million to our former preferred
shareholders. Although we are engaged in settlement discussions, we cannot
assure you that a favorable settlement will be reached.

    The Company also had purchase obligations with Boston Marketing ("BMC")
under the BMC Distribution Agreement. In April 2000, we were served with a
lawsuit that makes numerous claims including the allegation that we failed to
make the minimum purchases for calendar year 1999 and 2000, and that the BMC
Distribution Agreement has been terminated as a result. Boston Marketing has
refused to accept subsequently placed orders. We are investigating the claims
made by Boston Marketing in their complaint. We intend to defend this matter
vigorously and believe we have meritorious defenses to this suit. We have now
obtained other CCD chips, CCU processors and frame grabbers from third-party
suppliers. Management believes that no disruption in the supply of these
products occurred. However, we may not be able to market the units incorporating
those CCD chips, CCU processors and frame grabbers under the "TeliCam" trademark
which could materially adversely affect our operating results.

     At this time, our expenses significantly exceed our revenues from
operations. We anticipate that our new product, the Apollo E, a cordless,
heatless, programmable, light instrument used for the curing of composite and
whitening materials, will provide additional revenue on a relatively high margin
product. We expect to have the Apollo E product available to ship at the end of
November. Additionally, we will continue to expand our national advertising
campaign for our new home tooth whitening system, Forever WhiteTM. We expect the
revenue and cash flow impact from both Apollo E and Forever WhiteTM to begin in
the last quarter of the year. We have not commenced significant sales of Apollo
e or Forever WhiteTM and we can give no assurances as to the success of these
products. Therefore, we believe that we will need to raise additional capital in
order to finance our operations as well as research and development of new
products during the next twelve months. Based on our current revenues and
expenses and without the impact of sales of Apollo E and Forever WhiteTM, we
will need additional capital prior to the launch of the Apollo E. We are working
to raise additional capital by means of a private placement. However, we can
give no assurance


                                    Page 15
<PAGE>


that additional financing will be available when needed or that, if available,
that it will be on terms we consider to be favorable. If needed funds are not
available, we may be required to limit or forego the development and marketing
of new products which could have a material adverse effect on our business,
operating results and financial condition.

FLUCTUATIONS IN QUARTERLY RESULTS

    Our business is subject to certain quarterly influences. Net sales and
operating profit are generally higher in the fourth quarter due to the
purchasing patterns of dentists in the United States and are generally lower in
the first quarter due primarily to the effect upon demand or increased purchases
in the prior quarter. We also expect that our business will experience lower
sales in the summer months as a consequence of holiday vacations and a lesser
number of trade shows.

    Quarterly results may be adversely affected in the future by a variety of
other factors, including the possible costs of obtaining capital, as well as the
release of new products and promotions taking place within the quarter. The
Company plans to continue to fund research and development and to increase
working capital requirements for the new products. Also, the expenses of the
Company are to a large extent fixed and not susceptible to rapid reduction. To
the extent that such expenses precede or are not subsequently followed by
increased revenues, our business, operating results and financial condition will
be adversely affected.

CAUTIONARY STATEMENTS AND RISK FACTORS

WE HAVE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

We have experienced significant operating losses in the current and prior years.
We have been unable to pay all of our trade creditors and certain other
obligations in accordance with their terms. We also have a $4,200,000 obligation
to our former preferred stockholders and our forbearance agreement with Imperial
Bank expires on December 29, 2000. We intend to improve liquidity in various
ways such as (a) the completion of equity or debt financing or other strategic
transactions; (b) the continued monitoring and reduction of manufacturing,
facility and administrative costs; and (c) the development and introduction of
new products. However, there is no assurance that we will succeed in
accomplishing any or all of these initiatives. Our fiscal 2000 unaudited interim
consolidated financial statements have been prepared assuming we will continue
as a going concern and do not include any adjustments that might result from the
outcome of this uncertainty.

