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, 2003

                                       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
           of incorporation)                       Identification  No.)

                            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,  2003, the number of shares of registrant's common stock, par
value $0.01 per share, outstanding was 5,719,117 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, 2003

                                                                            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. . . . . . . . . . . . . . . . . .  14

     Item 3. Quantitative  and  Qualitative  Disclosures About Market Risk.  23

     Item 4. Controls  and  Procedures . . . . . . . . . . . . . . . . . . . 24

PART  II.  OTHER  INFORMATION

     Item 1. Legal  Proceedings . . . . . . . . . . . . . . . . . . . . . .  24

     Item 6. Exhibits  and  Reports  on  Form  8-K. . . . . . . . . . . . .  24

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26

CERTIFICATIONS BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER . . .  27


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

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

                                                                            JUNE 30,    DECEMBER 31,
                                                                              2003          2002
                                                                           ----------  --------------
<S>                                                                        <C>         <C>

ASSETS
Current assets:
  Cash and cash equivalents                                                $   3,813   $       3,036
  Investments available-for-sale, at fair value                                9,469           9,668
  Accounts receivable, net of allowances                                       1,787           2,554
  Other current assets                                                           547             853
                                                                           ----------  --------------
    Total current assets                                                      15,616          16,111

Property and equipment, net of accumulated depreciation and amortization       3,654           3,532
Restricted investments available-for-sale, at fair value                       3,153           3,254
Notes receivable, net of allowances                                              437             457
Goodwill                                                                       8,699           8,590
Intangible assets, net of accumulated amortization                             2,419           2,013
Other assets                                                                     172             157
                                                                           ----------  --------------

    Total assets                                                           $  34,150   $      34,114
                                                                           ==========  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                         $     826   $       1,661
  Accrued expenses                                                             3,579           3,526
  Current portion of long-term debt and capital lease obligations              1,268           2,430
  Claims payable and claims incurred but not reported                          4,945           4,690
  Deferred premium revenue                                                     2,216           1,786
                                                                           ----------  --------------
    Total current liabilities                                                 12,834          14,093

Long-term debt and capital lease obligations                                   3,289           2,997
Other long-term liabilities                                                      959           1,013
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                                 22,717          22,662
  Retained earnings (accumulated deficit)                                    (29,176)        (30,170)
  Accumulated other comprehensive income                                         103              95
  Treasury stock, at cost                                                    (17,826)        (17,826)
                                                                           ----------  --------------
    Total stockholders' equity                                                17,068          16,011
                                                                           ----------  --------------

Total liabilities and stockholders' equity                                 $  34,150   $      34,114
                                                                           ==========  ==============
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.


                                        1
<PAGE>
<TABLE>
<CAPTION>
              SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    THREE MONTHS ENDED JUNE 30, 2003 AND 2002
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


                                               2003      2002
                                             --------  --------
<S>                                          <C>       <C>
Premium revenue, net                         $23,129   $20,174

Health care services expense                  15,947    14,676
Selling, general and administrative expense    6,565     5,777
                                             --------  --------

Operating income                                 617      (279)

Investment and other income                       79       103
Interest expense                                 (86)      (24)
                                             --------  --------

Income before income taxes                       610      (200)
Income tax expense                                60        --
                                             --------  --------

    Net income                               $   550   $  (200)
                                             ========  ========

Basic net income per share                   $  0.02   $ (0.01)
Weighted-average basic shares outstanding     35,711    34,857

Diluted net income per share                 $  0.02   $ (0.01)
Weighted-average diluted shares outstanding   36,366    34,857
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.


                                        2
<PAGE>
<TABLE>
<CAPTION>
            SAFEGUARD  HEALTH  ENTERPRISES,  INC.  AND  SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     SIX MONTHS ENDED JUNE 30, 2003 AND 2002
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


                                               2003      2002
                                             --------  --------
<S>                                          <C>       <C>
Premium revenue, net                         $45,041   $40,862

Health care services expense                  31,040    29,226
Selling, general and administrative expense   12,919    11,616
                                             --------  --------

Operating income                               1,082        20

Investment and other income                      158       219
Interest expense                                (186)      (31)
                                             --------  --------

Income before income taxes                     1,054       208
Income tax expense                                60        --
                                             --------  --------

    Net income                               $   994   $   208
                                             ========  ========

Basic net income per share                   $  0.03   $  0.01
Weighted-average basic shares outstanding     35,702    34,835

Diluted net income per share                 $  0.03   $  0.01
Weighted-average diluted shares outstanding   36,191    35,481
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.


