<PAGE>   1


                                  FORM 10-QSB
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

               For the Quarterly Period Ended September 30, 1996

                                       OR

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

              For the transition period from ________ to ________

                         Commission File Number 0-20222

                    PRINCETON DENTAL MANAGEMENT CORPORATION
             (Exact name of Registrant as specified in its charter)


             DELAWARE                           36-3484607
             ------------------------------     ----------------------
             State or other jurisdiction of     (I.R.S. Employer
             incorporation or organization)     Identification Number)


             7421 West 100th Place, Bridgeview, Illinois 60455-2442
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (708) 974-4000
              (Registrant's telephone number, including area code)


INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS,    YES  X    NO


INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 10,122,323 SHARES OF THE
COMPANY'S COMMON STOCK ($.0001 PAR VALUE) PER SHARE OUTSTANDING AS OF SEPTEMBER
30, 1996.



                                       

                                      1


<PAGE>   2



                    PRINCETON DENTAL MANAGEMENT CORPORATION
                                  FORM 10-QSB



                               TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION                                          PAGE(S)

        CONDENSED CONSOLIDATED BALANCE SHEETS                                3-4

        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                        5

        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW                         6

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                7-10

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS                                10-12



PART II - OTHER INFORMATION                                                12-17














                                       2
































<PAGE>   3


                    PRINCETON DENTAL MANAGEMENT CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                      September 30, 1996     December 31, 1995
                                      ------------------     -----------------
  <S>                                 <C>                    <C>
                                         (Unaudited)
          Assets
          ------
  Current assets
   Cash and cash equivalents             $     -                    $  124,872
   Trade accounts receivable, net
   of allowances for doubtful
   accounts of $394,000 and
   $275,000, respectively                  1,103,427                 1,138,469
   Loan receivable - shareholders              2,190                     2,190
   Current portion of loan
   receivable - affiliate                      7,272                     7,272
   Inventories                               121,304                   111,554
   Other current assets                       99,805                   118,901
                                         -----------                ----------

          Total current assets             1,333,998                 1,503,258



  Property and equipment, net              1,246,799                 1,278,632
  Goodwill, net of accumulated
  amortization of $1,748,895 and
  $1,293,987, respectively                10,701,229                11,150,730
  Loan receivable - affiliate                 12,467                    12,467
  Refinancing costs - net (Note 4)           509,969                      -
  Other Assets                                54,166                    51,846
                                         -----------               -----------

          Total Assets                   $13,858,628               $13,996,933
                                         ===========               ===========



</TABLE>



See accompanying notes


                                       3

                                                                              


<PAGE>   4


                    PRINCETON DENTAL MANAGEMENT CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


       Liabilities and Shareholders' Equity                                 September 30, 1996       December 31, 1995
       ------------------------------------                                 ------------------      ------------------
                                                                             (Unaudited)
<S>                                                                               <C>                  <C>
Current liabilities
 Notes payable                                                                     $     -             $    18,835
 Current portion of long term debt                                                     922,501             506,046
 Current portion of capital lease obligations                                           27,818              27,532
 Note payable to shareholder                                                           122,946           1,935,434
 Convertible notes payable - Shareholders (Note 4)                                   2,058,788                -
 Accounts payable                                                                    1,248,023             671,035
 Accrued salaries and wages                                                            658,939             569,383
 Other accrued expenses                                                                649,380             455,853
                                                                                   -----------         -----------

       Total current liabilities                                                     5,688,395           4,184,118

Long-term debt                                                                       3,146,853           3,731,963
Capital lease obligations                                                               42,383               6,581
                                                                                   -----------         -----------

       Total liabilities                                                             8,877,631           7,922,662

Shareholders' equity (Note 4)
 Convertible preferred stock, Series A,
 11.75% cumulative, par value $1.00 per share:
 authorized shares - 10,000;
 issued and outstanding - 2,848                                                          2,848                 -
 Common stock, par value
 $0.0001 per share:
 authorized - 25,000,000;
 10,122,323 issued and outstanding                                                       1,012                 812
 Less: 291,667 shares Common stock
       held in Treasury, at cost                                                      (331,771)                -
 Additional paid-in capital                                                         15,107,556          14,055,045
 Accumulated deficit                                                                (9,798,648)         (7,981,586)
                                                                                   -----------         -----------

       Total shareholders' equity                                                    4,980,997           6,074,271
                                                                                   -----------         -----------

       Total liabilities and shareholders' equity                                  $13,858,628         $13,996,933
                                                                                   ===========         ===========
</TABLE>




See accompanying notes

                                       4

                                                                               


<PAGE>   5
                    PRINCETON DENTAL MANAGEMENT CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                   Three months ended                         Nine months ended
                                                     September 30,                              September 30,
                                                1996                1995                  1996              1995
                                                ----                ----                  ----              ----
<S>                                       <C>                <C>                     <C>               <C>
Revenue:                                                                                                            
   Practice revenue                        $  3,215,844      $  3,192,775            $10,655,030       $10,051,614
   Laboratory revenue                           949,182           958,683              2,937,493         2,812,003
                                           ------------      ------------            -----------       -----------

