UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

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

                  For the quarterly period ended June 30, 2002

                                       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 0-12050

                       SAFEGUARD HEALTH ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                      52-1528581
(State or other jurisdiction                (I.R.S. Employer Identification No.)
      of incorporation)

                            95 ENTERPRISE, SUITE 100
                       ALISO VIEJO, CALIFORNIA 92656-2605
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (949) 425-4300
              (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  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.

                                 Yes  X     No
                                     ---       ---

As  of  August  1,  2002, the number of shares of registrant's common stock, par
value $0.01 per share, outstanding was 4,896,972 shares (not including 3,216,978
shares  of  common  stock  held  in  treasury),  and  the  number  of  shares of
registrant's convertible preferred stock, par value $0.01 per share, outstanding
was  30,000,000  shares.


<PAGE>
                       SAFEGUARD HEALTH ENTERPRISES, INC.
             INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002


                                                                         PAGE
                                                                         ----
PART I.   FINANCIAL INFORMATION

   Item 1.   Condensed Consolidated Financial Statements. . . . . . . .     1

   Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations. . . . . . . . . . . .    10

   Item 3.   Quantitative and Qualitative Disclosures About Market Risk    19

   Item 4.   Submission of Matters to a Vote of Security Holders. . . .    19

PART II.   OTHER INFORMATION

   Item 1.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . .    20

   Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . .    20

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    22

EXHIBITS

   Exhibit 99.1   Certification Pursuant to 18 U.S.C. Section 1350. . .    23


<PAGE>
<TABLE>
<CAPTION>
PART I.     FINANCIAL INFORMATION
ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                   SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                          CONDENSED CONSOLIDATED BALANCE SHEETS
                                      (IN THOUSANDS)
                                       (UNAUDITED)

                                                                JUNE 30,    DECEMBER 31,
                                                                  2002          2001
                                                               ----------  --------------
<S>                                                            <C>         <C>

                                     ASSETS
Current assets:
  Cash and cash equivalents                                    $   1,199   $       1,497
  Investments available-for-sale, at fair value                   12,203          13,956
  Accounts receivable, net of allowances                           2,411           2,839
  Other current assets                                               935             903
                                                               ----------  --------------
    Total current assets                                          16,748          19,195

Property and equipment, net of accumulated depreciation            3,784           2,348
Restricted investments available-for-sale, at fair value           3,270           2,831
Notes receivable, net of allowances                                  805             805
Goodwill                                                           3,920           3,920
Other assets                                                         283             226
                                                               ----------  --------------

     Total assets                                              $  28,810   $      29,325
                                                               ==========  ==============

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                             $   2,372   $       3,168
  Accrued expenses                                                 3,736           4,827
  Short-term debt                                                    136             265
  Current portion of capital lease obligations                     1,203              --
  Claims payable and claims incurred but not reported              4,724           5,905
  Deferred premium revenue                                         1,341             823
                                                               ----------  --------------
    Total current liabilities                                     13,512          14,988

Long-term portion of capital lease obligations                       610              --
Other long-term liabilities                                        1,011             971
Commitments and contingencies (Note 9)

Stockholders' equity:
  Convertible preferred stock and additional paid-in capital      41,250          41,250
  Common stock and additional paid-in capital                     21,601          21,552
  Retained earnings (accumulated deficit)                        (31,326)        (31,447)
  Accumulated other comprehensive income                              54              63
  Treasury stock, at cost                                        (17,902)        (18,052)
                                                               ----------  --------------
    Total stockholders' equity                                    13,677          13,366
                                                               ----------  --------------

    Total liabilities and stockholders' equity                 $  28,810   $      29,325
                                                               ==========  ==============
<FN>
       See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    THREE MONTHS ENDED JUNE 30, 2002 AND 2001
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)


                                                              2002      2001
                                                            --------  --------
<S>                                                         <C>       <C>
Premium revenue, net                                        $20,174   $21,452

Health care services expense                                 14,676    14,914
Selling, general and administrative expense                   5,777     6,453
                                                            --------  --------

Operating income (loss)                                        (279)       85

Investment and other income                                     103       255
Interest expense                                                (24)      (30)
                                                            --------  --------

Income (loss) before income taxes                              (200)      310
Income tax expense                                               --        --
                                                            --------  --------

   Net income (loss)                                        $  (200)  $   310
                                                            ========  ========

Basic net income (loss) per share                           $ (0.01)  $  0.01
Weighted-average basic shares outstanding                    34,835    34,740

Diluted net income (loss) per share                         $ (0.01)  $  0.01
Weighted-average diluted shares outstanding                  35,481    35,502
<FN>
     See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


                                                                 2002      2001
                                                               --------  --------
<S>                                                            <C>       <C>
Premium revenue, net                                           $40,862   $43,095

Health care services expense                                    29,226    30,101
Selling, general and administrative expense                     11,616    12,987
                                                               --------  --------

Operating income                                                    20         7

Investment and other income                                        219       690
Interest expense on debt that was converted to equity in 2001       --      (402)
Other interest expense                                             (31)      (62)
                                                               --------  --------

Income before income taxes and extraordinary item                  208       233
Income tax expense                                                  --        --
                                                               --------  --------

Income before extraordinary item                                   208       233
Extraordinary item:
  Gain on conversion of debt to convertible preferred stock         --    11,251
                                                               --------  --------

    Net income                                                 $   208   $11,484
                                                               ========  ========

Basic net income per share:
  Income before extraordinary item                             $  0.01   $  0.01
  Extraordinary item                                                --      0.38
                                                               --------  --------
    Net income                                                 $  0.01   $  0.39
                                                               ========  ========

Weighted-average basic shares outstanding                       34,835    29,739

Diluted net income per share:
  Income before extraordinary item                             $  0.01   $  0.01
  Extraordinary item                                                --      0.37
                                                               --------  --------
    Net income                                                 $  0.01   $  0.38
                                                               ========  ========

Weighted-average diluted shares outstanding                     35,481    30,443
<FN>
     See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                   SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                     (IN THOUSANDS)
                                       (UNAUDITED)


                                                                       2002      2001
                                                                     --------  ---------
<S>                                                                  <C>       <C>
Cash flows from operating activities:
  Net income                                                         $   208   $ 11,484
  Adjustments to reconcile net income to net cash used
    in operating activities:
    Gain on conversion of debt to convertible preferred stock             --    (11,251)
    Bad debt expense                                                      98        150
    Amortization of deferred loan costs                                   --         24
    Depreciation and other amortization                                  610      1,151
    Contribution to retirement plan in the form of common stock           63         --
    Gain on sale of investments                                           --        (98)
  Changes in operating assets and liabilities:
    Accounts receivable                                                  330        551
    Other current assets                                                 (32)       173
    Accounts payable                                                     (56)      (183)
    Accrued expenses                                                    (752)    (1,264)
    Claims payable and claims incurred but not reported               (1,181)    (1,275)
    Deferred premium revenue                                             518         24
                                                                     --------  ---------
      Net cash used in operating activities                             (194)      (514)

Cash flows from investing activities:
  Purchase of investments available-for-sale                            (758)   (13,996)
  Proceeds from sale/maturity of investments available-for-sale        2,063     13,027
  Purchases of property and equipment                                   (237)      (479)
  Payments received on notes receivable                                   --      1,120
  Increase in other assets                                               (57)        --
                                                                     --------  ---------
      Net cash provided by (used in) investing activities              1,011       (328)

Cash flows from financing activities:
  Increase (decrease) in bank overdrafts                                (740)       378
  Increase in accrued interest that was converted to equity in 2001       --        321
  Payments on capital lease obligations                                 (335)        --
  Payments on debt                                                      (129)      (114)
  Repurchase of common stock                                              --        (10)
  Exercise of stock options                                               49          3
  Increase (decrease) in other long-term liabilities                      40       (195)
                                                                     --------  ---------
      Net cash provided by (used in) financing activities             (1,115)       383
                                                                     --------  ---------
Net decrease in cash and cash equivalents                               (298)      (459)
Cash and cash equivalents at beginning of period                       1,497      1,381
                                                                     --------  ---------
Cash and cash equivalents at end of period                           $ 1,199   $    922
                                                                     ========  =========

Supplementary information:
  Cash paid during the period for interest                           $    27   $    295
Supplementary disclosure of non cash activities:
  Debt converted into convertible preferred stock                         --     41,250
  Purchases of property and equipment through capital leases           1,784         --
<FN>
       See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>


<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

NOTE  1.  GENERAL
-----------------

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
SafeGuard  Health  Enterprises, Inc. and subsidiaries (the "Company") as of June
30,  2002, and for the three months and six months ended June 30, 2002 and 2001,
have  been  prepared in accordance with accounting principles generally accepted
in the United States of America, applicable to interim periods. The accompanying
financial  statements  reflect all normal and recurring adjustments that, in the
opinion  of  management,  are necessary for a fair presentation of the Company's
financial  position  and  results  of  operations  for the interim periods.  The
financial  statements  have  been prepared in accordance with the regulations of
the  Securities  and Exchange Commission and, accordingly, omit certain footnote
disclosures  and  other information necessary to present the Company's financial
position  and  results  of  operations  for  annual  periods  in accordance with
accounting principles generally accepted in the United States of America.  These
financial  statements  should  be  read in conjunction with the Company's Annual
Report  on  Form  10-K  for the year ended December 31, 2001, which includes the
Company's  Consolidated  Financial Statements and Notes thereto for that period.