                                        3
<PAGE>
<TABLE>
<CAPTION>
                         SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               SIX MONTHS ENDED JUNE 30, 2003 AND 2002
                                           (IN THOUSANDS)
                                             (UNAUDITED)

                                                                                    2003      2002
                                                                                  --------  --------
<S>                                                                               <C>       <C>
Cash flows from operating activities:
  Net income                                                                      $   994   $   208
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Bad debt expense                                                                   78        98
    Depreciation and amortization                                                     879       610
    Contribution to retirement plan in the form of common stock, at fair value         61        63
  Changes in operating assets and liabilities, excluding effects of acquisition:
    Accounts receivable                                                               754       330
    Other current assets                                                              429       (32)
    Other assets                                                                      (15)      (57)
    Accounts payable                                                                  (97)      (56)
    Accrued expenses                                                                 (179)     (752)
    Claims payable and claims incurred but not reported                               223    (1,181)
    Deferred premium revenue                                                          172       518
                                                                                  --------  --------
      Net cash provided by (used in) operating activities                           3,299      (251)

Cash flows from investing activities:
  Purchase of investments available-for-sale                                       (1,826)     (758)
  Proceeds from sale/maturity of investments available-for-sale                     2,599     2,063
  Purchases of property and equipment                                                (402)     (237)
  Cash paid for acquisition of business, net of cash acquired                        (887)       --
  Payments received on notes receivable                                                20        --
                                                                                  --------  --------
      Net cash (used in) provided by investing activities                            (496)    1,068

Cash flows from financing activities:
  Decrease in bank overdrafts                                                        (780)     (740)
  Payments on debt and capital lease obligations                                   (1,192)     (464)
  Exercise of stock options                                                            --        49
  Increase (decrease) in other long-term liabilities                                  (54)       40
                                                                                  --------  --------
      Net cash used in financing activities                                        (2,026)   (1,115)
                                                                                  --------  --------
Net increase (decrease) in cash and cash equivalents                                  777      (298)
Cash and cash equivalents at beginning of period                                    3,036     1,497
                                                                                  --------  --------
Cash and cash equivalents at end of period                                        $ 3,813   $ 1,199
                                                                                  ========  ========

Supplementary information:
  Cash paid during the period for interest                                        $   191   $    27

Supplementary disclosure of non-cash activities:
  Purchases of property and equipment through capital leases                      $   335   $ 1,784
  Liabilities assumed in acquisition of business:
    Fair value of identifiable assets acquired                                    $ 1,336   $    --
    Goodwill related to transaction                                                   109        --
    Less - Cash paid in transaction, net of cash acquired                            (887)       --
    Less - Liability for contingent purchase price                                   (226)       --
                                                                                  --------  --------
      Liabilities assumed in acquisition of business                              $   332   $    --
                                                                                  ========  ========
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.


                                        4
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2003
                                   (UNAUDITED)

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

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
SafeGuard  Health  Enterprises, Inc. and subsidiaries (the "Company") as of June
30,  2003, and for the three months and six months ended June 30, 2003 and 2002,
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
condensed  consolidated  financial statements should be read in conjunction with
the  Company's  Annual Report on Form 10-K for the year ended December 31, 2002,
which includes the Company's Consolidated Financial Statements and Notes thereto
for  that  period.

NOTE 2.  SIGNIFICANT  ACCOUNTING  POLICIES  ANDRECENTLY  ADOPTED  ACCOUNTING
----------------------------------------------------------------------------
PRINCIPLES
----------

GOODWILL

The  Company's  accounting  for  goodwill  is  in  accordance  with Statement of
Financial  Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets,"  which  the  Company adopted as of January 1, 2002. Goodwill as of June
30,  2003  consists  of  $4.7  million of goodwill related to the acquisition of
Paramount  Dental  Plan,  Inc.  ("Paramount")  in  August  2002, $3.9 million of
goodwill  related  to  the  acquisition  of First American Dental Benefits, Inc.
("First  American")  in  1996,  and  $0.1  million  of  goodwill  related to the
acquisition  of  Ameritas  Managed Dental Plan, Inc. ("Ameritas") in March 2003.
See  Note  3 for more information on the Paramount and Ameritas acquisitions. In
the  case  of  each  acquisition, goodwill represents the excess of the purchase
price of the acquired company over the fair value of the net assets acquired. In
the  case of the First American acquisition, the balance is net of an adjustment
in 1999 to reduce the carrying value of the goodwill to its estimated realizable
value.  The  Company  has not yet completed its identification of the intangible
assets  that  were acquired in the Ameritas acquisition, or its determination of
the  fair  values  of those intangible assets. The amount of goodwill related to
the  Ameritas  acquisition  reflects  the  Company's preliminary estimate of the
aggregate  fair  value  of  the  intangible  assets  acquired, pending its final
determination.