WE HAVE A $4,200,000 OBLIGATION FOR WHICH WE DO NOT HAVE SUFFICIENT FUNDS AND WE
WILL NEED TO SEEK ADDITIONAL FINANCING.

On November 23, 1999 we sold an aggregate of 2,000 shares of Series A
Exchangeable Preferred Stock ($2 million face value), 2,500 shares of Common
Stock and Warrants to purchase up to 40,000 shares of Common Stock. On March 3,
2000 we sold an aggregate of 2,250 shares of Series B Exchangeable Preferred
Stock ($2.25 million face value) and Warrants to purchase up to 675,000 shares
of Common Stock.

On and after March 15, 2000, holders of Series A Exchangeable Preferred Stock
were able to exchange their shares for shares of common stock at the lesser of
$4.00 per share or the average of the closing bid prices of the common stock
during any three (3) of the prior thirty (30) consecutive trading days selected
by the holder of the Series A Exchangeable Preferred Stock then being exchanged.
As a result, the holders were likely to be in a position to exchange their
shares for shares of common stock at a discount to the then current trading
price of our common stock.

Holders of Series B Exchangeable Preferred Stock were able to exchange their
shares into common stock at a price per share equal to the lesser of $2.85 or
one hundred percent (100%) of the Market Price on the date of exchange. The
Market Price is the average of the closing bid prices of any three (3) of the
prior thirty (30) consecutive trading days selected by the holder of the Series
B Exchangeable Preferred Stock then being exchanged. As a result, the holders of
Series B Exchangeable Preferred Stock were likely in a position to exchange
their shares of common stock at a discount to the then current trading price of
our common stock.

To date, 1,246 shares of Series A Exchangeable Preferred Stock have been
converted into 1,270,216 shares of common stock, and 937 shares of Series B
Exchangeable Preferred Stock have been converted into 1,288,467 shares of common
stock.

Under the rules and regulations of the Nasdaq Stock Market, we require
stockholder approval to issue 20% or more of our outstanding common stock in a
single transaction. Because the rate at which the Series A Preferred Stock and
Series B Preferred Stock exchange into common stock fluctuates, it was possible
that the number of shares of common stock into which the Series A Preferred
Stock or Series B Preferred Stock may exchange could exceed 20%. We agreed with
the purchasers of the Series A Preferred Stock and the Series B Preferred Stock
that we would seek stockholder approval of these issuances at the 2000 Annual


                                    Page 16
<PAGE>


Meeting of Stockholders. Prior to receiving stockholder approval, or if
stockholder approval is not obtained, any exchange of shares of Series A
Preferred Stock or Series B Preferred Stock in excess of 19.9% of the
outstanding common stock of the Company must be paid in cash to the holder of
the Series A Preferred Stock or Series B Preferred Stock. In late September,
2000, all remaining Series A and Series B holders requested to convert their
remaining shares. Because we had already issued l9.9% of the outstanding shares,
we are obligated to honor the exchange of shares of Series A Preferred Stock or
Series B Preferred Stock in cash. The combined obligation to the Series A and
Series B holders is approximately $4,200,000. Currently, the Company does not
have sufficient liquid funds to honor such request.

The Company is now negotiating with the former Series A Preferred Stockholders
and Series B Preferred Stockholders, now creditors, for settlement of their
claims. In addition, we have recently received claims of approximately $1.2
million for additional liquidated damages from former preferred holders. We
vigorously dispute their right to such liquidated damages since a separate
damages provision applies to these circumstances and since the amount due was
already based upon an assumed sale price. Management believes that a settlement
will be reached and that such settlement may encompass an issuance of common
stock. However, no assurances can be given that a favorable settlement will be
reached or that financing of this obligation will be available, or if available
will be on terms satisfactory to us or on terms favorable to holders of common
stock.

WE WILL NEED TO RAISE ADDITIONAL CAPITAL.