         Total revenue                        4,165,026         4,151,458             13,592,523        12,863,617

Expenses:
   Practice compensation and benefits         2,473,483         1,940,675              7,656,711         6,195,044
   Practice supplies and services               411,835           475,219              1,399,751         1,493,963
   Other practice expenses                      380,298           411,477              1,144,019         1,168,972
   Cost of laboratory revenue                   740,246           604,010              2,163,691         1,845,912
   Other laboratory expenses                    271,625           106,067                845,496           438,969
   General corporate expense                    144,995           741,942              1,022,478         1,165,407
   Depreciation and amortization                273,753           244,325                750,255           715,245
                                           ------------      ------------            -----------       -----------
         Total operating expenses             4,696,235         4,523,715             14,982,401        13,023,512


                                           ------------      ------------            -----------       -----------
Operating loss                                 (531,209)         (372,257)            (1,389,878)         (159,895)

   Litigation settlement                            -             (45,000)                   -             (45,000)         
   Interest expense                            (155,008)         (117,841)              (465,515)         (333,472)
   Other income                                  12,120            15,762                 38,331            27,654
                                           ------------      ------------            -----------       -----------

Net loss                                       (674,097)     $   (519,336)           $(1,817,062)      $  (510,713)
                                           ============      ============            ===========       ===========

Net loss per share                         $      (0.07)     $      (0.06)           $     (0.21)      $     (0.06)
                                           ============      ============            ===========       ===========

Weighted average number of
shares outstanding                            9,146,096         8,119,870              8,489,723         8,119,870
                                           ============      ============            ===========       ===========
</TABLE>

See accompanying notes

                                       5



<PAGE>   6


                    PRINCETON DENTAL MANAGEMENT CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (UNAUDITED)



<TABLE>
<CAPTION>

                                                       Nine months ended              Nine months ended
                                                         September 1996                 September 1995
                                                       -----------------              -----------------
                                                       
<S>                                                   <C>                                <C>
Operating activities: 
 Net loss                                                $(1,817,062)                     $ (510,713)
 Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
        Depreciation and amortization                        750,255                         715,245
        Loss on sale of assets                                 1,410                           6,414
        Provision for bad debts                              119,000                        (226,050)
        Stock redemption price in excess of market            18,229                            -
        Issuance of stock under Incentive Stock Bonus Plan    70,750                            -
 Changes in operating assets and liabilities:
        Accounts receivable                                  (83,958)                        295,853
        Inventories                                           (9,750)                          5,693
        Other assets                                          16,776                          41,949
        Accounts payable                                     576,988                        (623,331)
        Accrued expenses                                     395,150                          63,595
        Deferred compensation                                 67,147                         (26,897)
                                                         -----------                      ----------                             
 Net cash provided by (used in) operating activities         104,935                        (258,242)

Investing activities:
        Purchase of property and equipment                  (147,146)                        (58,556)
        Purchase of dental lab - goodwill                     (5,407)                            -
        Other                                                    -                            43,051
        Debt issuance costs                                  (27,819)                        (33,376)
                                                         -----------                      ----------
 Net cash (used in) investing activities                    (180,372)                        (48,881)

Financing activities:
        Proceeds from sale of preferred stock                 13,000                             -
        Draws under the convertible debt agreement           187,000                             -
        Draws from revolving demand note                         -                         1,159,500
        Principal payments on capital lease obligations      (25,316)                        (33,538)
        Proceeds from issuance of long term debt              31,826                             -
        Principal payments on notes payable                  (18,835)                       (605,062)
        Principal payments on long-term debt and
         notes payable to shareholders                      (237,110)                       (201,099)
                                                         -----------                      ----------
 Net cash provided by (used in) financing activities         (49,435)                        319,801

Increase (decrease) in cash and cash equivalents            (124,872)                         12,678
                                                         -----------                      ----------
Cash and cash equivalents at beginning of period             124,872                          25,950
                                                         -----------                      ----------

Cash and cash equivalents at end of period               $      -                         $   38,628
                                                         ===========                      ==========
</TABLE>




                                       6
<PAGE>   7


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

Note 1 - SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed by Princeton Dental Management Corporation
(the Company) for quarterly financial reporting purposes are the same as those
disclosed in the Company's annual financial statements.  In the opinion of
management, the accompanying condensed consolidated financial statements
reflect all adjustments (which consist only of normal recurring adjustments
other than the transaction disclosed in Note 4) necessary for a fair
presentation of the information presented.

The quarterly condensed consolidated financial statements herein have been
prepared by the Company without audit. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Although the Company's management believes the disclosures are adequate to make
the information not misleading, it is suggested that these quarterly condensed
financial statements be read in conjunction with the audited annual financial
statements and footnotes thereto.