SFAS  No.  142 requires that goodwill be evaluated for possible impairment on an
annual  basis  and  any time an event occurs that may have affected the value of
the  goodwill.  The  Company  has  established October 1 as the date on which it
conducts  its  annual  evaluation  of  goodwill  for  possible  impairment.  In
accordance  with  SFAS  No.  142,  the  Company tested its goodwill for possible
impairment  by  estimating  the  fair  value of each of its reporting units that
include  goodwill,  and  comparing  the fair value of each reporting unit to the
book  value  of  the  net  assets of each reporting unit. The fair value of each
reporting unit was determined primarily by estimating the discounted future cash
flows  of  the  reporting  unit,  and  by  estimating  the  amount for which the
reporting  unit  could  be  sold to a third party, based on a market multiple of
earnings.  The  Company had no impairment of its goodwill as of October 1, 2002,
based  on  the method of testing for possible impairment established by SFAS No.
142.  The  estimates  to  which  the  results of the Company's test are the most
sensitive  are  the amount of shared administrative expenses that are charged to
each  reporting  unit,  and  the  market  multiple  of  earnings that is used to
estimate  the  fair  value  of  each  reporting  unit.  The Company believes the
estimates  used  in  its  test are reasonable and appropriate, but a significant
change  in  either  of  these  estimates  could  result  in the indication of an
impairment  of  goodwill.  The  Company  is  not  aware  of any events that have
occurred  since  October  1,  2002,  that  represent an indication of a possible
impairment.


                                        5
<PAGE>
Changes  in the carrying amount of goodwill during the six months ended June 30,
2003  were  as  follows  (in  thousands):

     Balance  at  December  31,  2002                       $     8,590
     Goodwill  acquired  (see  Note  3)                             109
                                                            -----------
       Balance  at  June  30,  2003                         $     8,699
                                                            ===========

INTANGIBLE  ASSETS

Intangible  assets  as  of  June  30, 2003 consist of customer relationships and
other intangible assets with an aggregate net book value of $2.4 million, all of
which  were  acquired in connection with the acquisitions of Paramount in August
2002  and  Ameritas  in  March  2003,  as discussed in Note 3. The amount of the
purchase  price that was allocated to each of the intangible assets was equal to
the Company's estimate of the fair value of each asset. Each intangible asset is
being  amortized  over  its  estimated  useful  life  on  a straight-line basis.

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, the recent trend
in  payment rates, and the recent trend in 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.

RECOGNITION  OF  PREMIUM  REVENUE

Premium  revenue  is  recognized  in  the  period during which dental and vision
coverage  is  provided  to  the  covered  individuals.  Payments  received  from
customers  in  advance  of  the  related period of coverage are reflected on the
accompanying  condensed  consolidated balance sheet as deferred premium revenue.

STOCK-BASED  COMPENSATION

SFAS  No.  123,  "Accounting for Stock-Based Compensation," provides a choice of
two different methods of accounting for stock options granted to employees. SFAS
No.  123  encourages,  but  does not require, entities to recognize compensation
expense  equal  to  the fair value of employee stock options granted. Under this
method  of accounting, the fair value of a stock option is measured at the grant
date,  and  compensation  expense is recognized over the period during which the
stock option becomes exercisable. Alternatively, an entity may choose to use the
accounting  method  described in Accounting Principles Board Opinion ("APB") No.
25,  "Accounting  for  Stock  Issued  to  Employees."  Under  APB  No.  25,  no
compensation  expense  is  generally recognized as long as the exercise price of
each  stock option is at least equal to the market price of the underlying stock
at  the  time  of  the  grant. If an entity chooses to use the accounting method
described  in  APB  No.  25,  SFAS No. 123 requires that the pro forma effect of
using  the  fair  value method of accounting on its net income be disclosed in a
note  to  the  financial  statements.

The Company has chosen to use the accounting method described in APB No. 25. All
stock  options granted by the Company have an exercise price equal to the market
value  of the Company's common stock on the date of grant and accordingly, there
is  no  employee  compensation expense related to stock options reflected in the
accompanying  condensed  consolidated  statements  of operations.  Stock options
granted  generally  become  exercisable  in  equal  annual  installments  over a
three-year  period  after  the  date  of  grant.