At September 30, 2000, we had cash and cash equivalents of $561,267. After
taking into account our cash and cash equivalents, projected revenues and
receipt of funds from other sources, we will need to raise additional funding
through debt or equity financing during the next twelve months to satisfy our
requirements for research and product development, marketing, and general and
administrative expenses. Our cash requirements, however, may vary materially
from those now planned because of changes in our operations or market
conditions. In addition, we have a $4,200,000 obligation to our former preferred
stockholders. Further, at September 30, 2000 and June 30, 2000, we were not in
compliance with financial covenants of our Imperial Bank credit agreement. As of
November 14, 2000, we entered into a forbearance agreement stating that so long
as we remain current in our payments of principal and interest Imperial Bank
will not exercise any remedies it may have resulting from such lack of
compliance until December 29, 2000. If we are not able to remain current in our
payments of principal and interest or obtain additional extensions on the
forbearance agreement, Imperial Bank can declare the loans in default and
require us to pay the balance of the loan, which is currently approximately $4.3
million. In such event, we would seek to obtain alternative financing. There can
be no assurance that alternative financing, whether from equity or debt
financing agreements, will be available, if at all, on favorable terms to us or
our stockholders. If we need capital and cannot raise additional funds, we may
be required to limit or forego the development of new products or limit the
scope of our current operations, which could have a material adverse effect on
our business, operating results and financial condition. If we raise needed
funds through the sale of additional shares of our common stock or securities
convertible into shares of our common stock it may result in dilution to current
stockholders.

WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR LIKELIHOOD OF
SUCCESS.

We have only manufactured and distributed our digital x-ray systems since
September 1999, our TeliCam systems since October 1995 and our ApolloTM since
March 1998. Therefore, we have a limited relevant operating history upon which
to evaluate the likelihood of our success. In addition, we anticipate additional
revenues from our two new products, Apollo E and Forever WhiteTM. We expect
Apollo E will be available for shipment at the end of November, and our national
advertising campaign for Forever WhiteTM began in August. However, we have not
yet commenced sales of Apollo E and we can give no assurances as to the
likelihood of success of this product. Factors such as the risks, expenses and
difficulties frequently encountered in the operation and expansion of a new
business and the development and marketing of new products must be considered in
evaluating the likelihood of our success.

WE HAVE A HISTORY OF LOSSES AND ACCUMULATED DEFICIT AND THIS TREND OF LOSSES MAY
CONTINUE IN THE FUTURE.

For the period from October 23, 1995 to March 2, 1996, we incurred a net loss of
$1,625,213. For the fiscal years ended December 31, 1997, 1998, and 1999 we had
net losses of $2,044,729, $1,816,702, and $6,727,638, respectively, and for the
nine months ended September 30, 2000, we had a net loss of $11,100,496. At
September 30, 2000, our accumulated deficit was $23,272,012. Our ability to
obtain and sustain profitability will depend, in part, upon the successful
marketing of our existing products and the successful and timely introduction of
new products. We can give no assurances that we will achieve profitability or,
if achieved, that we will sustain profitability.


                                    Page 17
<PAGE>


FLUCTUATION IN QUARTERLY RESULTS MAY RESULT IN DECLINES IN OUR STOCK PRICE.

Certain quarterly influences may affect our business. Historically, sales have
been generally higher in the fourth quarter due to the purchasing patterns of
dentists in the United States and have been generally lower in the first quarter
due primarily to the effect upon demand of increased purchases in the prior
quarter. Historically we have experienced lower sales in the summer months as a
result of holiday vacations and fewer trade shows. These fluctuations in
quarterly operating results could result in increased volatility, including
significant declines, of the trading price of our common stock.

WE MAY BE DELISTED FROM THE NASDAQ STOCK MARKET AND THE BOSTON STOCK EXCHANGE.