Note 2 - RECLASSIFICATIONS

The accompanying condensed consolidated financial statements contain certain
reclassifications of previously reported information.  The reclassifications
have been made to more appropriately reflect the operating results of the
Company.

Note 3 - CONSULTING AGREEMENT

In June 1995, the Company had entered into an agreement with Stratum
Management, Inc. and certain individual consultants (collectively, the
"Consultants") for consulting services, terminable by either party at any time.
The Consultants were to provide the Company with operations management,
provider relations, systems development, standardization and development of
operations manuals, marketing analysis and development, strategic alliances
development and acquisition evaluation services. The board of directors of the
Company had final approval of all actions of the Consultants.  In addition to
consulting fees approximating $41,000 per month in 1996, the Consultants were
issued warrants to purchase up to 600,000 shares of the Company's common stock
at an exercise price of $1 per share expiring December 31, 1998.  Subsequently,
in July 1996 the Warrants Agreement was amended to reduce the number of
warrants available from 600,000 to 388,000 as a condition of the financing
agreement disclosed in Note 4.  This consulting agreement was terminated by the
Company effective August 1, 1996.

Dr. Charles R. Mitchell, who was appointed as President of the Company
effective October 26, 1995, was originally affiliated with the consultants.
While Dr. Mitchell has reported to have severed all direct ties with the
Consultants in conjunction with his appointment as President of the Company and
has reported to have received no compensation from the Consultants, Dr.
Mitchell's wife remained a shareholder in, and an employee of, Stratum
Management, Inc., which is directly affiliated with the Consultants.  As a
condition of the financing agreement disclosed in Note 4, Dr. Mitchell resigned
as President and CEO of the company.


                                       7

                                                                              


<PAGE>   8


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

Note 4 - FINANCING AGREEMENT

On April 22, 1996, the Company entered into a financing arrangement pursuant to
which the Company issued Convertible Debt (the Convertible Debt) to Amsterdam
Equities Limited in the amount of $2,483,620 and 3,599.77 shares of Series A
11.75% Cumulative Convertible Preferred Stock (the Preferred Stock) to
Amsterdam Equities Limited (195 shares), to Frank Leonard Laport (1,904.77
shares) and to Beverly Trust Company, as custodian for the Frank Leonard Laport
Rollover Individual Retirement Account No. 75-49990 (1,500 shares) (the
Investor Group).  The Convertible Debt and Preferred Stock replaces
indebtedness of the Company at April 22, 1996, in the amount of $1,976,700
incurred under that certain letter agreement dated December 7, 1994 (Letter
Agreement).  Under the terms of the Convertible Debt and Preferred Stock
Agreements (also referred to herein collectively as the Financing Arrangements)
the Investor Group may lend additional funds, in increments to be determined
solely by the Group.  The funds may be used by the Company subject to the
approval of the Group, to fund certain acquisitions.  The Convertible Debt and
Preferred Stock will bear interest and have a coupon rate, respectively of
11.75%, plus the payment of any withholding taxes which may be due and owing
with respect to any person which is a foreign entity.  Payments on the
Convertible Debt are interest only due in quarterly installments which were to
begin in September 1996.  The Convertible Debt has a maturity of seven years
from the date of closing, subject to acceleration in the event of a default.
Subsequent to September 30, 1996 the Company was unable to pay the interest
only requirements of the Convertible Debt Agreement, therefore effective
October 1, 1996 until the accrued interest is paid or the requirements are
waived, interest will accrue at the default rate of 21.75%. The accrued
interest on the Convertible Debt totaled  $127,000 at September 30, 1996.

In addition to the amount owed under the Letter Agreement, the terms of the
Convertible Debt and Preferred Stock Agreements called for the conversion of
291,667 share of Regulation D stock held by the Group into $350,000.00 of
Convertible Debt and Preferred Stock. The shares of common stock redeemed are
being held in treasury at September 30, 1996.

An additional provision of the Convertible Debt and Preferred Stock Agreements
include the payment of $300,000.00 as a closing fee and require the Company to
reimburse the legal fees and out-of-pocket costs and expenses of the Group in
connection with the negotiation and the closing of the transaction which
totaled $216,897. The closing fees and reimbursement of the costs and expenses
are payable in the form of Convertible Debt and Preferred Stock. In total, the
Company incurred costs of $544,716 in connection with the refinancing which has
been capitalized and will be amortized over a period of seven years.
Amortization of refinancing fees totaled $34,747 through September 30, 1996.

The terms of the Convertible Debt and Preferred Stock Agreements provides the
Group with certain rights pertaining to the registration of any common stock to
which the Group may convert from Convertible Debt or Preferred Stock,
anti-dilution, and a right of first refusal on any future offering of the
Company securities.