                                        6
<PAGE>
The following table shows the pro forma effect of using the fair value method of
accounting for stock options, as described by SFAS No. 123, on the Company's net
income  and  net  income  per  share  (in  thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                             SIX MONTHS ENDED
                                                                                  JUNE 30,
                                                                          ----------------------
                                                                             2003        2002
                                                                          ----------  ----------
<S>                                                                       <C>         <C>
  Net income, as reported                                                 $     994   $     208
  Less - Employee compensation expense based on the fair value
    method of accounting for stock options, net of applicable tax effect       (299)       (428)
                                                                          ----------  ----------

  Pro forma net income                                                    $     695   $    (220)
                                                                          ==========  ==========

  Basic net income per share, as reported                                 $    0.03   $    0.01
  Pro forma basic net income per share                                         0.02       (0.01)

  Diluted net income per share, as reported                               $    0.03   $    0.01
  Pro forma diluted net income per share                                       0.02       (0.01)
</TABLE>

SFAS  No.  123  requires  a publicly traded entity to estimate the fair value of
stock-based  compensation  by  using  an  option-pricing  model  that takes into
account  certain  facts  and assumptions. The facts and assumptions that must be
taken  into account are the exercise price, the expected life of the option, the
current  stock  price,  the expected volatility of the stock price, the expected
dividends  on  the  stock,  and  the risk-free interest rate. The option-pricing
models  commonly  used  were  developed  to  estimate  the  fair value of freely
tradable,  fully  transferable  options  without  vesting  restrictions,  which
significantly  differ from the stock options granted by the Company. The Company
estimates  the  fair  value  of  stock  options  by  using  the  Black-Scholes
option-pricing  model.

NET  INCOME  PER  SHARE

Net income per share is presented in accordance with SFAS No. 128, "Earnings Per
Share."  Basic  net  income  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  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, 2003 and 2002, the potentially
dilutive  securities  outstanding  consisted  of  stock  options and convertible
notes. Diluted net income per share includes the effect of all outstanding stock
options  with  an exercise price below the average market price of the Company's
common  stock  during  each  applicable  period.  The  Company  issued  two  (2)
convertible notes during the three months ended September 30, 2002, as discussed
in Note 5. Each of these convertible notes would have an anti-dilutive effect on
net  income  per  share for the three months and six months ended June 30, 2003.
Accordingly,  the convertible notes are excluded from the calculation of diluted
net  income  per  share  for  these  periods.  As  of  June  30, 2003, these two
convertible  notes  were  convertible  into  an aggregate of 2,201,000 shares of
common  stock. 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.


                                        7
<PAGE>
The  differences  between  weighted-average  basic  shares  outstanding  and
weighted-average  diluted  shares  outstanding  are  as  follows (in thousands):

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED    SIX MONTHS ENDED
                                                      JUNE 30,             JUNE 30,
                                               --------------------  ------------------
                                                  2003       2002      2003      2002
                                               ----------  --------  --------  --------
<S>                                            <C>         <C>       <C>       <C>
Weighted-average basic shares outstanding          35,711    34,857    35,702    34,835
Effect of dilutive stock options                      655        --       489       646
                                               ----------  --------  --------  --------

  Weighted-average diluted shares outstanding      36,366    34,857    36,191    35,481
                                               ==========  ========  ========  ========
</TABLE>


RECENTLY  ADOPTED  ACCOUNTING  PRINCIPLES

In  April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement Nos.
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 any related income tax effect. As a result, the
criteria in APB No. 30 are now used to classify those gains and losses. SFAS No.
44  has  been  rescinded, as it is no longer necessary. SFAS No. 64 amended SFAS
No. 4 and is no longer necessary, as SFAS No. 4 has been rescinded. SFAS No. 145
amends  SFAS  No.  13  to  require  that  certain  lease modifications that have
economic effects similar to sale-leaseback transactions must be accounted for in
the  same  manner  as  sale-leaseback transactions, and to require that the fair
value of a lease guarantee be recorded as a liability on the guarantor's balance
sheet  for  all  guarantees issued after May 15, 2002. 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.  SFAS  No.  145  is  generally  effective  for  financial
statements  issued  after  May  15,  2002.  The  adoption of SFAS No. 145 had no
significant  effect  on  the  Company's  consolidated  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. The adoption of SFAS No.
146  had  no  significant  effect  on  the  Company's  consolidated  financial
statements.