The closing sale price of our Common Stock was below $1.00 per share in August.
Under the rules and regulations of the Nasdaq Stock Market and the Boston Stock
Exchange, to maintain listing on the Nasdaq Small Cap Market and the Boston
Stock Exchange we must maintain a trading price per share of more than $1.00. On
September 6, 2000, Nasdaq notified us that we had failed to maintain a minimum
bid price of $1.00 over the last 30 consecutive trading days as required for
continued listing on The Nasdaq SmallCap Market as set forth in Marketplace Rule
4310(c)(4) (the "Rule"). However, in accordance with Marketplace Rule
4310(c)(8)(B), we will be provided 90 calendar days, or until December 5, 2000
to regain compliance with this Rule. If at anytime before December 5, 2000 the
bid price of our common stock is at least $1.00 for a minimum of 10 consecutive
trading days, a determination will be made as to whether we comply with the
Rule. The bid price of our common stock was above $1.00 for 21 consecutive days
from September 7, 2000 through October 5, 2000. However, Nasdaq must still make
a determination whether we comply with the Rule. If Nasdaq determines we do not
comply with the Rule, our common stock will be delisted. If we were delisted
from the Nasdaq Small Cap Market and the Boston Stock Exchange, trading in our
common stock, if any, would have to be conducted in the over-the-counter market
in so-called "pink sheets" or, if then available, the OTC Bulletin Board. As a
result, the holders of our common stock would find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, our common
stock.

If our common stock is delisted from trading on Nasdaq and the Boston Stock
Exchange and the trading price is less than $5.00 per share, trading in our
common stock would also be subject to the requirements of Rule 15g-9 promulgated
under the Securities Exchange Act of 1934. Under such rule, broker/dealers who
recommend these low-priced securities to persons other than established
customers and accredited investors must satisfy special sales practice
requirements, including a requirement that they make an individualized written
suitability determination for the purchaser and receive the purchaser's written
consent prior to the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990 also requires additional disclosure in connection with
any trades involving a stock defined as a penny stock (generally any equity
security not traded on an exchange or quoted on Nasdaq that has a market price
of less than $5.00 per share, subject to certain exceptions), including the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated with the penny stock
market. These requirements would likely severely limit the market liquidity of
our common stock and the ability of our shareholders to dispose of their shares,
particularly in a declining market.

TWO OF OUR PRIMARY PRODUCTS HAD A SIGNIFICANT DECLINE IN SALES AND IF THIS
DECLINE CONTINUES WE MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN PROFITABILITY.

The TeliCam systems, together with related products such as the InTELInet
system, and the ApolloTM have been our primary products since inception. We
believe that our market for the Telicam intraoral cameras, is a market that has
declined. TeliCam systems sales have recently been at or below levels of prior
comparable periods, a trend which we expect to continue. In addition, there has
been a decrease in ApolloTM sales as competitor's lamps curing times become
closer to that of the ApolloTM, a trend which we also expect to continue.

AS A RESULT OF THE DECLINE IN SALES OF THE TELICAM SYSTEMS AND APOLLOTM
PRODUCTS, OUR FUTURE DEPENDS ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW
PRODUCTS.

As a result of the decline in our Telicam intraoral camera market, our future
depends upon our ability to develop and successfully introduce new products to
make up for the diminished sales of the Telicam systems and ApolloTM products.
Development of new product lines is risk intensive and often requires:

     o    long-term forecasting of market trends;

     o    the development and implementation of new designs;


                                    Page 18
<PAGE>


     o    compliance with extensive governmental regulatory requirements; and

     o    a substantial capital commitment.

Also, the medical and dental device industry is characterized by rapid
technological change. As technological changes occur in the marketplace, we may
have to modify our products in order to become or remain competitive or to
ensure that our products do not become obsolete. If we fail to anticipate or
respond in a cost effective and timely manner to government requirements, market
trends or customer demands, or if there are any significant delays in product
development or introduction, our revenues and profit margins may decline which
could adversely affect our cash flows, liquidity and operating results.