Under the terms of the transaction, the Company has issued a warrant to
purchase 100 shares of Series B Preferred Stock. The Series B Preferred Stock
entitles Amsterdam Equities Limited, after the occurrence of an event of
default, to elect a Class B director who will have super-majority voting powers
on the Company s Board of Directors.  The Convertible Debt and Preferred Stock
may be converted into the common stock of the Company, as the sole option of
the Group, at various conversion rates as set forth in the conversion formula
contained in the Convertible Debt and Preferred Stock Agreement.

                                       8
                                                                           


<PAGE>   9


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

Note 4 - FINANCING AGREEMENT (cont.)

Conversion pursuant to such conversion formula would result in a conversion
price per share of the Company's common stock significantly below present
market levels.  If the Group were to convert the Convertible Debt and Preferred
Stock at the present time, the conversion would result in the issuance to the
Group of approximately 9,600,000 shares of the Company's common stock,
representing approximately forty-two percent (42%) of the issued and
outstanding shares of the Company's common stock (assuming full conversion and
anti-dilution).

In addition, pursuant to the terms of the Financing Arrangement, the Company
has issued to the holders of the Convertible Debt and the Preferred Stock a
warrant to purchase shares of common stock at an exercise price of $.10 per
share.  The Group may exercise the warrant only upon the occurrence of an event
of default under the terms of the minimum financial goals of net income of at
least one dollar in the fiscal year ending December 31, 1996, and net income at
least equal to 60% of the dollar amount of Convertible Debt of the Company
outstanding at the end of 1997 for the fiscal year ending December 31, 1997,
increased by 10% each year thereafter, compounded, plus 60% of the additional
Convertible debt outstanding at the end of such year over the immediately
preceding year.  The Company can make no assurances that such financial goals
can be achieved by the Company.  The cumulative effect of the issuance of
shares pursuant to the default warrant to the Group could result in ownership
by the Group of up to 75% of the Company's total issued and outstanding common
stock.

The Convertible Debt and Preferred Stock may be called by the Company only
during the first year of the Financing Arrangement in accordance with the
following schedule:  Up to 120 days after the closing, at the principal amount
of the Convertible Debt and liquidation value ($100.00 per share) of the
Preferred Stock,  plus $300,000.00; from the 120th day after the closing to the
240th day after closing, at the principal amount of the Convertible Debt and
liquidation value of the Preferred Stock, plus $500,000.00; and, for the 240th
day after closing to the one year anniversary date of the closing at the
principal amount of the Convertible Debt and liquidation value of the Preferred
Stock, plus $750,000.00.

In August 1996, the Company entered into a Letter Agreement by and among the
Company;  Dr. Charles R. Mitchell, the President of the Company; Stratum
Management, Inc. (Stratum), a consultant to the Company;  John H. Hagan, a
director of the Company;  Dr. Seymour Kessler, a director of the Company; and
Amsterdam Equities, Ltd.  (Amsterdam), Frank Leonard Laport, and Beverly
Trust Company, as Custodian of the Frank Leonard Laport Rollover Individual
Retirement Account No. 75-49990, each members of the investment group (the
Investor Group).  Under the Letter Agreement, which became effective on August
9, 1996, the Series B Preferred Stock previously referred to in the Convertible
Debt Agreement executed by the Company on April 22, 1996 was to be amended to
be immediately effective and Class B Preferred Stock was  immediately issued to
Amsterdam.

The Class B Preferred Stock entitled Amsterdam to elect a Director to the Board
of Directors of the Company who shall have super majority voting powers.  In
effect, the Class B director appointed by Amsterdam shall have the number of
votes on the Board of Directors as the current Board currently holds, plus one
vote.  The amendment and activation of the Class B Preferred Stock occurred
upon the satisfaction of the following two conditions:  (i) delivery to the
Company of a notice, pursuant to which the Investor Group would convert on a
pro rate basis, an aggregate amount of U.S. $700,000 of currently outstanding   
Convertible Debt/Preferred Stock into the Company's Common Stock in accordance
with the contractual terms of the Convertible Debt and Preferred Stock
Agreements executed on April 22, 1996 and (ii) upon the advance to the Company
of an additional $200,000.00 pursuant to the Convertible Debt

                               9


<PAGE>   10



                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

Note 4 - FINANCING AGREEMENT (cont.)

and the Preferred Stock Agreements executed April 22, 1996.  As of August 9,
1996, the Investor Group had satisfied these two conditions and the Class B
Preferred Stock has been issued to Amsterdam, and Frank Leonard Laport has been
elected as the Series B Director.  The Series B Director has not voted on any
matters to date.

In connection with the activation of the Class B Preferred Stock, the provision
of additional funding and conversion of debt, Stratum, Hagan and Kessler have
agreed to forfeit, on a pro rata basis, an aggregate amount of 300,000
options/warrants to purchase the Company's Common Stock.

In connection with the above, Dr. Mitchell resigned as President of the
Company, but assisted the Company in the transition to a new management team.
Dr. Mitchell, Dr. Kessler, and John Hagan remained directors until the
Company's annual meeting on September 27, 1996. Gary Lockwood, Dr. Richard
Staller, Frank Leonard Laport, Esq. and George Collins, Esq., who also acts as
attorney in fact for Amsterdam Equities Limited, have been appointed to the
Board to fill vacancies created by an increase in the number of directors.