In  November  2002,  the  FASB  issued  FASB  Interpretation  No.  ("FIN")  45,
"Guarantor's  Accounting  and  Disclosure Requirements for Guarantees, Including
Indirect  Guarantees  of Indebtedness of Others." FIN 45 is an interpretation of
FASB  Statement Nos. 5, 57, and 107, and a rescission of FIN No. 34, "Disclosure
of  Indirect  Guarantees  of  Indebtedness  of  Others."  FIN 45 requires that a
guarantor  recognize  a  liability  for  the  fair  value  of  certain  types of
guarantees,  at the time the guarantee is initially made.  It also elaborates on
the  financial  statement  disclosures  to  be  made  by  a  guarantor about its
obligations  under  certain  types  of  guarantees.  The initial recognition and
measurement  provisions  of  this interpretation are applicable on a prospective
basis  to  guarantees issued or modified after December 31, 2002. The disclosure
requirements  are  effective  for  financial statements for periods ending after
December  15,  2002.  The  adoption  of  FIN 45 had no significant effect on the
Company's  consolidated  financial  statements.

In  December  2002,  the  FASB  issued SFAS No. 148, "Accounting for Stock-Based
Compensation  -  Transition  and  Disclosure," which is an amendment of SFAS No.
123.  SFAS  No.  148  provides alternative methods of transition for a voluntary
change  to  the  fair  value based method of accounting for stock-based employee
compensation.  It also requires prominent disclosures in both annual and interim
financial  statements  about  the  method of accounting for stock-based employee
compensation  and  the  effect of the method used on reported results.  SFAS No.
148  is  effective for fiscal years ending after December 15, 2002. The adoption


                                        8
<PAGE>
of  SFAS  No.  148  had  no  significant  effect  on  the Company's consolidated
financial  statements.

In  January  2003,  the  FASB issued FIN 46, "Consolidation of Variable Interest
Entities,"  an  interpretation  of  Accounting Research Bulletin No. 51.  FIN 46
requires  that  variable  interest  entities  be  consolidated  by the investing
company if the investing company is obligated to absorb a majority of the losses
incurred  by  the variable interest entity, or is entitled to receive a majority
of  the profits earned by the entity, or both.  FIN 46 also requires disclosures
about  significant  variable  interests in entities that don't meet the criteria
for  consolidation.  The  consolidation requirements of FIN 46 are effective for
all periods with respect to variable interest entities created after January 31,
2003.  The consolidation requirements with respect to variable interest entities
created prior to February 1, 2003 are effective for periods beginning after June
15,  2003.  The  disclosure  requirements  are  effective  for  all  financial
statements  issued after January 31, 2003.  The Company had no variable interest
entities  as  of  June  30,  2003, and the adoption of FIN 46 had no significant
effect  on  its  consolidated  financial  statements.

In  May  2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments
with  Characteristics  of  Both  Liabilities  and  Equity",  which  establishes
standards  for  how  an  issuer  classifies  and  measures  certain  financial
instruments  with  characteristics  of both liabilities and equity. SFAS No. 150
requires  that  an  issuer  classify  a  financial instrument that is within its
scope,  which may have previously been reported as equity, as a liability (or an
asset  in  some  circumstances).  This  statement  is  effective  for  financial
instruments  entered  into  or  modified  after  May  31, 2003, and otherwise is
effective  at the beginning of the first interim period beginning after June 15,
2003. We believe the adoption of SFAS No. 150 will not have a material effect on
our  consolidated  financial  position  or  results  of  operations.

NOTE  3.  ACQUISITIONS
----------------------

Effective  August  30, 2002, the Company acquired all of the outstanding capital
stock  of  Paramount  Dental  Plan,  Inc. ("Paramount") for an aggregate cost of
approximately  $6.8  million,  including  acquisition  expenses. Paramount was a
dental  benefits  company  located  in Florida and was merged into the Company's
Florida dental HMO subsidiary effective August 30, 2002. The business purpose of
the  acquisition  was  to  increase the Company's market penetration in Florida,
which  is  one  of  the  Company's  primary  geographic markets. The acquisition
increased the number of members in Florida for which the Company provides dental
benefits  from  approximately  50,000  members to approximately 275,000 members.

The operations of Paramount are included in the Company's consolidated financial
statements  beginning  on  September  1,  2002.  Following  is certain pro forma
statement of operations information, which reflects adjustments to the Company's
historical  financial  statements  for the six months ended June 30, 2002, as if
the  acquisition  had  been  completed  as  of  the beginning of that period (in
thousands):

  Premium  revenue,  net                                   $     44,708
  Operating  income                                                 216
  Net  income                                                       119

  Basic  net  income  per  share                           $       0.00
  Diluted  net  income  per  share                                 0.00

The  above  pro  forma  statement  of  operations information is not intended to
indicate  the  results  that would have occurred if the acquisition had actually
been  completed  on  the  date  indicated,  or the results that may occur in any
future  period.