HISTORICALLY, THE SALES OF OUR NEWLY INTRODUCED PRODUCTS HAVE DECLINED IN A
RELATIVELY SHORT PERIOD OF TIME FOLLOWING THE INITIAL INTRODUCTION OF THE
PRODUCT.

Our sales records indicate that the sales of our products decline within a
relatively short period of time following the initial introduction of the
product. If this sales pattern holds true for three new products, the Apollo E,
the Apollo Cam and Forever WhiteTM and our future products, we must continuously
develop and introduce new products in order to maintain an appropriate level of
sales and revenue. As a result, if we fail to develop and introduce new products
on a timely basis, it could adversely affect our revenues and operating results.

WE SUBSTANTIALLY DEPEND UPON UNAFFILIATED THIRD PARTIES FOR SEVERAL CRITICAL
ELEMENTS OF OUR BUSINESS, INCLUDING THE DEVELOPMENT AND LICENSING FOR
DISTRIBUTION OF OUR PRODUCTS.

We are dependent upon unaffiliated third party developers and suppliers for the
development and manufacture of all of the components used in our dental
equipment and for the development and manufacture of our consumable products.
Outside of updating our current products, we do not develop any of our
technology. Instead of developing technology, we continually seek out third
parties that own new and innovative technology that they may be willing to
license to us or develop into new dental products under a development agreement.
We have had problems in the past obtaining a marketable product from companies
with whom we had entered into a licensing arrangement. We entered into a
licensing agreement with Ion Laser Technology under which ILT was unable to
develop a product in accordance with the delivery schedule established by our
agreement that met our specifications; as a result, we were forced to find an
alternative product to that which we had contracted with ILT.

IF WE DO NOT MAKE CERTAIN REQUIRED MINIMUM ROYALTY PAYMENTS TO SUNI, AND IF WE
DO NOT PURCHASE REQUIRED AMOUNTS OF CERTAIN PRODUCTS MANUFACTURED BY SUNI, WE
WILL LOSE OUR EXCLUSIVE RIGHTS TO THE DIGITAL X-RAY TECHNOLOGY DEVELOPED FOR US
BY SUNI.

In order to maintain our right to be the exclusive dental licensee of the
digital x-ray technology developed by Suni, we must make significant minimum
periodic royalty payments to Suni, and we must purchase a significant amount of
certain products manufactured by Suni. We cannot guarantee that we will be able
to make the minimum periodic royalty payments, nor can we guarantee that we will
be able to purchase the amount of products that are required to maintain our
right to be the exclusive distributor. If we do not make the required periodic
royalty payments and purchase the required products, Suni will be able to
license the developed technology to our competitors, or grant an exclusive
license to a competitor, which could have a material adverse effect on our
operating results and financial condition.

THE GOVERNMENT EXTENSIVELY REGULATES OUR PRODUCTS AND FAILURE TO COMPLY WITH
APPLICABLE REGULATIONS COULD RESULT IN FINES, SUSPENSIONS, SEIZURE ACTIONS,
PRODUCT RECALLS, INJUNCTIONS AND CRIMINAL PROSECUTIONS.

The United States Food and Drug Administration, as well as state and foreign
agencies, regulate almost all aspects of our medical devices including:

     o    entry into the marketplace;
     o    design;
     o    testing;
     o    manufacturing procedures;
     o    reporting of complaints;
     o    labeling; and
     o    promotional activities.

Under the Federal Food, Drug, and Cosmetic Act, the FDA has the authority to
control the introduction of new products into the marketplace. Unless
specifically exempted by the agency, medical devices enter the marketplace
through either FDA clearance of


                                    Page 19
<PAGE>


premarket approval application or FDA approval of an application for 510k
clearance. The FDA conducts periodic inspections to assure compliance with its
regulations. The Company has applications pending for a hand held cordless
curing lamp and a cordless, remote controlled, high resolution, intraoral
camera. The Company expects to receive FDA 510k notification for these products
prior to or during the fourth quarter of 2000. Any delay in receipt of FDA 510k
notification for these products will delay our ability to market and sell these
products and could allow our competitors to develop and introduce competing
products.