NOTE  2.  SIGNIFICANT  ACCOUNTING  POLICIES
-------------------------------------------

CLAIMS  PAYABLE  AND  CLAIMS  INCURRED  BUT  NOT  REPORTED

The  estimated liability for claims payable and claims incurred but not reported
is  based  primarily  on  the  average  historical  lag time between the date of
service  and  the  date the related claim is paid by the Company, and the recent
trend  in  payment  rates  and the average number of incurred claims per covered
individual.  Since  the liability for claims payable and claims incurred but not
reported  is  an  actuarial  estimate,  the amount of claims eventually paid for
services  provided  prior  to  the  balance  sheet  date  could  differ from the
estimated  liability.  Any  such  differences  are  included in the consolidated
statement  of operations for the period in which the differences are identified.

NET  INCOME  (LOSS)  PER  SHARE

Net  income  (loss)  per  share  is  presented  in  accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic net
income  (loss)  per  share  is  based  on  the  weighted-average  common  shares
outstanding,  including  the  common shares into which the convertible preferred
stock  is  convertible,  but  excluding the effect of other potentially dilutive
securities.  The  number  of basic common shares outstanding includes the common
share  equivalents  of  the  convertible  preferred  stock,  because the Company
believes  the  convertible  preferred  stock is essentially equivalent to common
stock,  based  on all the rights and preferences of both types of stock. Diluted
net  income  (loss)  per  share  is  based on the weighted-average common shares
outstanding, including the effect of all potentially dilutive securities. During
the  three  months  and six months ended June 30, 2002 and 2001, the potentially
dilutive  securities  of the Company that were outstanding consisted entirely of
stock  options  and  warrants.  The  only  warrants  issued  by the Company were
canceled  without  being  exercised  effective January 31, 2001, as discussed in
Note  5.

Due  to  a  net  loss  incurred during the three months ended June 30, 2002, the
outstanding  stock options would have an antidilutive effect on diluted net loss
per  share  for  this  period.  Accordingly, stock options are excluded from the
calculation  of  diluted  net  loss  per  share  for this period. Therefore, the
Company's diluted net loss per share is the same as its basic net loss per share
for  the  three months ended June 30, 2002. The stock options outstanding during
this  period  were  equivalent  to  535,000  additional  common  shares.


<PAGE>
RECENTLY  ADOPTED  ACCOUNTING  PRINCIPLES

In  July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141,  "Business  Combinations."  SFAS  No.  141 requires the use of the purchase
method of accounting for all business combinations initiated after June 30, 2001
and  eliminates  the  pooling-of-interests method of accounting. The adoption of
SFAS  No.  141  had no significant effect on the Company's financial statements.

In  July  2001,  the  FASB  issued  SFAS No. 142, "Goodwill and Other Intangible
Assets."  SFAS  No.  142 requires that goodwill and other intangible assets with
indefinite  useful  lives  established after June 30, 2001 not be amortized, and
that amortization of goodwill and other intangible assets with indefinite useful
lives  that existed as of June 30, 2001, be ceased effective January 1, 2002. As
a  result, the Company ceased amortizing its goodwill effective January 1, 2002.
The  Company  recorded  $28,000  and  $56,000 of amortization expense related to
goodwill,  and  $40,000  and  $80,000  of  amortization  expense  related  to  a
non-competition agreement, during the three months and six months ended June 30,
2001,  respectively.  The  non-competition  agreement  became fully amortized in
September  2001.  The  Company's  adjusted  results  of operations for the three
months  and  six  months  ended  June  30,  2001,  which are adjusted to exclude
goodwill  amortization,  are  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                       THREE  MONTHS  ENDED   SIX  MONTHS  ENDED
                                                             JUNE  30,             JUNE  30,
                                                      ---------------------  --------------------
                                                         2002       2001       2002       2001
                                                      ----------  ---------  ---------  ---------
<S>                                                   <C>         <C>        <C>        <C>
Income (loss) before extraordinary item, as reported  $    (200)  $     310  $     208  $     233
Add back - Goodwill amortization                             --          28         --         56
                                                      ----------  ---------  ---------  ---------

Income (loss) before extraordinary item, as adjusted  $    (200)  $     338  $     208  $     289
                                                      ==========  =========  =========  =========

Net income (loss), as reported                        $    (200)  $     310  $     208  $  11,484
Add back - Goodwill amortization                             --          28         --         56
                                                      ----------  ---------  ---------  ---------

Net income (loss), as adjusted                        $    (200)  $     338  $     208  $  11,540
                                                      ==========  =========  =========  =========
</TABLE>

None of the Company's reported net income per share amounts for the three months
or  six  months  ended  June  30,  2001  would  change  as a result of the above
adjustment  for  goodwill  amortization expense, due to the small amount of this
adjustment.

SFAS  No.  142  also  requires  that  all  goodwill  be  evaluated  for possible
impairment  as  of  January  1, 2002, and as of the end of each reporting period
thereafter, and establishes a new method of testing for possible impairment. The
Company  had  no impairment of its goodwill as of January 1, 2002, or as of June
30,  2002, based on the method of testing for possible impairment established by
SFAS  No.  142.  The adoption of SFAS No. 142 had no other significant effect on
the  Company's  financial  statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  SFAS  No.  144  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed Of," and Accounting Principles Board Opinion No. 30, "Reporting the
Results  of  Operations  -  Reporting  the Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual,  and  Infrequently Occurring Events and
Transactions."  SFAS  No. 144 establishes accounting and reporting standards for
the impairment or disposal of long-lived assets and for reporting the results of
discontinued  operations.  The Company adopted SFAS No. 144 effective on January
1, 2002. The adoption of SFAS No. 144 had no significant effect on the Company's
financial  statements.

RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS

In  August  2001,  the  FASB  issued  SFAS  No. 143, "Accounting for Obligations
Associated  with  the Retirement of Long-Lived Assets." SFAS No. 143 establishes
accounting  and  reporting  standards  for the recognition and measurement of an
asset  retirement  obligation and the associated asset retirement cost. SFAS No.
143  is  effective  for  fiscal years beginning after June 15, 2002. The Company
expects  that  SFAS  No. 143 will not have a significant effect on its financial
statements.


<PAGE>
In  April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4,  44,  and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS  No.  145  updates,  clarifies,  and  simplifies  existing  accounting
pronouncements. This statement rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as  an  extraordinary  item,  net of related income tax effect. As a result, the
criteria in APB No. 30 will now be used to classify those gains and losses. SFAS
No.  64  amended  SFAS  No.  4 and is no longer necessary as SFAS No. 4 has been
rescinded.  SFAS  No.  44 has been rescinded, as it is no longer necessary. SFAS
No. 145 amends SFAS No. 13 to require that certain lease modifications that have
economic  effects similar to sale-leaseback transactions be accounted for in the
same  manner  as  sale-lease  transactions.  This  statement  also makes certain
technical  corrections  to  existing pronouncements. While those corrections are
not  substantive  in  nature,  in  some  instances,  they  may change accounting
practice.  The  Company  expects  that  SFAS No. 145 will not have a significant
effect  on  its  financial  statements.

In  July  2002,  the  FASB issued SFAS No. 146, "Accounting for Costs Associated
with  Exit  or  Disposal Activities." SFAS No. 146 requires that a liability for
the  cost  of  an  exit or disposal activity be recognized when the liability is
incurred.  SFAS  No.  146 also requires that the liability be initially measured
and  recorded  at fair value. SFAS No. 146 supersedes Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits  and  Other Costs to Exit an Activity (including Certain Costs Incurred
in  a  Restructuring)." Under EITF Issue No. 94-3, a liability for an exit cost,
as  defined  in  the  EITF  Issue,  was  recognized  at  the date of an entity's
commitment  to  an  exit  plan.  SFAS  No. 146 is effective for exit or disposal
activities  that  are  initiated  after  December  31,  2002.

NOTE  3.  SALE  OF  DISCONTINUED  OPERATIONS
--------------------------------------------

In  1997  and  1998, the Company sold a number of general dental and orthodontic
practices  (the "Practices") to a single purchaser (the "Purchaser") in exchange
for  long-term  promissory  notes.  The  Purchaser subsequently defaulted on its
obligations  to  the  Company under those promissory notes, and in October 2000,
the  Company  completed a transaction with the Purchaser and another third party
(the "New Purchaser"), in which the Practices were re-sold to the New Purchaser.
In  connection  with  this  transaction,  the  Company  agreed  to  pay  certain
obligations  related  to the Practices. These obligations consisted primarily of
payroll,  dental  office lease obligations for which the Company was the primary
lessee,  patient  refunds,  and the obligation to complete orthodontic treatment
for  the  Company's  dental health maintenance organization ("HMO") patients who
had  previously  paid  their  full  share  of  the  cost of the treatment. These
obligations  were required to be paid in order to complete the transaction, were
obligations  of the Company as the members' dental HMO plan, or were obligations
for  which  the  Company  could  have been contingently liable in any event. The
ultimate  cost  of  the  obligations  assumed by the Company is reflected on the
accompanying  condensed  consolidated  balance sheet based on the Company's best
estimates,  based  on  information currently available to the Company, but these
amounts  are  subject  to  various  uncertainties.