Effective  March  31,  2003, the Company acquired all of the outstanding capital
stock of Ameritas Managed Dental Plan, Inc. ("Ameritas") for a purchase price of
$1.1  million  in  cash,  plus contingent monthly payments during the five years
following  the acquisition date. Each contingent monthly payment is equal to 10%
of  the  actual premium revenue during the month from customers of Ameritas that
existed  as  of  March  31, 2003. As of June 30, 2003, the Company has accrued a
total of $255,000 of contingent purchase price, which has been added to the cost
of  the  acquisition  for accounting purposes. This amount represents contingent
monthly  payments  related  to the period from the acquisition date through June
30,  2003,  plus  the  estimated  contingent  monthly  payments  related  to the
remaining  portion  of annual customer contracts that are in force as of July 1,
2003.  The  Company  intends  to  accrue  additional  portions of the contingent
purchase  price  in  the future, if and when the payment of such amounts becomes
probable,  based  on  the  renewal  of existing customer contracts. Ameritas had
premium  revenue  of  $3.7  million during the year ended December 31, 2002, and
accordingly,  the  maximum  aggregate  amount of the contingent monthly payments
over  the  five-year  period would be approximately $1.8 million, if the Company
retained  all  of  the  existing  customers of Ameritas for five years after the
acquisition  date  at  the  premium  rates  in  effect  during  2002.

Ameritas was a dental benefits company located in California and was merged into
the  Company's  California  dental  HMO subsidiary effective March 31, 2003. The
business  purpose  of  the  acquisition  was  to  increase  the Company's market


                                        9
<PAGE>
penetration  in  California,  which  is  one of the Company's primary geographic
markets. The acquisition increased the number of members in California for which
the  Company  provides  dental  benefits  from  approximately 300,000 members to
approximately  330,000  members.

The  aggregate  purchase  price  recorded  by  the  Company as of June 30, 2003,
including  the  amount paid at closing, the contingent purchase price accrued as
of  June  30,  2003,  and  certain  acquisition  expenses, is approximately $1.4
million. The cost of the acquisition was allocated among the net assets acquired
as  follows  (in  thousands):

  Fair  value  of  net  assets  acquired:
    Cash  and  cash  equivalents                                     $     276
    Investments                                                            465
    Intangible  assets                                                     675
    Goodwill                                                               109
    Other  assets                                                          196
    Accounts payable and claims payable and claims
      incurred but not reported                                           (74)
    Deferred  premium  revenue                                           (258)
                                                                     ---------
      Total  cost  of  acquisition                                   $   1,389
                                                                     =========

The  Company  has  not yet completed its identification of the intangible assets
that were acquired in the Ameritas acquisition, or its determination of the fair
values  and  amortization  periods  of those intangible assets. The accompanying
condensed  consolidated  financial  statements reflect the Company's preliminary
estimate  of the aggregate fair value of the intangible assets acquired, and the
amortization  periods  of  those  assets,  pending  its final determination. The
operations  of  Ameritas  are  included  in the Company's consolidated financial
statements  beginning  on  April  1,  2003.

NOTE  4.  PENDING  ACQUISITIONS
-------------------------------

On  April  7,  2003, the Company entered into a definitive agreement to purchase
all  of  the outstanding capital stock of Health Net Dental, Inc. ("HN Dental"),
which  is  a  California  dental  HMO, and certain PPO/indemnity dental business
underwritten  by  Health  Net  Life  Insurance  Company ("HN Life"), which is an
affiliate  of  HN  Dental, subject to regulatory approval. The purchase price is
$9.0  million  in  cash and an agreement to provide private label dental HMO and
PPO/indemnity  products  to be sold in the marketplace by subsidiaries of Health
Net,  Inc., the parent company of HN Dental, for a period of at least five years
following  the  closing  of  the transaction, subject to certain conditions. The
transaction  is  currently  pending  regulatory  approval.

On  June  30,  2003, the Company entered into a definitive agreement to purchase
all  of  the outstanding capital stock of Health Net Vision, Inc. ("HN Vision"),
which  is  a  California  vision  HMO and an affiliate of HN Dental, and certain
PPO/indemnity vision business underwritten by HN Life, for $3.0 million in cash,
subject  to  regulatory  approval.  A  substantial portion of the business of HN
Vision,  which  consists  of products provided to MediCal beneficiaries, will be
transferred  to  a  third party prior to the Company's acquisition of HN Vision,
and  the  remainder  of  the  business  of HN Vision, which consists of products
provided  to  commercial  customers,  will  be  transferred  to the Company. The
transaction  is  currently  pending  regulatory  approval.