Gary Lockwood, President of Mason Dental Laboratories, a subsidiary of the
Company, has been appointed as President of the Company.  Frank Leonard Laport
has been elected as Chairman of the Board of Directors of the Company.  Frank
Leonard Laport has also been elected as the
Series B director by Amsterdam Equities Limited.

Effective September 16, 1996, the Company relocated its corporate offices to
7421 West 100th Place, Bridgeview, Illinois.


ITEM 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS


The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1995.

Results of Operations

Revenue for the nine month period ended September 30, 1996 was $13,592,523
compared with $12,863,617 for the nine month period ended September 30, 1995,
an increase of $728,906.  The change in revenue is due in part to an expanded
patient base, an increase in specialty services provided, and fee schedule
increases.

Operating expenses increased $1,958,889 to $14,982,401 for the nine month
period ended September 30, 1996 from $13,023,512.  This increase is due in
large part to the increase in payroll cost as well as the cost of materials and
supplies for both the dental practices and the dental labs. The increase in
payroll costs is attributable to both an increased number of employees as well
as increased costs associated with General Practitioners and Specialty
Providers. In addition, the company had incurred costs during the latter half
of 1995 and during 1996 to engage consultants to provide various operational
and administrative services.

                                  10


<PAGE>   11



                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

Item 2 (cont.)

Interest expense increased $132,043 to $465,515 for the nine month period ended
September 30, 1996 versus $333,472 incurred in the comparable nine month period
last year.  The increase is primarily the result of additional advances during
1995 and in the third quarter of 1996 under the Revolving Demand Note which was
subsequently rolled into the Convertible Debt and Preferred Stock Agreement.

The net loss for the nine month period ended September 30,1996 of $1,817,062 is
primarily the result of the increase in the overall cost of providing dental
services and expanding the patient base to include more specialty services as
well as the production cost within the laboratory division.

Financial Condition

Changes in the Company's financial condition at September 30, 1996 as compared
with December 31, 1995 resulted primarily from the Company's operating results
for the nine month period ended September 30, 1996 as well as a significant
reduction in the amount of funding provided by the Investor Group during 1996.
The Company's current revenue base is insufficient to cover the costs of
providing the dental services, overhead costs, and debt service requirements.
During the nine months ended September 30, 1995, the Company funded its losses
from operations primarily through advances from the Investor Group of
approximately $1,160,000. During the nine month period ended September 30, 1996
the advances from the Investor Group have been limited to $200,000 which
required the Company to negotiate extended credit terms with it's suppliers in
order to fund operations. However, several of the Company's larger suppliers
have ceased extending credit and are filling orders on a C.O.D. basis or a very
limited credit terms basis. One of the Company's largest suppliers has
temporarily discontinued shipping supplies and providing services until a
mutually agreed upon plan is put into place to reduce the outstanding balances.
The company can give no assurances as to whether or not a mutually agreed upon
plan can be established.

Given the Company's recurring losses from operations, the significant working
capital deficits, the uncertainty in obtaining additional funding to provide
working capital in the short term, and the current situation with the Company's
vendors, a substantial doubt has been raised as to the entity's ability to
continue as a going concern.  Absent significant improvement in operations or
significant additional funding, the Company may need to consider filing for
bankruptcy.

The Company is currently in the process of developing revenue enhancement
programs in both the dental practice segment as well as the laboratory segment.
In addition, the Company is also working to improve the operating results of
the various operations by reducing the costs of patient services including the
reduction in payroll.  The Company has begun steps to reduce general and
administrative expenses by eliminating substantially all outside consulting
arrangements which totaled approximately $302,000 for the nine months ended
September 30, 1996.   However, the Company can make no assurances in regards to
the results of these programs.

In addition, the Company is in the process of negotiating the sale of one of
its dental practices in Pennsylvania and is formulating a plan to sell several
other of its dental practices which would provide significant working capital
before or shortly after year end. However, the Company can make no assurances
as to whether or not these sales will be consummated.


                                   11


<PAGE>   12



                                                                           




                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

Item 2 (cont.)

During the first and second quarters of 1996, the Company did not deposit
certain state payroll tax liabilities totaling approximately $53,000. The
company is currently negotiating with the State to pay the
payroll obligations in monthly installments and to abate penalties associated
with the late payment.  In addition, during 1994 the Company did not make
certain federal payroll tax deposits on a timely basis and is in the process of
negotiating with the IRS to abate penalties associated with these late filings.
Management has provided a reserve of approximately $60,000 for the state tax
liability and penalties and $70,000 to cover the IRS penalties should the IRS
ruling be unfavorable.  Management believes these reserves are sufficient to
cover these obligations.