NOTE  4.  CAPITAL  LEASE  OBLIGATIONS
-------------------------------------

In  June  2002,  the  Company entered into two capital lease obligations with an
aggregate value of approximately $1.8 million. The two leases are related to the
purchase  of  a  new  computer software application and the purchase of formerly
leased  furniture for the Company's principal administrative office. The Company
intends  to use the new software as its primary business application, which will
be  used  for  eligibility file maintenance, billing and collections, payment of
health  care  expenses,  utilization review and other related activities for all
product  lines.  The  new  software  application  will replace the Company's two
existing  systems with a single system that can be used for all of the Company's
existing  product  lines.  The aggregate annual principal payments due under the
two  capital  leases  are $662,000 during the remainder of 2002, $963,000 during
2003 and $188,000 during 2004. Under each of the two capital leases, the Company
has  an  option  to  purchase  the  leased  assets  for  the sum of $1.00 at the
expiration  of  each  lease.


<PAGE>
NOTE  5.  CONVERSION  OF  DEBT  TO  CONVERTIBLE  PREFERRED  STOCK
-----------------------------------------------------------------

On  March 1, 2000, the Company entered into a Recapitalization Agreement with an
investor  group  (the  "Investors"),  the  revolving credit facility lender (the
"Bank"),  and the holder of the senior notes payable (the "Senior Note Holder").
In  this  transaction,  the  Investors loaned $8.0 million to the Company in the
form of an investor senior loan, due April 30, 2001. In addition, the Investors,
the Bank, and the Senior Note Holder agreed to convert the investor senior loan,
the  outstanding  balance  under  the  revolving credit facility, and the senior
notes  payable  into  convertible  preferred  stock,  subject  to regulatory and
stockholder  approval.

Effective  as  of  January 31, 2001, the Company completed the conversion of the
investor senior loan ($8.0 million), the outstanding balance under the revolving
credit  facility  ($7.0  million), the senior notes payable ($32.5 million), and
the  accrued  interest  on  the  revolving  credit facility and the senior notes
payable  ($5.3  million)  into 30 million shares of convertible preferred stock.
The  estimated  value of the convertible preferred stock was $1.375 per share as
of January 31, 2001, which is based on the closing price of the Company's common
stock  on  January  31, 2001, which was $1.375 per share, and the fact that each
share  of  convertible  preferred  stock is convertible into one share of common
stock.  The number of shares of convertible preferred stock, the estimated value
per  share,  and  the conversion ratio indicated above have all been adjusted to
reflect an exchange of the Company's outstanding shares of convertible preferred
stock  that  was  completed in May 2002. See Note 6 for more information on this
exchange.

Based  on  the  estimated value of the convertible preferred stock as of January
31,  2001, the conversion transaction resulted in a gain of $11.3 million, which
is  net  of approximately $350,000 of transaction costs. There was no income tax
effect  related  to  this  transaction,  due to the Company's net operating loss
carryforwards  for tax purposes. The Company's deferred tax asset related to net
operating loss carryforwards is fully reserved, due to uncertainty about whether
the  deferred tax assets will be realized in the future, as discussed in Note 7.

In  1999,  in  connection  with a restructuring of the senior notes payable, the
Company issued warrants to purchase 382,000 shares of its common stock for $4.51
per  share to the Senior Note Holder. These warrants were canceled without being
exercised,  in  connection  with the conversion of the senior notes payable into
convertible  preferred  stock  effective  January  31,  2001.

NOTE  6.  EXCHANGE  OF  CONVERTIBLE  PREFERRED  STOCK
-----------------------------------------------------

Prior  to  May  2002,  there  were 300,000 shares of convertible preferred stock
issued  and  outstanding.  Each  share had a par value of $100 and a liquidation
preference  of $100, and was convertible into 100 shares of the Company's common
stock.  In  May  2002, each outstanding share of convertible preferred stock was
exchanged  for  100 new shares of convertible preferred stock. Each new share of
convertible  preferred  stock  has  a  par  value  of  $1.00  and  a liquidation
preference  of  $1.00, and is convertible into one share of the Company's common
stock.  All  other  rights  and  preferences  of the convertible preferred stock
remained  the  same.

NOTE  7.  INCOME  TAXES
-----------------------

The  Company's  net deferred tax assets have been fully reserved since September
30,  1999, due to uncertainty about whether those net assets will be realized in
the  future.  The  uncertainty  is  primarily due to cumulative operating losses
incurred by the Company during the period from January 1, 1998 to June 30, 2002,
and  the  existence  of  significant  net  operating  loss  carryforwards.

Due  to  the conversion of outstanding debt into convertible preferred stock, as
described in Note 5, there was a "change of control" of the Company for purposes
of  Internal  Revenue Code Section 382, effective January 31, 2001. As a result,
effective  January  31,  2001,  the  amount  of  preexisting  net operating loss
carryforwards that can be used to offset current taxable income on the Company's
federal  income  tax return is limited to approximately $350,000 per year. As of
December  31, 2001, the Company had net operating loss carryforwards for federal
and  state  tax  purposes  of  approximately  $9.0  million  and  $8.1  million,
respectively,  which  are  net of the amounts that will expire unused due to the
change  of  control  limitation.  The  federal  and  state  net  operating  loss
carryforwards  will  begin  to  expire  in  2018  and  2003,  respectively.


<PAGE>
The  Company  had taxable income for the six months ended June 30, 2002, but its
taxable  income  was  completely offset by net operating loss carryforwards from
previous  years.  The  Company had taxable income during the month ended January
31,  2001,  which  included  the  $11.3  million gain on conversion of debt into
convertible  preferred stock, but the taxable income during this period was also
completely  offset  by net operating loss carryforwards from previous years. The
Company had a net loss for tax purposes for the period from February 1, 2001, to
June  30,  2001. As noted above, the Company's net deferred tax assets have been
fully  reserved  since  September 30, 1999. Accordingly, the Company recorded no
income  tax  expense or benefit for the six months ended June 30, 2002 and 2001.

NOTE  8.  TOTAL  COMPREHENSIVE  INCOME  (LOSS)
----------------------------------------------

Total  comprehensive  income  (loss) includes the change in stockholders' equity
during  the  period  from  transactions  and other events and circumstances from
nonstockholder  sources.  Total  comprehensive  income (loss) of the Company for
the  six  months  ended  June  30, 2002 and 2001, includes net income (loss) and
other  comprehensive  income  or  loss,  which  consists of unrealized gains and
losses  on marketable securities, net of realized gains and losses that occurred
during  the  period.  Other comprehensive income (loss) was $27,000 and zero for
the  three  months  ended June 30, 2002 and 2001, respectively, and $(9,000) and
$(79,000)  for  the six months ended June 30, 2002 and 2001, respectively. Total
comprehensive  income  (loss)  was  $(173,000) and $310,000 for the three months
ended June 30, 2002 and 2001, respectively, and $199,000 and $11,405,000 for the
six  months  ended  June  30,  2002  and  2001,  respectively.

NOTE  9.  COMMITMENTS  AND  CONTINGENCIES
-----------------------------------------

LITIGATION

The  Company  is  subject  to  various  claims  and legal actions arising in the
ordinary  course of business. The Company believes all pending claims either are
covered  by  liability insurance maintained by the Company or by dentists in the
Company's  provider  network,  or will not have a material adverse effect on the
Company's  consolidated  financial  position  or  results  of  operations.

In  December  1999,  a  stockholder lawsuit against the Company was filed, which
alleged that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  On  September  12, 2000, after the plaintiffs had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company  and its officers. On October 6, 2000, the plaintiffs filed an appeal of
the  dismissal  of the lawsuit, and the dismissal was overturned on February 22,
2002.  The  case  was  remanded  back to the District Court with instructions to
allow  the  plaintiff  to  file  a  second  amended complaint. Subsequently, the
Company  reached  an  agreement  with the plaintiffs to settle the lawsuit for a
payment of $1.25 million to the plaintiffs, without an admission of liability by
any  party.  The Company's insurer has agreed to pay $1.0 million of the cost of
the  settlement. Accordingly, the Company recorded a $250,000 expense during the
three  months  ended  June  30,  2002, which is included in selling, general and
administrative  expenses in the accompanying condensed consolidated statement of
operations.  The settlement is subject to District Court approval, completion of
final  documentation,  and  to certain other customary conditions, including the
right of individual class members to opt out. The Company expects that a hearing
to evaluate approval of the settlement will be held by the District Court during
the  fourth quarter of 2002 and believes that the settlement will be approved at
that  time.