The  Company  plans  to finance the two transactions described above through the
issuance  of up to approximately $18 million of unsecured convertible promissory
notes  to  certain  of  its  principal  stockholders.  The  proceeds  from  the
convertible notes will be used to finance the two pending transactions described
above,  to  satisfy  the  increase  in  the  Company's  regulatory  net  worth
requirements  related  to  the  PPO/indemnity  dental  and vision business to be
acquired, and to provide working capital that may be required in connection with
the  integration  of  the  acquired  businesses  into  the  Company's  existing
operations.

The  Company  has  reached  an  oral agreement with the stockholders referred to
above,  regarding  the  expected  amount  and terms of the convertible notes. In
accordance with this agreement, the convertible notes will bear interest at 6.0%
annually, and will be convertible into the Company's common stock at the rate of
$1.75  per  share,  at  the  option  of  the  holder. There will be no principal
payments  due  under  the  convertible  notes  during  the first six years after
issuance,  principal  payments  will  be  due  during  the succeeding four years
pursuant  to a ten-year amortization schedule, and the remaining balance will be
payable in full ten years after the date of issuance. The convertible notes will
be  payable  in  full  upon  a change in control of the Company, at the holder's
option.  Provided  that  the  Company redeems all of the outstanding convertible


                                       10
<PAGE>
notes  at  the  same  time, it will have the option of redeeming the convertible
notes for 229% of the face value of the notes during the first seven years after
the  date  of  issuance, for 257% of the face value during the eighth year after
issuance,  for  286% of the face value during the ninth year after issuance, and
for 323% of the face value during the tenth year after issuance. The issuance of
the  convertible notes is currently pending negotiation of definitive agreements
and  the  completion  of  the  acquisitions  described  above.

NOTE  5.  LONG-TERM  DEBT  AND  CAPITAL  LEASE  OBLIGATIONS
-----------------------------------------------------------

Long-term  debt  and  capital  lease  obligations consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                   JUNE 30,    DECEMBER 31,
                                                     2003          2002
                                                  ----------  --------------
<S>                                               <C>         <C>
  Secured convertible promissory note             $   2,038   $       2,427
  Unsecured convertible promissory note               1,539           1,798
  Capital lease obligations                             980           1,202
                                                  ----------  --------------
    Total debt and capital lease obligations          4,557           5,427
  Less - Current portion                             (1,268)         (2,430)
                                                  ----------  --------------
    Long-term debt and capital lease obligations  $   3,289   $       2,997
                                                  ==========  ==============
</TABLE>

Effective  in  August  2002, the Company issued a secured convertible promissory
note  for  $2,625,000  in connection with the acquisition of Paramount, which is
discussed  in  Note  3.  The  note  bears  interest  at  7.0%  annually, and was
originally  payable  in  equal  monthly  installments  of principal and interest
through  September  2005.  The  terms of the note were amended during the second
quarter  of  2003, and the outstanding balance is now payable in varying monthly
installments  of  principal and interest through September 2008. The outstanding
balance  under  the secured convertible note is convertible into common stock of
the  Company at a conversion price of $1.625 per share, at any time after August
30,  2003. The convertible note is secured by the stock of the Company's Florida
dental  HMO  subsidiary.

In  August  2002,  the  Company  borrowed $2.0 million from one of its principal
stockholders  under  an  unsecured  convertible  promissory note. The note bears
interest  at  7.0%  annually,  and  was  originally  payable  in  equal  monthly
installments  of  principal  and  interest through August 2005. The terms of the
note were amended during the second quarter of 2003, and the outstanding balance
is  now  payable in monthly installments of interest only through May 2006, then
in  monthly installments of principal and interest from June 2006 through August
2008.  The  outstanding  balance  under  the  unsecured  convertible  note  is
convertible into common stock of the Company at a conversion price of $1.625 per
share.

The  outstanding capital lease obligations are primarily related to the purchase
of  a  new  telephone  system for the Company's primary administrative office in
June  2003, the purchase of an updated version of the Company's primary computer
software application in June 2002, and the purchase of formerly leased furniture
for  the  Company's  primary  administrative  office  in  June 2002. 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. 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  cost  of both of the Company's two existing systems is fully depreciated as
of  June  30, 2003.  Under each of the capital leases, the Company has an option
to  purchase  the  leased  assets  for  $1.00  at  the  expiration of the lease.

See  Note 4 for a description of unsecured convertible promissory notes that the
Company  intends  to  issue  in  connection  with  two  pending  acquisitions.

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


                                       11
<PAGE>
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.  All  references  to the convertible preferred stock in the
accompanying  condensed consolidated financial statements reflect the effects of
this  exchange  on  a  retroactive  basis.