Unless specifically exempted by FDA's regulations, we will need to file a 510k
submission or PMA application for any new products developed in the future
including any using digital x-ray technology. The process of obtaining a
clearance or approval can be time-consuming and expensive. Compliance with FDA's
regulatory requirements can be expensive and time consuming. We do not guarantee
that the required regulatory approvals or clearances will be obtained. Any
approval or clearance obtained from FDA may include significant limitations on
the use of the medical device which is the subject of the approval or clearance.
We cannot market a medical device if needed FDA approval or clearance is not
granted. Inability to obtain such approval or clearance could result in a delay
or suspension of the manufacture and sale of affected medical devices. Any such
delay or suspension would have a material adverse effect on our business. In
addition, changes in existing regulations or the adoption of new regulations
could make regulatory compliance by us more difficult in the future. The failure
to obtain the required regulatory clearances or to comply with applicable
regulations could result in one or more of the following:

     o    fines;
     o    delays or suspensions of device clearances;
     o    seizure actions;
     o    mandatory recalls;
     o    injunction action; and
     o    criminal prosecution.

THE LOSS OF OUR CHIEF EXECUTIVE OFFICER COULD RESULT IN THE LOSS OF A
SIGNIFICANT PORTION OF OUR BUSINESS BECAUSE OF HIS PERSONAL RELATIONSHIPS IN THE
INDUSTRY.

Our success is highly dependent upon our Chairman of the Board and Chief
Executive Officer, Robert H. Gurevitch. Unlike larger companies, we rely heavily
on a small number of officers to conduct a large portion of our business. The
loss of service of Robert H. Gurevitch along with the loss of his numerous
contacts and relationships in the industry would have a material adverse effect
on our business. We have entered into an Employment Agreement with Robert H.
Gurevitch under which he has agreed to render services to us until September 30,
2002. We have obtained "key person" life insurance on Mr. Gurevitch in the
amount of $2,000,000, of which we are the sole beneficiary, but there can be no
assurance that the proceeds of such insurance will be sufficient to offset the
loss to us in the event of his death.

NONE OF OUR PRODUCTS ARE PROTECTED BY PATENTS, AND THEREFORE, THEY MAY NOT BE
ADEQUATELY PROTECTED FROM COPYING BY COMPETITORS.

Our future success and ability to compete is dependent in part upon our
proprietary technology used in the ApolloTM. The ApolloTM is currently only
protected by a patent in France. We are currently seeking patent protection in
all of the countries of the world in which this technology can be marketed.
There can be no assurance that patents outside of France will be granted for the
ApolloTM system, and, if granted, the patents will provide adequate protection
for the Company's technologies. Consequently, we rely primarily on trademark,
trade secret and copyright laws to protect our technology. However, there can be
no assurance that third parties will not try to copy our products. In addition,
many foreign countries' laws may not protect us from improper use of our
proprietary technology overseas. We may not have adequate remedies if our
proprietary rights are breached and therefore a breach of our proprietary rights
could have a material adverse effect on our financial condition.

WE ARE SUSCEPTIBLE TO PRODUCT LIABILITY SUITS AND IF A LAWSUIT IS BROUGHT
AGAINST US IT COULD RESULT IN US HAVING TO PAY LARGE LEGAL EXPENSES AND/OR
JUDGMENTS.

Although we have not yet had any product liability claims, because of the nature
of the medical/dental device industry, there can be no assurance that we will
not be subject to such claims in the future. Our products come into contact with
vulnerable areas of the human body, such as the mouth, tongue, teeth and gums,
and, therefore, the sale and support of dental products makes us susceptible to
the risk of such claims. A successful product liability claim or claim arising
as a result of use of our products brought against us, or the negative publicity
brought up by such claim, could have a material adverse effect upon our
business. We maintain product liability insurance with coverage limits of
$10,000,000 per occurrence and $11,000,000 per year. While we believe that we
maintain adequate insurance coverage, we do not guarantee that the amount of
insurance will be adequate to satisfy claims made against us in the future, or
that we will be able to obtain insurance in the future at satisfactory rates or
in adequate amounts.