CONTINGENT  LEASE  OBLIGATIONS

The  Company  sold all of its general dental practices and orthodontic practices
in  1996,  1997 and 1998. The Company also re-sold certain of these practices in
October  2000,  after  the  original  purchaser  of  a  number  of the practices
defaulted  on  its  obligations  to  the  Company,  as  discussed  in Note 3. In
connection with the sale and re-sale of those practices, all of the office lease
agreements  related  to  those  practices  have  been assigned to the respective
purchasers  of  the  practices,  except  for  two  of the leases. The Company is
currently in the process of obtaining an assignment for one of the two remaining
leases,  although  there can be no assurance that it will be successful in doing
so.  The  Company  is not currently seeking an assignment of the other remaining
lease,  because  it  expires  in  October  2002.


<PAGE>
In  the  case  of the assigned leases, the Company is secondarily liable for the
lease  payments  in the event the purchasers of those practices fail to make the
payments.  As  of  June 30, 2002, the total of the minimum annual payments under
these  leases  was  approximately  $1.4  million,  and  the aggregate contingent
liability  of the Company related to these leases was approximately $3.7 million
over  the  terms  of the lease agreements, which expire at various dates through
2007.  The  aggregate  contingent  liability  related  to  these  leases  was
approximately $5.0 million as of June 30, 2001. Management has not been notified
of  any  defaults  under these leases that would materially affect the Company's
consolidated  financial  position.  The aggregate contingent lease obligation of
$3.7  million  excludes  $140,000  of estimated lease obligations that have been
accrued as of June 30, 2002, due to a failure by one of the entities to make the
lease  payments  under  a lease that was assigned to that entity by the Company.
This  estimated  lease  obligation  is  included  in  the accompanying condensed
consolidated  balance  sheet  under  the  caption  "Accrued  expenses."

The  Company remains primarily liable for the two lease agreements that have not
been  assigned,  although the purchasers of the related practices have agreed to
make  all  of  the  remaining  payments under the leases. The total future lease
commitments  related  to  these  leases is approximately $155,000 as of June 30,
2002.

NOTE  10.  PENDING  ACQUISITION
-------------------------------

In April 2002, the Company entered into a definitive agreement to acquire all of
the outstanding capital stock of Paramount Dental Plan, Inc. ("Paramount") for a
purchase  price  of  approximately  $6.6  million, consisting of $3.0 million in
cash,  a  convertible  note  for $2,625,000, and 769,231 shares of the Company's
common  stock.  Paramount  is  a dental benefits company located in Florida. The
convertible  note  bears  interest  at 7.0% annually, and is payable in 36 equal
monthly  installments  of  principal  and  interest,  beginning  one month after
closing.  The outstanding balance under the convertible note is convertible into
common  stock  of  the Company at a conversion price of $1.625 per share, at any
time after one year from the closing of the transaction. In connection with this
transaction,  the  Company  also  agreed  to  enter into a three-year employment
agreement with the sole stockholder of Paramount, who will serve as president of
the Company's operations in Florida, and to enter into a three-year office lease
agreement  with  the  sole stockholder of Paramount, related to the office space
that  will  be  used  as  the  Company's  administrative  office in Florida. The
transaction  is  currently  pending regulatory approval, and the Company expects
that  it  will  complete  the  transaction  during  the  third  quarter of 2002.

NOTE  11.  SUBSEQUENT  EVENT
----------------------------

In  August  2002,  the  Company  borrowed $2.0 million from one of its principal
stockholders,  which  was  used  to  increase  the Company's working capital, to
provide  for the payments due under the two new capital leases discussed in Note
4, and to pay for the settlement of the stockholder litigation discussed in Note
9.  The  borrowing  was  made  under  an  unsecured  convertible note that bears
interest  at  7.0%  annually, and is payable in 36 equal monthly installments of
principal  and  interest,  beginning  in September 2002. The outstanding balance
under  the convertible note is convertible into common stock of the Company at a
conversion  price  of $1.625 per share, at any time after one year from the date
of  the  borrowing.

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

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The  Private  Securities  Litigation Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements,  as long as those statements are identified as
forward-looking  and  are  accompanied  by  meaningful  cautionary  statements
identifying  important  factors  that  could  cause  actual  results  to  differ
materially  from  those discussed in the statements. The Company desires to take
advantage  of  these  safe  harbor  provisions.  In addition to the Risk Factors
section  of the Company's Annual Report on Form 10-K for the year ended December
31, 2001, and the Current Report on Form 8-K dated as of April 24, 2002, both of
which have been filed with the Securities and Exchange Commission, the following
risk  factors  should  be considered in connection with this Quarterly Report on
Form  10-Q  for  the  period  ended  June  30,  2002.


<PAGE>
The  statements  contained  in  this  Management's  Discussion  and  Analysis of
Financial  Condition  and  Results of Operations concerning expected growth, the
outcome of business strategies, future operating results and financial position,
economic  and  market  events  and trends, future premium revenue, future health
care  expenses,  the  Company's ability to control health care, selling, general
and  administrative  expenses,  and all other statements that are not historical
facts,  are  forward-looking  statements.  Words  such  as  expects,  projects,
anticipates, intends, plans, believes, seeks or estimates, or variations of such
words  and  similar  expressions,  are also intended to identify forward-looking
statements.  These  forward-looking statements are subject to significant risks,
uncertainties  and  contingencies,  many  of which are beyond the control of the
Company.  Actual  results  may  differ  materially  from  those projected in the
forward-looking  statements,  which  statements involve risks and uncertainties.

RISK  FACTORS

The  Company's  business  and  competitive environment includes numerous factors
that  expose  the Company to risk and uncertainty. Some risks are related to the
dental  benefits  industry in general and other risks are related to the Company
specifically.  Due  to the risks and uncertainties described below, there can be
no  assurance  that  the  Company  will  be  able to maintain its current market
position.  Some  of the risk factors described below have adversely affected the
Company's  operating  results  in  the past, and all of these risk factors could
affect  its  future  operating  results.

STOCKHOLDER  LITIGATION

In  December  1999,  a  stockholder lawsuit against the Company was filed, which
alleged that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  On  September  12, 2000, after the plaintiffs had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company  and its officers. On October 6, 2000, the plaintiffs filed an appeal of
the  dismissal  of the lawsuit, and the dismissal was overturned on February 22,
2002.  The  case  was  remanded  back to the District Court with instructions to
allow  the  plaintiff  to  file  a  second  amended complaint. Subsequently, the
Company  reached an agreement to settle the stockholder lawsuit for a payment of
$1.25 million to the plaintiffs, without an admission of liability by any party.
The  Company's  insurer  has agreed to reimburse the Company $1.0 million of the
cost  of  the  settlement.  Accordingly, the Company recorded a $250,000 expense
during  the  three  months  ended  June  30, 2002, which is included in selling,
general  and  administrative expenses in the accompanying condensed consolidated
statement  of  operations. The settlement is subject to District Court approval,
completion  of  final  documentation, and to certain other customary conditions,
including  the right of individual class members to opt out. The Company expects
that  a  hearing  to  evaluate  approval  of  the settlement will be held by the
District  Court  during  the  fourth  quarter  of  2002  and  believes  that the
settlement  will  be  approved  at that time.  The settlement of the stockholder
lawsuit  is  subject  to  the  risk  that  conditions to its finality may not be
satisfied,  including  but  not  limited  to  Court  approval  and  those  other
conditions  referenced  herein.

GOVERNMENT  REGULATION

The dental benefits industry is subject to extensive state and local laws, rules
and  regulations.  A  number  of  the  Company's  subsidiaries,  which  generate
substantially  all of the Company's revenue, are subject to various requirements
imposed  by  state laws and regulations related to the operation of a dental HMO
plan  or  a  dental  insurance  company,  including the maintenance of a minimum
amount of net worth by certain subsidiaries. In addition, regulations applicable
to  dental  benefit  plans  could  be  changed  in  the  future. There can be no
assurance  that  the  Company  will  be  able  to meet all applicable regulatory
requirements  in  the  future.

HEALTH  INSURANCE  PORTABILITY  AND  ACCOUNTABILITY  ACT  OF  1996  ("HIPAA")

HIPAA imposes various responsibilities on the Company, and the Company is in the
process of developing policies and procedures to comply with these requirements.
The  total  cost  of compliance with HIPAA is not known at this time. There is a
risk  that  the  Company  will  not be able to successfully implement all of the
HIPAA  requirements. There is also a risk that the cost of compliance with HIPAA
could  have  a  material  adverse  impact  on  the Company's financial position.


<PAGE>
LIABILITIES  RELATED  TO  DENTAL  AND  ORTHODONTIC  PRACTICES

The  Company  has  various  liabilities  in  connection  with  the  dental  and
orthodontic  practices  sold in October 2000, including, but not limited to, the
obligation  to  complete  orthodontic treatments for certain dental HMO patients
who  previously paid for the treatments in full. The amount of these liabilities
is  subject  to  uncertainties,  and there can be no assurance that the ultimate
amount of these liabilities will not exceed the amounts accrued on the Company's
balance  sheet  as  of  June  30,  2002.