Liquidity and Capital Resources

As of September 30, 1996, the Company had a working capital deficit of
$4,354,397 and a financial accumulated deficit of $9,798,648.  Goodwill and
other intangibles comprise approximately 80% of total assets, leaving tangible
assets of approximately $2,647,000 and negative tangible net worth of
approximately $6,230,000.

During the nine month period ended September 30, 1996, the Company's cash and
cash equivalents decreased $124,872.  Cash provided by operations was $104,935
resulting primarily from the Company's increase in accounts payable, accrued
expenses, and deferred compensation for the period of $1,039,285 of which this
increase was partially offset by depreciation and amortization of $750,255,
$88,979 of costs associated with the issuance and redemption of the Company's
common stock, and a slight increase in accounts receivable.

Investing activities utilized $180,372 of cash primarily related to the
acquisition of a small dental lab and property and equipment for $152,553 and
debt issuance costs of $27,819.  Cash of $49,435 was used in financing
activities primarily as a result of debt principal payments of $281,261, net of
proceeds from issuance of debt and advance from the Investor Group of $231,826.

As disclosed in Note 4, the Company's primary source of outside financing is
from the Investor Group.  Given the Company's working capital deficit and
negative tangible net worth, the Company is heavily reliant on the Investor
Group's financing to continue the Company's expansion plans and to a larger
extent, provide working capital to fund the operations.  The Company can make
no assurances the Company will be able to meet the requirements to obtain the
additional financing in the increments required.  In fact, given the
performance of the Company for the nine months ended September 30, 1996, these
requirements would most likely not be met and additional funding would only be
obtained if the Investor Group waived or restructured certain portions of the
Convertible Debt Agreement.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         a) On June 14, 1995, the Company filed a complaint for declaratory 
         relief against Messrs. Terry D. Gingle and Oscar L. Hausdorff (the
         "Gingle Group"), certain former members of senior management, regarding
         an alleged pledge of shares of Company Common Stock to the Group.
         Settlement of this matter has been reached in principal and is in the
         process of being finalized.


                                      12


<PAGE>   13


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

Item 1  (cont.)

        b) On October 16, 1996, the Company was sued for $160,000 by Romajo
        Partners Limited Partnership, a Partnership controlled by Dr. Seymour
        Kessler, a former director of the Company.  The Company intends to
        vigorously contest the suit.

        c) The Company is involved in a number of other legal proceedings
        related to malpractice, worker's compensation, general employment and
        contract disputes all in various stages of proceedings, most of which
        will be covered by insurance.  Management believes settlements, if any,
        in excess of insurance coverage would be immaterial.

Item 5. Other Information

        a) Effective November 20, 1996, Dr. Richard Staller resigned as a
        Director of the Company.  Effective December 3, 1996, Dr. Staller will
        resign as President of Florida Dental Team, P.A., Fairfield Dental
        Center, P.A., and Century Dental Center, P.C..

        b) As discussed in detail in Part I, Item 2, and has been previously
        reported, the Company's financial condition continues to be poor.  While
        the Company is taking steps to increase revenues and to reduce costs,
        there can be no assurances made that such steps will be effective.  At
        present, the Company is considering several options, including the sale
        of significant assets, but, absent significant improvement in operations
        and/or significant additional funding, there is substantial doubt
        regarding the Company's ability to continue as a going concern.

Item 6. Exhibits and Reports on Form 8-K

        a.    Exhibits

              The following documents are filed as an exhibit to this Report:

              (10.1) Employment Agreement by and between the Company and Dr.
                     Charles R. Mitchell, DDS dated March 1996, with an
                     effective date of January 1, 1996 (incorporated by
                     reference to the exhibit to the Registrant's Form 10-QSB
                     filed with the Commission on September 23, 1996).

              (10.2) Consulting Agreement by and between the Company and Stratum
                     Management, Inc. dated January 1, 1996 (incorporated by
                     reference to the exhibit to the Registrant's Form 10-QSB
                     filed with the Commission on September 23, 1996).

              (10.3) Amendment  to the Warrant Agreement by and between the
                     Company and Stratum Management, Inc., dated July 17, 1996.
                     This Warrant Agreement was part and parcel to the
                     Consulting Agreement dated January 1, 1996 (incorporated by
                     reference to the exhibit to the Registrant's Form 10-QSB
                     filed with the Commission on September 23, 1996).

              (10.4) Non-Statutory Stock option agreement by and between the
                     Company and John H. Hagan, dated March 21, 1996
                     (incorporated by reference to the exhibit to the
                     Registrant's Form 10-QSB filed with the Commission on
                     September 23, 1996).
                                                                         
                                      13

<PAGE>   14


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

            (10.5) Amendment to the Non-Statutory Stock Option Agreement by
                   and between the Company and John H. Hagan dated July 17,
                   1996 (incorporated by reference to the exhibit to the
                   Registrant's Form 10-QSB filed with the Commission on
                   September 23, 1996).
            