                                    Page 20
<PAGE>


ISSUANCE OF PREFERRED STOCK MAY HAVE THE EFFECT OF PREVENTING A CHANGE OF
CONTROL.

We have authorized 1,000,000 shares of preferred stock, which may be issued by
the Board of Directors with certain rights not granted to the holders of common
stock. Issuance of such preferred stock, depending upon the terms and rights
thereof, may have the effect of delaying, deterring or preventing a change of
control.

A DECREASE IN THE PRICE OF OUR COMMON STOCK COULD INCREASE SHORT SALES OF OUR
COMMON STOCK BY THIRD PARTIES WHICH COULD RESULT IN FURTHER REDUCTIONS IN THE
PRICE OF OUR COMMON STOCK.

Exchange of shares of our Series A Preferred Stock or Series B Preferred Stock
into common stock at a discount to the market price of our common stock could
result in reductions in the market price of our common stock. Downward pressure
on the price of our common stock could encourage short sales of our common stock
by third parties. Material amounts of short selling could place further downward
pressure on the market price for our common stock. A short sale is a sale of
stock that is not owned by the seller. The seller borrows the stock for delivery
at the time of the short sale, and buys back the stock when it is necessary to
return the borrowed shares. If the price of the stock declines between the time
the seller sells short the stock and the time the seller subsequently
repurchases the stock, the seller will realize a profit.

A LARGE VOLUME OF SALES OF OUR COMMON STOCK RESULTING FROM THE EXCHANGE OF
SHARES OF SERIES A AND B EXCHANGEABLE PREFERRED STOCK AND/OR THE EXERCISE OF
WARRANTS MAY RESULT IN DOWNWARD PRESSURE OR INCREASED VOLATILITY IN THE TRADING
PRICE OF OUR COMMON STOCK.

Because we have agreed to register for resale the 2,500 shares of common stock
and the shares of common stock issuable upon exchange or exercise of the Series
A and B Exchangeable Preferred Stock and the Warrants, the holders thereof may
sell without regard to any volume restrictions, including the volume
restrictions set forth in Rule 144 promulgated under the Securities Act of 1933.
As a result, sales by the holders of Series A and B Exchangeable Preferred Stock
and the Warrants could lead to an excess supply of shares of our Common Stock
being sold which could, in turn, result in downward pressure or increased
volatility in the trading price of our Common Stock.

WE FACE THE POTENTIAL LOSS OF OUR TELICAM COMPONENT SUPPLY, AND OTHER CLAIMS OF
BOSTON MARKETING, WHICH COULD RESULT IN SIGNIFICANT LIABILITY, DISRUPT OUR
OPERATIONS AND ADVERSELY AFFECT OUR OPERATING RESULTS.

Effective October 1, 1996, we amended our distribution agreement ("BMC
Distribution Agreement") with Boston Marketing, a licensed distributor of the
Teli manufactured CCD chip which includes the Teli CCU processor. Pursuant to
the BMC Distribution Agreement, we have the exclusive right (i) to market
certain Teli manufactured CCD chip assemblies with CCU processors (each a "Teli
unit," and collectively the "Teli Units") to the dental market, and (ii) to use
the "TeliCam" trademark. The Units are key components of our intraoral digital
cameras. The initial term of the BMC Distribution Agreement, as amended, was due
to expire December 31, 2000, and was terminable by Boston Marketing if we fail
to meet our annual minimum purchase obligation. In April 2000, we were served
with a lawsuit that makes numerous claims including the allegation that we
failed to make the minimum purchases for fiscal year 1999 and 2000, and that the
BMC Distribution Agreement has been terminated as a result. Boston Marketing has
refused to accept subsequently placed orders. The lawsuit also claims that we
failed to pay certain commissions to Boston Marketing.