CONTINGENT  LEASE  OBLIGATIONS

The  Company  sold all of its general dental practices and orthodontic practices
in  1996,  1997 and 1998. The Company also re-sold certain of these practices in
October  2000,  after  the  original  purchaser  of  a  number  of the practices
defaulted  on  its  obligations  to  the  Company, as discussed in Note 3 to the
accompanying condensed consolidated financial statements. In connection with the
sale  and re-sale of those practices, all of the office lease agreements related
to  those  practices,  except  for  two of the leases, have been assigned to the
respective  purchasers  of  the  practices.  As of June 30, 2002, the Company is
contingently  liable  for  an  aggregate of approximately $3.7 million of office
lease  obligations  related  to  those  practices for which the leases have been
assigned.  Although  the  leases  have  been assigned to the purchasers of those
practices,  there  can be no assurance that the persons and/or entities to which
these  office  leases  were  assigned will make the lease payments, and that the
Company  will  not  become  liable  for those payments. As of June 30, 2002, the
Company  also had $155,000 of lease commitments related to the two office leases
that have not been assigned to the purchasers of the related practices. Although
the  purchasers  of those practices have agreed to reimburse the Company for all
of  the  lease  payments,  there  can  be  no  assurance  they  will  do  so.

PAYMENTS  DUE  ON  PROMISSORY  NOTES

In  connection  with  the  sale  of  certain  dental practices, the dentists who
purchased  those  practices  issued  long-term  promissory notes to the Company,
which  are  secured by the assets purchased. There can be no assurance that each
of  these  dentists  will  make  timely  payments on the promissory notes in the
future.

POSSIBLE  VOLATILITY  OF  STOCK  PRICE

The  market  price  of  the  Company's common stock has fluctuated significantly
during  the  past  few  years. Stock price volatility can be caused by actual or
anticipated  variations in operating results, announcements of new developments,
actions  of  competitors,  developments in relationships with clients, and other
events  or  factors. Even a modest shortfall in the Company's operating results,
compared  to  the  expectations  of  the  investment  community,  can  cause  a
significant  decline  in  the  market  price  of  the Company's common stock. In
addition,  the  trading  volume of the Company's common stock is relatively low,
which  can  cause  fluctuations  in the market price and a lack of liquidity for
holders  of the Company's common stock. The fact that the Company's common stock
is not listed on an exchange can have a negative influence on the trading volume
of  the  stock.  Broad  stock market fluctuations, which may be unrelated to the
Company's  operating  performance,  could  also  have  a  negative effect on the
Company's  stock  price.

COMPETITIVE  MARKET

The Company operates in a highly competitive industry. Its ability to operate on
a  profitable  basis  is affected by significant competition for employer groups
and  for  contracting  dental  providers.  Dental  providers  are  becoming more
sophisticated, their practices are busier, and they are less willing to join the
Company's  networks  under capitation arrangements or discounted fees. There can
be  no  assurance  the Company will be able to compete successfully enough to be
profitable.  Existing  or  new  competitors  could have a negative impact on the
Company's revenues, earnings and growth prospects. The Company expects the level
of  competition  to  remain  high  for  the  foreseeable  future.


<PAGE>
ABILITY  TO  MAINTAIN  REVENUE

The  Company's  premium  revenue decreased from $43.1 million for the six months
ended June 30, 2001 to $40.9 million for the first six months of 2002, primarily
due  to  the  loss  of  a  number  of  its  customers, and a net decrease in its
enrollment within existing customers. The Company intends to expand its business
in  the future and to increase its annual revenue, but there can be no assurance
the Company will be able to maintain its current level of revenue or increase it
in  the  future. The ability of the Company to maintain its existing business or
to  expand  its  business depends on a number of factors, including existing and
emerging  competition,  its  ability  to  renew  its relationships with existing
customers  on  an  annual basis, its ability to maintain competitive networks of
dental  providers,  its  ability  to maintain effective control over the cost of
dental services, and its ability to obtain sufficient working capital to support
an  increase  in  revenue.

UTILIZATION  OF  DENTAL  CARE  SERVICES

Under  the  Company's  preferred provider ("PPO")/indemnity dental plan designs,
the  Company  assumes the underwriting risk related to the frequency and cost of
dental  care  services.  If  the  Company  does  not  accurately  assess  these
underwriting risks, the premium rates charged may not be sufficient to cover the
cost of the dental services delivered. This could have a material adverse effect
on  the  Company's  operating  results.

Under  the  Company's  dental HMO plan designs, the Company assumes underwriting
risk  related  to  the  frequency  and  cost of specialist services, the cost of
supplemental  payments  made  to general dentists, and the frequency and cost of
dental services provided by general dentists with whom the Company does not have
standard  capitation  arrangements.  If  the  Company does not accurately assess
these  underwriting risks, the premium rates charged to its customers may not be
sufficient to cover the cost of the dental services delivered to subscribers and
dependents. This could have a material adverse effect on the Company's operating
results.

EFFECT  OF  ADVERSE  ECONOMIC  CONDITIONS

The  Company's  business  could  be  negatively  affected  by periods of general
economic  slowdown, recession or terrorist activities which, among other things,
may be accompanied by layoffs by the Company's customers, which could reduce the
number  of  subscribers  enrolled  in  the  Company's  benefit  plans, and by an
increase  in  the  pricing  pressure  from  customers  and  competitors.

RELATIONSHIPS  WITH  DENTAL  PROVIDERS

The  Company's  success  is  dependent  on  maintaining  competitive networks of
dentists in each of the Company's geographic markets. Generally, the Company and
the network dentists enter into nonexclusive contracts that may be terminated by
either  party  with  limited  notice.  The  Company's operating results could be
negatively  affected  if it is unable to establish and maintain contracts with a
competitive  number  of  dentists  in  locations  that  are  convenient  for the
subscribers  and  dependents  enrolled  in  the  Company's  benefit  plans.

DEPENDENCE  ON  KEY  PERSONNEL

The  Company  believes its success is dependent to a significant degree upon the
abilities and experience of its senior management team. The loss of the services
of  one  or  more of its senior executives could negatively affect the Company's
operating  results.

All  of  the  risks set forth herein could negatively impact the earnings of the
Company  in  the  future. The Company's expectations for the future are based on
current  information  and  its evaluation of external influences. Changes in any
one  factor  could  materially  impact  the  Company's  expectations  related to
revenue, premium rates, benefit plans offered, membership enrollment, the amount
of  health  care  expenses incurred and profitability, and therefore, affect the
forward-looking  statements  which  may be included in this report. In addition,
past  financial  performance  is  not necessarily a reliable indicator of future
performance.  An  investor  should  not  use  historical  performance  alone  to
anticipate  future  results  or  future  period  trends  for  the  Company.


<PAGE>
SIGNIFICANT  ACCOUNTING  POLICIES

The  Company's consolidated financial statements are prepared in accordance with
accounting  principles  generally  accepted  in  the  United  States of America.
Application  of  those  accounting  principles includes the use of estimates and
assumptions  that  have  been  made  by  the  management,  and which the Company
believes  are reasonable based on the information available. These estimates and
assumptions  affect  the  reported  amounts of assets, liabilities, revenues and
expenses  in  the  accompanying  consolidated  financial statements. The Company
believes  the  most  significant  accounting  policies  used  to  prepare  the
accompanying  condensed  consolidated  financial  statements  are the following:

NOTES  RECEIVABLE

Notes  receivable  are  stated  at  the estimated collectible amounts, net of an
allowance  for  bad  debts.  The Company continuously monitors its collection of
payments  on the notes receivable and maintains a reserve for estimated bad debt
losses. The amount of the reserve is based primarily on the Company's historical
experience  in  collecting  similar  notes  receivable  that  are  no  longer
outstanding,  and any available information about the financial condition of the
note  issuers,  although the Company has access to very little such information.
The  Company believes its reserve for bad debt losses is adequate as of June 30,
2002.  However,  there  can  be  no  assurance that the Company will realize the
carrying  amount  of  its  notes  receivable.

INTANGIBLE  ASSETS

Intangible  assets  at June 30, 2002 consist entirely of goodwill related to the
acquisition  of  a  Texas-based  dental  HMO  company  in  1996.  This  goodwill
represents  the  excess  of  the purchase price of the acquired company over the
fair  value  of  the  net  assets acquired, less accumulated amortization and an
adjustment in 1999 to reduce the carrying value of the goodwill to its estimated
realizable  value. The Company estimated that this goodwill had a useful life of
40  years  from the date of acquisition of the related entity, and amortized the
goodwill  over  that  period  during  the  six  months  ended  June 30, 2001. In
accordance  with  SFAS  No.  142,  "Goodwill  and  Other Intangible Assets," the
Company  ceased  amortizing its goodwill effective January 1, 2002. SFAS No. 142
requires that all goodwill be evaluated for possible impairment as of January 1,
2002,  and  as of the end of each reporting period thereafter, and establishes a
new  method of testing for possible impairment. The Company had no impairment of
its  goodwill as of January 1, 2002, or as of June 30, 2002, based on the method
of  testing  for  possible  impairment  established  by  SFAS  No.  142.