            (10.6) Non-Statutory Stock Option Agreement by and between the
                   Company and Dr. Seymour Kessler dated March 21, 1996
                   (incorporated by reference to the exhibit to the
                   Registrant's Form 10-QSB filed with the Commission on
                   September 23, 1996).
            
            (10.7) Amendment to the Non-Statutory Stock Option Agreement dated
                   July 17, 1996, by and between the Company and Dr. Seymour
                   Kessler (incorporated by reference to the exhibit to the
                   Registrant's Form 10-QSB filed with the Commission on
                   September 23, 1996).
            
            (10.8) Series A 11.75% Cumulative Convertible Preferred Stock
                   Purchase Agreement by and between Frank Leonard Laport,
                   Beverly Trust Company, as Custodian of the Frank Leonard
                   Laport Rollover Individual Retirement Account Number 75-
                   49990, and Amsterdam Equities Limited, dated April 22, 1996
                   (incorporated by reference to the exhibit to the
                   Registrant's Form 10-QSB filed with the Commission on
                   September 23, 1996).
            
            (10.9) Convertible Debt Agreement by and between the Company and
                   Amsterdam Equities Limited, dated April 22, 1996
                   (incorporated by reference to the exhibit to the
                   Registrant's Form 10-QSB filed with the Commission on
                   September 23, 1996).
            
            (10.10) Letter of Agreement dated July 15, 1996 and effective
                   August 9, 1996, by and between the Company, Dr. Charles R.
                   Mitchell, Stratum Management Inc., John H. Hagan, Dr.
                   Seymour Kessler, Amsterdam Equities Limited, Frank Leonard
                   Laport, and Beverly Trust Company, as custodian of the
                   Frank Leonard Laport Rollover Individual Retirement Account
                   Number 75-49990 (incorporated by reference to the exhibit
                   to the Registrant's Form 10-QSB filed with the Commission
                   on September 23, 1996).
            
    b.      Reports on Form 8-K

            The Registrant filed the following Form 8-Ks during the period from
            January 1, 1996 through September 30, 1996:

            (9) On March 4, 1996, the Registrant filed with the Securities and
            Exchange Commission a current report on Form 8-K relating to the
            extension of warrants to October 14, 1996; the ratification of an
            Employment Contract for Dr. Charles R. Mitchell; the ratification
            of a Management Consulting Agreement for Stratum Management; and
            the lawsuit filed against the Company by Frank Leonard Laport.


                                       14


<PAGE>   15


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

            (10)  On March 21, 1996, the Registrant filed with the Securities
            and Exchange Commission a current report on Form 8-K regarding the
            Board of Director's ratification of the grant of non-statutory
            stock options to John Hagan and Seymour Kessler for past services
            to the Board of Directors.

            (11)  On May 9, 1996, the Registrant filed with the Securities and
            Exchange Commission a current report on an amended Form 8-K
            regarding a financing arrangement pursuant to which the Company
            issued Convertible Debt (the Convertible Debt) to Amsterdam
            Equities Limited in the amount of $2,483,620.15 and 3,599.77 shares
            of Series A 11.75 Cumulative Convertible Preferred Stock (the
            Preferred Stock) to Amsterdam Equities Limited (195), to Frank
            Leonard Laport (1,904.77) and to Beverly Trust Company, as
            custodian for the Frank Leonard Laport Rollover Individual
            Retirement Account No. 75-4990 (1,500) (the Investor Group).

            The Convertible Debt and Preferred Stock replaces indebtedness of
            the Company in the amount of $1,976,699.99 incurred under that
            certain letter agreement dated December 7, 1994 (Letter Agreement)
            Under the terms of the Convertible Debt and Preferred Stock
            Agreements (also referred to herein collectively as the  Financing
            Arrangements") the Investor Group will lend up to $15 million, in
            increments to be determined solely by the Group.  The funds may be
            used by the Company, subject to the approval of the Group, to fund
            certain acquisitions.  The Convertible Debt and Preferred Stock
            will bear interest and have a coupon rate, respectively of 11.75%,
            plus the payment of any withholding taxes which may be due and
            owing with respect to any person which is a foreign entity.  The
            Convertible Debt has a maturity of seven years from the date of
            closing, subject to acceleration in the event of a default.

            In addition to the amount owed under the Letter of Agreement, the
            terms of the Convertible Debt and Preferred Stock Agreements call
            for the conversion of Regulation D stock held by the Group into
            $350,000.00 of Convertible Debt and Preferred Stock.

            In addition to the amount owed to the Group under the Letter
            Agreement, the terms of the Convertible Debt and Preferred Stock
            Agreements include the payment of $300,000.00 as a closing fee in
            the form of fully paid Convertible Debt and Preferred Stock.  The
            terms of the Convertible Debt and Preferred Stock Agreements also
            require the Company to reimburse the legal fees and out-of-pocket
            costs and expenses of the Group in connection with the negotiation
            and the closing of the transaction, payable in the form of
            Convertible Debt and Preferred Stock in the aggregate amount of
            $216,896.74.