We are investigating the claims made by Boston Marketing in their complaint. We
intend to defend this matter vigorously and believe we have meritorious defenses
to this suit. However, if the BMC Distribution Agreement is cancelled because of
failure to meet minimum purchase requirements, we would need to obtain an
alternative source of supply. We have now obtained other CCD chips, CCU
processors and frame grabbers from third-party suppliers. Management believes
that no disruption in the supply of these products occurred. However, we may not
be able to market the units incorporating those CCD chips, CCU processors and
frame grabbers under the "TeliCam" trademark which could materially adversely
affect our operating results.


                                    Page 21
<PAGE>


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

On April 7, 2000, Boston Marketing filed suit in Los Angeles Superior Court
alleging breach of contract and seeking unspecified damages. The lawsuit makes
numerous claims including the allegation that we failed to make the minimum
purchases for calendar year 1999 and 2000, and that the BMC Distribution
Agreement has been terminated as a result. Boston Marketing has refused to
accept subsequently placed orders. The lawsuit also claims that we failed to pay
certain commissions to Boston Marketing. The Company is still investigating the
allegations and intends to defend the action vigorously and believes that it has
meritorious defenses to the suit. However, the Company is not able to estimate
the extent of liability, if any, that it faces as a result of this suit.

Item 2. Changes in Securities and Use of Proceeds.

On February 29, 2000 the Company sold an aggregate of 2,250 shares of Series B
Exchangeable Preferred Stock, B-1 Warrants to purchase up to 225,000 shares of
Common Stock and B-2 Warrants to purchase up to 450,000 shares of common stock.
The Company received $2,250,000 in gross proceeds less costs of $207,520. The
holders of Series B Exchangeable Preferred Stock may exchange their shares for
shares of common stock at the lower of (i) $2.85 or (ii) 100% of the market
price of the common stock, as defined, on the date of the exchange. The
Preferred Stock will receive $30 in dividends per year with payments due
quarterly. The B-1 Warrants are exercisable into an aggregate 225,000 shares of
common stock at a purchase price of $2.7188 per share. The B-2 Warrants are
exercisable into an aggregate 450,000 shares of common stock at a purchase price
of $3.50 per share. In addition we granted warrants to purchase 64,725 shares of
our common stock as a finders fee for our preferred stock investment.

On July 21, 2000, the Company completed a $1,550,000 private placement, selling
an aggregate of 1,396,396 shares of common stock at $1.11 a share, and warrants
to purchase 465,465 shares of common stock. In connection with this transaction,
a) the placement agent received a placement fee of $93,000, and b) the placement
agent received warrants to purchase 300,000 shares of common stock of the
Company.

On September 7, 2000, the Company completed a $1,920,000 private placement,
selling an aggregate of 2,157,308 shares of common stock at $0.89 a share, and
warrants to purchase 719,103 shares of common stock. In connection with this
transaction, a) the placement agent received a placement fee of $49,500, and b)
the placement agent and certain individuals affiliated with the placement agent
received warrants to purchase 92,697 shares of common stock of the Company.

Item 3.  Defaults in Senior Securities.

None.

Item 4.  Submission of Matters to a Vote of Security Holders.

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

27.1     Financial Data Schedule


(b)      Reports on Form 8-K

     None.


                                    Page 22
<PAGE>


Signatures

In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on behalf by the undersigned, thereto duly authorized.

                                     Dental/Medical Diagnostic Systems, Inc.


Date   NOVEMBER 16, 2000             By:  /S/ ROBERT H. GUREVITCH
       -----------------                  ------------------------------------
                                          Robert H. Gurevitch
                                          Chairman and Chief Executive Officer


                                    Page 26