LIABILITIES  RELATED  TO  SALE  OF  DENTAL  OFFICES

The Company completed the sale of its interest in certain dental and orthodontic
practices  in October 2000, as described in Note 3 to the accompanying condensed
consolidated  financial  statements.  In  connection  with this transaction, the
Company  agreed  to  pay  certain  obligations related to these practices. These
obligations  consisted  primarily  of  payroll, dental office lease obligations,
patient refunds, and the obligation to complete orthodontic treatment for dental
HMO  patients  who  previously paid for the treatment in full. These obligations
were  required to be paid in order to complete the transaction, were obligations
of  the  Company  as the members' dental HMO plan, or were obligations for which
the  Company  could  have  been contingently liable in any event. As of June 30,
2002,  the  Company  has  satisfied  a  substantial  portion  of the obligations
described  above. The ultimate cost of the obligations assumed by the Company is
reflected  on the accompanying condensed consolidated balance sheet based on the
Company's  best  estimates,  based  on  information  currently  available to the
Company,  but  these  amounts  are  subject  to  various  uncertainties.

CLAIMS  PAYABLE  AND  CLAIMS  INCURRED  BUT  NOT  REPORTED

The  estimated liability for claims payable and claims incurred but not reported
is  based  primarily  on  the  average  historical  lag time between the date of
service  and  the  date the related claim is paid by the Company, and the recent
trend  in  payment  rates  and the average number of incurred claims per covered
individual.  Since  the liability for claims payable and claims incurred but not
reported  is  an  actuarial  estimate,  the amount of claims eventually paid for
services  provided  prior  to  the  balance  sheet  date  could  differ from the
estimated  liability.  Any  such  differences  are  included in the consolidated
statement  of operations for the period in which the differences are identified.


<PAGE>
INCOME  TAXES

The  Company's  accounting  for income taxes is in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax  liabilities  and  assets for the expected future tax consequences of events
that  are  recognized in the Company's financial statements in different periods
than  those in which the events are recognized in the Company's tax returns. The
measurement  of deferred tax liabilities and assets is based on current tax laws
as  of the balance sheet date. The Company records a valuation allowance related
to  deferred  tax assets in the event that available evidence indicates that the
future  tax  benefits  related to the deferred tax assets may not be realized. A
valuation  allowance  is  required  when  it  is  more  likely than not that the
deferred  tax  assets  will  not  be  realized.

The  Company's  net deferred tax assets have been fully reserved since September
30,  1999, due to uncertainty about whether those net assets will be realized in
the  future.  The  uncertainty  is  primarily due to cumulative operating losses
incurred  by  the  Company  during  the period from January 1, 1998, to June 30,
2002,  and  the  existence  of  significant  net  operating  loss carryforwards.

RESULTS  OF  OPERATIONS

The following table shows the Company's results of operations as a percentage of
revenue,  and  is  used  in  the  period-to-period  comparisons discussed below.

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED     SIX MONTHS ENDED
                                                 JUNE 30, 2002            JUNE 30,
                                              --------------------  --------------------
                                                2002       2001       2002       2001
                                              ---------  ---------  ---------  ---------
<S>                                           <C>        <C>        <C>        <C>
Premium revenue, net                             100.0%     100.0%     100.0%     100.0%

Health care services expense                      72.7       69.5       71.5       69.9
Selling, general and administrative expense       28.7       30.1       28.4       30.1
                                              ---------  ---------  ---------  ---------
  Operating income (loss)                         (1.4)       0.4        0.1         --

Investment and other income                        0.5        1.2        0.5        1.6
Interest expense on debt that was converted
  to equity in 2001 (1)                             --         --         --       (0.9)
Other interest expense                            (0.1)      (0.1)      (0.1)      (0.2)
                                              ---------  ---------  ---------  ---------
  Income (loss) before income taxes
    and extraordinary item                        (1.0)       1.5        0.5        0.5
Income tax expense                                  --         --         --         --
                                              ---------  ---------  ---------  ---------
  Income (loss) before extraordinary item         (1.0)       1.5        0.5        0.5
Extraordinary item                                  --         --         --       26.1
                                              ---------  ---------  ---------  ---------

  Net income (loss)                              (1.0)%       1.5%       0.5%      26.6%
                                              =========  =========  =========  =========

<FN>
(1)  Substantially  all  of  the  Company's  debt was converted into convertible
     preferred  stock effective January 31, 2001. See Note 5 to the accompanying
     condensed  consolidated  financial  statements.
</TABLE>

THREE  MONTHS  ENDED  JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

Premium  revenue  decreased by $1.3 million, or 6.0%, from $21.5 million in 2001
to  $20.2 million in 2002. The average membership for which the Company provided
dental  coverage  decreased  by  approximately  78,000  members,  or 12.5%, from
622,000 members during 2001 to 544,000 during 2002. Premium revenue decreased by
only  6.0% even though average membership decreased by 12.5%. This was primarily
due to increases in premium rates and a shift in the type of plan designs toward
dental  PPO/indemnity  plan designs, which have higher premium rates than dental
HMO plan designs. Substantially all of the Company's premium revenue was derived
from  dental benefit plans in 2002 and 2001. Premium revenue from vision benefit
plans  and  other  products  was  not  material  in  2002  or  2001.


<PAGE>
Health  care  services  expense  decreased  by $0.2 million, or 1.6%, from $14.9
million  in  2001  to  $14.7  million in 2002. Health care services expense as a
percentage of premium revenue (the "loss ratio") increased from 69.5% in 2001 to
72.7%  in  2002. The increase in the loss ratio was primarily due to an increase
in  supplemental  payments  to  dental HMO providers, and a shift in the type of
plan  designs toward dental PPO/indemnity plan designs, which have a higher loss
ratio  than  dental  HMO plan designs. The increase in supplemental payments was
partially  due  to  a  high-cost  arrangement with a certain provider, which was
started  early  in  2002  and  was terminated effective June 30, 2002, and which
resulted  in  an  unusually large amount of supplemental payments. This increase
was also partially due to a general increase in supplemental payments, which the
Company  believes  is due to more comprehensive submission of claims information
by  the  dentists  in  its  HMO  network.

Selling, general and administrative ("SG&A") expenses decreased by $0.7 million,
or  10.5%, from $6.5 million in 2001 to $5.8 million in 2002. SG&A expenses as a
percentage  of  premium  revenue decreased to 28.7% in 2002, from 30.1% in 2001.
The  decrease  in  SG&A  expenses  is  primarily  due  to  a  $350,000 refund of
maintenance  fees  from  one  of  its  vendors,  and decreases in property rent,
depreciation,  amortization  and broker commissions, which were partially offset
by  a  $250,000  expense  in  2002  related  to  the  settlement  of stockholder
litigation,  as  described  in Note 9 to the accompanying condensed consolidated
financial  statements.  The  refund of maintenance fees was primarily due to the
settlement  of  a  dispute over the amount of equipment maintenance fees paid by
the  Company in several prior years. The decrease in property rent was primarily
due  to  the fact that the Company recorded an expense of approximately $300,000
in  the  second  quarter  of 2001 to accrue all the future rent payments under a
lease  for office space previously occupied by the Company. The Company had been
subleasing  the space to an unrelated entity, and that entity ceased making rent
payments  in  the second quarter of 2001, due to its insolvency. The decrease in
depreciation  and  amortization  expense  is  primarily  due  to the fact that a
significant  component  of  the  Company's  computer  software  became  fully
depreciated  during  the  past  year,  and  the  fact  that  the  Company had no
amortization of goodwill or other intangible assets during 2002, as discussed in
Note  2  to  the accompanying condensed consolidated financial statements. There
was  $68,000  of amortization expense related to goodwill and another intangible
asset  during  the second quarter of 2001. The decrease in broker commissions is
related  to  the  decrease  in  premium  revenue.

Investment and other income decreased by $0.2 million, from $0.3 million in 2001
to  $0.1  million  in  2002.  This  decrease  is  primarily due to a decrease in
interest  rates  on  short-term fixed-income investments during the past year, a
decrease  in  interest income from notes receivable, due to the liquidation of a
portion  of  the Company's notes receivable during the past year, and a decrease
in the amount of investments held by the Company, compared to the second quarter
of  2001.  The decrease in investments was primarily due to the Company's use of
its  cash  to make significant reductions in accounts payable, accrued expenses,
and claims payable and claims incurred but not reported ("IBNR") during the past
year.  By intentionally accelerating its payment of claims, the Company hopes to
enhance  its  image  among  dental  providers.

The  income (loss) before income taxes decreased by $0.5 million, from income of
$0.3 million in 2001 to a loss of $0.2 million in 2002. The income (loss) before
income taxes as a percentage of premium revenue decreased from income of 1.5% in
2001  to  a loss of 1.0% in 2002. This decrease was primarily due to an increase
in  the  loss ratio from 69.5% in 2001 to 72.7% in 2002, as discussed above. The
decrease  in  investment  income  was  largely  offset  by  the decrease in SG&A
expenses  as  a  percentage  of  premium  revenue.

SIX  MONTHS  ENDED  JUNE  30,  2002  COMPARED  TO SIX MONTHS ENDED JUNE 30, 2001

Premium  revenue  decreased by $2.2 million, or 5.2%, from $43.1 million in 2001
to  $40.9 million in 2002. The average membership for which the Company provided
dental  coverage  decreased  by  approximately  90,000  members,  or 14.1%, from
638,000 members during 2001 to 548,000 during 2002. Premium revenue decreased by
only  5.2% even though average membership decreased by 14.1%. This was primarily
due to increases in premium rates and a shift in the type of plan designs toward
dental  PPO/indemnity  plan designs, which have higher premium rates than dental
HMO plan designs. Substantially all of the Company's premium revenue was derived
from  dental benefit plans in 2002 and 2001. Premium revenue from vision benefit
plans  and  other  products  was  not  material  in  2002  or  2001.