            12)   On August 15, 1996, The Registrant filed with the Securities
            and Exchange Commission current Report on Form 8-K regarding a
            Letter Agreement by and among the Company;  Dr. Charles R.
            Mitchell, the President of the Company; Stratum Management, Inc. 
            (Stratum), a consultant to the Company;  John H. Hagan, a director
            of the Company;  Dr. Seymour Kessler, a director of the Company;
            and Amsterdam Equities, Ltd.  (Amsterdam), Frank Leonard Laport,
            and Beverly Trust Company, as Custodian of the Frank Leonard Laport
            Rollover Individual Retirement Account No. 75-49990, each members
            of the investment group (the Investment Group).

                                       15


<PAGE>   16


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)

            Under the Letter Agreement, which became effective on August 9,
            1996, the Series B Preferred Stock referred to in the Convertible
            Debt Agreement executed by the Company on April 22, 1996 was to be
            amended to be immediately effective and was to be immediately
            issued to Amsterdam.  The Class B Preferred Stock entitles
            Amsterdam to elect a Director to the Board of Directors of the
            Company who shall have super majority voting powers.  In effect,
            the Class B Director appointed by Amsterdam shall have the number
            of votes on the Board of Directors as the Board currently holds,
            plus one vote.

            The amendment and activation of the Class B Preferred Stock was to
            occur upon the satisfaction of the following two conditions:  (i)
            delivery to the Company of a notice, pursuant to which the
            Investment Group would convert on a pro rate basis, an aggregate
            amount of U.S. $700,000.00 of currently outstanding convertible
            debt/preferred stock into the Company's common stock in accordance
            with the contractual terms of the Convertible Debt and Preferred
            Stock Agreements executed on April 22, 1996, and (ii) upon the
            advance to the Company of an additional U.S. $200,000.00 pursuant
            to the Convertible Debt and the Preferred Stock Agreements executed
            April 22, 1996.  As of August 9, 1996, the Investment Group has
            satisfied these two conditions and the Class B Preferred Stock has
            been issued to Amsterdam.

            In connection with the activation of the Class B Preferred Stock,
            the provision of additional funding, and conversion of debt,
            Stratum, Hagan and Kessler have agreed to forfeit, on a pro rate
            basis, an aggregate amount of 300,000 options/warrants to purchase
            the Company's common stock.

            In connection with the above, Dr. Mitchell has resigned as Chief
            Executive Officer and President of the Company, but will continue
            to assist the Company in the transition to a new management team.
            Dr. Mitchell will stay on as a director until the Company s next
            annual meeting is held, which is scheduled to take place on
            September 27, 1996.  Hagan and Kessler would also continue to serve
            as directors until the Company's next annual meeting.  Gary
            Lockwood, Dr. Richard Staller, Frank Leonard Laport, Esq.  and
            George Collins, Esq. have been appointed to the Board to fill
            vacancies created by an increase in the number of directors.

            Gary Lockwood, President of Mason Dental Laboratories, a subsidiary
            of the Company, has been appointed as President of the Company.
            Mr. Lockwood will continue to serve in his role as President of
            Mason Dental in addition to his new duties as President of the
            Company.  Frank Leonard Laport has been elected as Chairman of the
            Board of Directors of the Company.

            In connection with the letter agreement transaction, the Company
            shall relocate its principal offices to another location in the
            Chicago metropolitan area on or about September 30, 1996.


                                       16


<PAGE>   17


                    PRINCETON DENTAL MANAGEMENT CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                  (UNAUDITED)


            13)   On September 30, 1996 the Registrant filed with the Securities
            and Exchange Commission a current report on Form 8-K regarding the
            extension of the outstanding warrants to purchase 4,140,000 shares
            of the Company's Common Stock traded under the PDMCW symbol.  The
            warrants were extended to October 13, 1997.  In addition, the
            Company had elected a new Board of Directors during the September
            27, 1996 Annual Stockholder's meeting comprised of Frank Leonard
            Laport, Chairman and CEO, Gary Lockwood, President, Richard
            Staller, DDS and George B. Collins, Esq.

                                       17


<PAGE>   18




                                   SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly report of Form 10-QSB for the quarter
ended September 30, 1996, to be signed on its behalf, by the undersigned there
unto duly authorized.



DATED:                           Princeton  Dental Management Corporation

                                 By:      /s/ Gary A. Lockwood
                                          --------------------------------
                                              Gary A. Lockwood
                                              President



                                       18
<PAGE>   19





                                   SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly report of Form 10-QSB for the quarter
ended September 30, 1996, to be signed on its behalf, by the undersigned there
unto duly authorized.



DATED:                          Princeton  Dental Management Corporation

                                By:      /s/ Steven M. Sierakowski
                                         -----------------------------
                                         Steven M. Sierakowski
                                         Chief Financial Officer
                                         and Head Accounting Officer



                                       19