<PAGE>
The  decrease in the average number of members is primarily due to the loss of a
number  of  customers  during  2001  and  at  the beginning of 2002. The Company
believes  the  loss  of  these customers was primarily due to the Company's poor
financial  condition  from late 1999 to early 2001, when the recapitalization of
the Company was completed, negative economic conditions that affected employment
levels  at customers of the Company, large premium increases that were necessary
for  clients  with  high loss ratios, and customer service problems during 2000.
The  Company  believes  it  significantly  improved  its  financial condition by
completing  the  recapitalization transaction in January 2001 (see Liquidity and
Capital  Resources below), and by implementing various cost reduction strategies
during  2000  and  2001.  The  Company  also  implemented  various  operational
improvements  during  2000  and  2001,  which it believes addressed and improved
customer  service. As a result, the Company believes its financial condition and
level  of  customer  service should not be significant factors in its ability to
retain  its  existing  customers  or  to  generate  new  customers. However, the
Company's  image  among brokers, consultants, clients, and potential clients was
damaged  by  news  of  its  poor  financial  condition  and its customer service
problems  in  1999  and  2000.  Even though the Company believes these issues no
longer  exist,  the  Company  also believes that its image in the marketplace is
still recovering, and these perceived issues are still factors in its ability to
generate  new  customers.

Health  care  services  expense  decreased  by $0.9 million, or 2.9%, from $30.1
million in 2001 to $29.2 million in 2002. The loss ratio increased from 69.9% in
2001  to  71.5%  in 2002. The increase in the loss ratio was primarily due to an
increase  in  supplemental  payments to dental HMO providers, and a shift in the
type  of  plan  designs  toward  dental PPO/indemnity plan designs, which have a
higher  loss  ratio  than  dental HMO plan designs. The increase in supplemental
payments  was  partially due to a high-cost arrangement with a certain provider,
which  was started early in 2002 and was terminated effective June 30, 2002, and
which  resulted  in  an  unusually  large  amount of supplemental payments. This
increase  was also partially due to a general increase in supplemental payments,
which  the  Company  believes  is due to more comprehensive submission of claims
information  by  the  dentists  in  its  HMO  network.

SG&A expenses decreased by $1.4 million, or 10.6%, from $13.0 million in 2001 to
$11.6  million  in  2002.  SG&A  expenses  as  a  percentage  of premium revenue
decreased from 30.1% in 2001 to 28.4% in 2002.  The decrease in SG&A expenses is
primarily  due to a $350,000 refund of maintenance fees from one of its vendors,
and  decreases  in  property  rent,  depreciation,  amortization  and  broker
commissions,  which  were partially offset by a $250,000 expense in 2002 related
to  the  settlement  of  stockholder  litigation,  as described in Note 9 to the
accompanying  condensed  consolidated  financial  statements.  The  refund  of
maintenance  fees  was  primarily  due  to  the settlement of a dispute over the
amount of equipment maintenance fees paid by the Company in several prior years.
The  decrease  in  property  rent was primarily due to the fact that the Company
recorded  an  expense of approximately $300,000 in the second quarter of 2001 to
accrue  all  the  future rent payments under a lease for office space previously
occupied  by  the  Company.  The  Company  had  been  subleasing the space to an
unrelated  entity,  and  that  entity  ceased making rent payments in the second
quarter  of  2001,  due  to  its  insolvency.  The  decrease in depreciation and
amortization  expense  is primarily due to the fact that a significant component
of  the  Company's  computer  software  became fully depreciated during the past
year,  and  the  fact  that the Company had no amortization of goodwill or other
intangible  assets  during  2002,  as  discussed  in  Note 2 to the accompanying
condensed  consolidated financial statements. There was $136,000 of amortization
expense  related  to  goodwill and another intangible asset during the first six
months of 2001. The decrease in broker commissions is related to the decrease in
premium  revenue.

Investment and other income decreased by $0.5 million, from $0.7 million in 2001
to $0.2 million in 2002. This decrease is primarily due to realized gains on the
sale  of  investments  in  2001,  a  decrease  in  interest  rates on short-term
fixed-income  investments  during  the  past year, a decrease in interest income
from  notes  receivable,  due  to  the liquidation of a portion of the Company's
notes  receivable  during  the  past  year,  and  a  decrease  in  the amount of
investments  held  by  the  Company,  compared to the first quarter of 2001. The
decrease  in  the  Company's  investments  was  primarily  due  to  significant
reductions  in  accounts  payable, accrued expenses, and claims payable and IBNR
during  the  past  year.

Total  interest  expense  decreased  from $0.5 million in 2001 to nearly zero in
2002, primarily due to the conversion of substantially all of the Company's debt
into  convertible  preferred  stock effective January 31, 2001, which eliminated
nearly  all  of  the  Company's  interest  expense.

Income before income taxes was $0.2 million, or 0.5% of premium revenue, in both
2002  and 2001. The decrease in SG&A expenses as a percentage of premium revenue
was  offset  by  the  increase  in  the loss ratio, and the decrease in interest
expense  was  offset  by  the  decrease  in  investment  income.


<PAGE>
LIQUIDITY  AND  CAPITAL  RESOURCES

The Company's net working capital decreased from $4.2 million as of December 31,
2001,  to  $3.2  million  as  of June 30, 2002, primarily due to the two capital
leases  entered  into  by  the  Company  during  the  second quarter of 2002, as
discussed  in  Note  4  to  the  accompanying  condensed  consolidated financial
statements,  which  added  $1.2  million to current liabilities. The new capital
lease obligations were partially offset by net income of $0.2 million during the
six  months  ended  June  30,  2002.

The  Company's  total  debt  increased from $265,000 as of December 31, 2001, to
$1.9  million  as  of  June  30,  2002,  primarily due to the two capital leases
discussed above, which added $1.8 million of debt during the first six months of
2002.  The  aggregate  principal  payments  due under the two capital leases are
$662,000  during the remainder of 2002, $963,000 during 2003 and $188,000 during
2004.

In  August  2002,  the  Company  borrowed $2.0 million from one of its principal
stockholders,  which  was  used  to  increase  the Company's working capital, to
provide  for  the payments due under the two new capital leases discussed above,
and  to pay for the settlement of the stockholder litigation discussed in Note 9
to  the  accompanying condensed consolidated financial statements. The borrowing
was  made  under  an  unsecured  convertible  note  that  bears interest at 7.0%
annually,  and  is  payable  in  36  equal monthly installments of principal and
interest,  beginning  in  September  2002.  The  outstanding  balance  under the
convertible note is convertible into common stock of the Company at a conversion
price  of  $1.625  per  share,  at  any time after one year from the date of the
borrowing.

In April 2002, the Company entered into a definitive agreement to acquire all of
the  outstanding  stock  of  Paramount  Dental  Plan,  Inc.  ("Paramount"). This
acquisition  is  currently  pending regulatory approval, and the Company expects
that  it  will  complete  the transaction during the third quarter of 2002. As a
result  of the acquisition, the Company will incur debt of $2,625,000 related to
the  convertible  note  to be issued to the seller of Paramount. The convertible
note  bears  interest  at  7.0%  annually,  and  is  payable in 36 equal monthly
installments  of  principal and interest, beginning one month after closing. The
outstanding  balance under the convertible note is convertible into common stock
of  the Company at a conversion price of $1.625 per share, at any time after one
year  from  the  closing of the transaction. See the Company's Current Report on
Form  8-K,  dated as of April 24, 2002, on file with the Securities and Exchange
Commission,  for  more  information  on  this  pending  acquisition.

The Company believes it will be able to finance the $3.0 million cash portion of
the  purchase  price  of  Paramount  from  its existing financial resources. The
Company  also  believes  it  has  adequate  financial  resources to continue its
current  operations for the foreseeable future, and that it will be able to meet
its  various  financial  obligations  from  its existing financial resources and
future  cash  flows from its operations. However, there can be no assurance that
the  Company's  future  earnings will be adequate to make all of the payments on
the  Company's  various  obligations  as  they  become  due.

Net  cash  used  in  operating activities was $0.2 million during the six months
ended  June 30, 2002, compared to $0.5 million in the same period last year. Net
income  plus  depreciation  expense  was $818,000 during the first six months of
2002,  but  this  was  offset  by $1.2 million of net cash used to reduce claims
payable  and IBNR. The reduction in claims payable and IBNR was primarily due to
an  intentional  decrease  in the processing time for payment of provider claims
during  the  first  six  months  of  2002. Due in part to the recent decrease in
interest  rates  on  investments, the Company has adopted the practice of paying
all  provider claims as rapidly as possible, in order to enhance its image among
dental  providers.

Net  cash provided by investing activities was $1.0 million in 2002, compared to
net  cash  of  $0.3  million used in investing activities in 2001.  The net cash
provided  in  2002  was  primarily  due  to a net liquidation of $1.3 million of
investments, the proceeds of which were used primarily to finance a reduction in
bank  overdrafts  and  to make capital lease payments and debt payments, both of
which  are  discussed below. In 2001, the Company received $1.1 million from the
liquidation  of  certain  of  its  notes receivable, which was used primarily to
purchase  investments,  which  increased  by  $1.0  million  in  2001.

Net  cash used in financing activities was $1.1 million in 2002, compared to net
cash  of $383,000 provided by financing activities in 2001. The net cash used in
2002 was primarily due to a $740,000 reduction in bank overdrafts, which are due
to  outstanding  checks not yet presented for payment, $335,000 of capital lease
payments,  and  $129,000  of  debt  payments.


<PAGE>
RECENT  ACCOUNTING  PRONOUNCEMENTS

See Note 2 to the accompanying condensed consolidated financial statements for a
discussion  of  recently  adopted  accounting  principles  and  recently  issued
accounting  pronouncements.

IMPACT  OF  INFLATION

The Company's operations are potentially impacted by inflation, which can affect
premium  rates,  health  care  services  expense,  and  selling,  general  and
administrative  expenses.  The  Company  expects  that  its  earnings  will  be
positively  impacted  by  inflation  in premium rates, because premium rates for
dental  benefit plans in general have been increasing due to inflation in recent
years.  The  Company  expects  that  its earnings will be negatively impacted by
inflation  in  health  care  costs,  because  fees charged by dentists and other
dental  providers  have  been  increasing  due to inflation in recent years. The
impact  of  inflation  on the Company's health care expenses is mitigated in the
short-term  by  the  fact  that  approximately 30% of total health care services
expense  consists of capitation (fixed) payments to providers. In addition, most
of  the  Company's  selling, general and administrative expenses are impacted by
general  inflation  in  the  economy.

ITEM  3.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  Company is subject to risk related to changes in short-term interest rates,
due  to its investments in interest-bearing securities. As of June 30, 2002, the
Company's  total  investments were approximately $15.5 million. Therefore, a one
percentage-point  change  in  short-term  interest  rates  would have a $155,000
impact  on the Company's annual investment income. The Company is not subject to
a material amount of risk related to changes in foreign currency exchange rates.

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

The  Annual  Meeting of the Stockholders of the Company (the "Meeting") was held
at  the executive offices of the Company in Aliso Viejo, California on Thursday,
May 30, 2002, at 4:00 p.m.  The following matters were addressed at the Meeting:

ELECTION  OF  DIRECTORS

It  was  proposed  that Jack R. Anderson, Steven J. Baileys, Stephen J. Blewitt,
Ronald  I. Brendzel, James E. Buncher, Leslie B. Daniels, and Dennis L. Gates be
elected  to  serve  as  Directors of the Company until the Company's next annual
meeting  of  stockholders.  Dr.  Baileys  and  Mr.  Brendzel  both  received  an
affirmative  vote  of  4,683,954  shares  of  Common  Stock present in person or
represented  by  proxy  at  the Meeting out of 4,820,832 shares, or 97.2% of the
shares  of  Common  Stock  entitled  to  vote  at the Meeting; Messrs. Anderson,
Buncher,  Daniels and Gates all received an affirmative vote of 80,000 shares of
Series  A  Preferred  Stock  present  in  person  or represented by proxy at the
Meeting  out  of 80,000 shares, or 100% of the Series A Preferred Stock entitled
to  vote at the Meeting; and Mr. Blewitt received an affirmative vote of 220,000
shares  of Series B, C and D Preferred Stock present in person or represented by
proxy  at  the  Meeting  out of 220,000 shares, or 100% of the Series B, C and D
Preferred  Stock  entitled  to  vote  at  the  Meeting,  and  therefore all such
individuals were elected to serve until the Corporation's next annual meeting of
stockholders.

PROPOSAL  TO  INCREASE  THE  AUTHORIZED  NUMBER  OF  SHARES  OF COMMON STOCK AND
PREFERRED  STOCK

It  was  proposed  that  there  be  an  amendment  to the Corporation's Restated
Certificate  of  Incorporation  to  increase  the number of authorized shares of
Common  Stock  from  40  million  to  42.5 million and to increase the number of
authorized  shares  of Preferred Stock from 1 million to 31 million.  The motion
received  an  affirmative  vote  of  4,654,785 shares of Common Stock present in
person  or represented by proxy at the Meeting out of 4,820,832 shares, or 96.6%
of  the  shares  of Common Stock entitled to vote at the Meeting; an affirmative


<PAGE>
vote  of  80,000  shares  of  Series  A  Preferred  Stock  present  in person or
represented  by proxy at the Meeting out of 80,000 shares, or 100% of the Series
A  Preferred  Stock  entitled to vote at the Meeting; and an affirmative vote of
220,000  shares  of  Series  B,  C  and  D  Preferred Stock present in person or
represented by proxy at the Meeting out of 220,000 shares, or 100% of the Series
B,  C  and  D Preferred Stock entitled to vote at the Meeting, and was therefore
approved.

PROPOSAL  TO  AMEND  THE  COMPANY'S  STOCK  OPTION  PLAN

It  was  proposed that there be an amendment to the Corporation's Employee Stock
Option  Plan (the "Plan") to increase the number of shares of Common Stock under
the  Plan  from  3  million  to  3.6  million  shares.  The  motion  received an
affirmative  vote  of  4,655,485  shares  of  Common  Stock present in person or
represented  by  proxy  at  the Meeting out of 4,820,832 shares, or 96.6% of the
shares  of  the  Corporation's  Common Stock entitled to vote at the Meeting; an
affirmative  vote of 80,000 shares of Series A Preferred Stock present in person
or  represented  by  proxy  at  the Meeting out of 80,000 shares, or 100% of the
Series  A  Preferred  Stock  entitled to vote at the Meeting; and an affirmative
vote of 220,000 shares of Series B, C and D Preferred Stock present in person or
represented by proxy at the Meeting out of 220,000 shares, or 100% of the Series
B,  C  and  D Preferred Stock entitled to vote at the Meeting, and was therefore
approved.

PART  II.     OTHER  INFORMATION

ITEM  1.     LEGAL  PROCEEDINGS

The  Company  is  subject  to  various  claims  and legal actions arising in the
ordinary  course of business. The Company believes all pending claims either are
covered  by  liability insurance maintained by the Company or by dentists in the
Company's  provider  network,  or will not have a material adverse effect on the
Company's  consolidated  financial  position  or  results  of  operations.

In  December  1999,  a  stockholder lawsuit against the Company was filed, which
alleged that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  On  September  12, 2000, after the plaintiffs had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company  and its officers. On October 6, 2000, the plaintiffs filed an appeal of
the  dismissal  of the lawsuit, and the dismissal was overturned on February 22,
2002.  The  case  was  remanded  back to the District Court with instructions to
allow  the  plaintiff  to  file  a  second  amended complaint. Subsequently, the
Company  reached an agreement to settle the stockholder lawsuit for a payment of
$1.25 million to the plaintiffs, without an admission of liability by any party.
The  Company's  insurer  has agreed to reimburse the Company $1.0 million of the
cost  of  the  settlement.  Accordingly, the Company recorded a $250,000 expense
during  the  three  months  ended  June  30, 2002, which is included in selling,
general  and  administrative expenses in the accompanying condensed consolidated
statement  of  operations. The settlement is subject to District Court approval,
completion  of  final  documentation, and to certain other customary conditions,
including  the right of individual class members to opt out. The Company expects
that  a  hearing  to  evaluate  approval  of  the settlement will be held by the
District  Court  during  the  fourth  quarter  of  2002  and  believes  that the
settlement  will  be  approved  at  that  time.

ITEM  6.     EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)  EXHIBITS

         EXHIBIT                DESCRIPTION
       -----------     ---------------------------------------------------------

          99.1         Certification of Chief Executive Officer and Chief
                       Financial Officer Pursuant to 18 U.S.C. Section 1350.

(b)  REPORTS ON FORM 8-K.

The  Company  filed  a Report on Form 8-K dated as of April 24, 2002, announcing
that  the Company had entered into a Stock Purchase Agreement to purchase all of
the  outstanding  capital  stock  of  Paramount Dental Plan, Inc. for a purchase
price  of  approximately  $6.6  million,  consisting  of $3.0 million in cash, a
convertible  note  for  $2,625,000,  and  767,231 shares of the Company's common
stock. The transaction is currently pending regulatory approval, and the Company
expects  that it will complete the transaction during the third quarter of 2002.
See  Note 10 to the accompanying condensed consolidated financial statements for
more  information  on  this  pending  transaction.


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                                  SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the  Registrant  has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized, in the City of Aliso
Viejo,  State  of  California,  on  the  13th  day  of  August  2002.

                 SAFEGUARD  HEALTH  ENTERPRISES,  INC.


                    By:  /s/ James E. Buncher
                        -------------------------------------
                        James  E.  Buncher
                        President  and  Chief  Executive  Officer
                        (Principal  Executive  Officer)


                    By:  /s/ Dennis L. Gates
                        -------------------------------------
                        Dennis  L.  Gates
                        Senior Vice President and Chief Financial Officer
                        (Chief  Accounting  Officer)


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