NOTE  7.  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  assets  and  liabilities 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 assets and liabilities 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 large losses incurred by the
Company  during 1998, 1999 and 2000, relative to the amounts of income earned by
the  Company  during 2001, 2002 and the first six months of 2003, as well as the
existence  of  significant  net  operating  loss  carryforwards.

Due  to  the  conversion of outstanding debt into convertible preferred stock in
January  2001,  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  pre-existing 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, 2002, the Company had net operating loss carryforwards for federal
and  California  state  tax  purposes  of  approximately  $9.8  million and $5.2
million,  respectively, which are net of the amounts that will expire unused due
to  the  change  of  control  limitation.  The  federal and California state net
operating  loss  carryforwards  will  begin  to  expire  in  2020  and  2012,
respectively.

The  Company  had  taxable  income  for  federal income tax purposes for the six
months  ended June 30, 2003 and 2002, but its taxable income in both periods was
completely  offset  by  net  operating  loss  carryforwards from previous years.
However,  the Company recognized current federal income tax expense in 2003, due
to  its  tax  liability  under the alternative minimum tax. For California state
income  tax purposes, the Company had taxable income during the first six months
of  2003, and a net loss during the same period in 2002. The State of California
suspended  the use of net operating loss carryforwards to offset current taxable
income  for  2003  and  2002  for  all  corporations.  Accordingly,  the Company
recognized  current  state  income tax expense for the six months ended June 30,
2003.  The  Company  recognized no deferred income tax expense or benefit during
the  six  months  ended  June  30,  2003 or 2002, due to the valuation allowance
against  its  net  deferred  tax  assets,  as  discussed  above.

NOTE  8.  TOTAL  COMPREHENSIVE  INCOME
--------------------------------------

Total  comprehensive  income  includes the change in stockholders' equity during
the  period  from  transactions  and  other  events  and  circumstances  from
non-stockholder  sources.  Total comprehensive income of the Company for the six
months ended June 30, 2003 and 2002, includes net income 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 $18,000 and $27,000 for the three months
ended  June 30, 2003 and 2002, respectively, and $8,000 and $(9,000) for the six
months  ended  June  30, 2003 and 2002, respectively. Total comprehensive income
(loss)  was $568,000 and $(173,000) for the three months ended June 30, 2003 and
2002,  respectively,  and $1,002,000 and  $199,000 for the six months ended June
30,  2003  and  2002,  respectively.


                                       12
<PAGE>
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.

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. The office lease agreements related
to  all  of  the  practices sold by the Company either have been assigned to the
respective  purchasers  of  the  practices,  or  have  expired.

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, 2003, the total of the minimum annual payments under
these  leases  was  approximately  $1.3  million,  and  the aggregate contingent
liability  of the Company related to these leases was approximately $2.5 million
over  the remaining terms of the lease agreements, which expire at various dates
through  2007.  The  Company  has  not been notified of any defaults under these
leases  that  would  materially  affect  the  Company's  consolidated  financial
position.

GUARANTEES  AND  INDEMNITIES

As  discussed above, the Company has contingent lease obligations under which it
is  secondarily  liable  for  the lease payments under dental office leases that
have  been  assigned  to third parties. In the event those third parties fail to
make  the  lease  payments,  the  Company  could  be obligated to make the lease
payments  itself. The Company has also purchased a letter of credit for $250,000
in  connection with a certain customer agreement. In the event the Company fails
to meet its financial obligations to the customer, the customer would be able to
use the letter of credit to satisfy the Company's obligations, in which case the
Company  would  be  obligated  to  repay the issuer of the letter of credit. The
Company  also  indemnifies  its  directors  and  officers  to the maximum extent
permitted  by  Delaware  law.  In addition, the Company makes indemnities to its
customers  in connection with the sale of dental and vision benefit plans in the
ordinary  course  of  business.  The maximum amount of potential future payments
under  all of the preceding guarantees and indemnities cannot be determined. The
Company  has recorded no liabilities related to these guarantees and indemnities
in  the  accompanying condensed consolidated balance sheets, except as described
above  under  "Contingent  Lease Obligations."  The Company issued no guarantees
during  the  six  months  ended  June  30,  2003.

DIRECTORS'  AND  OFFICERS'  LIABILITY  INSURANCE

The  Company's  directors'  and  officers'  liability  insurance  policy,  which
provided  $5  million  of  coverage  after  a  $250,000  deductible,  expired on
September 30, 2002. Due to a significant increase in the cost of such insurance,
the Company elected not to purchase this insurance coverage effective October 1,
2002.

GOVERNMENT  REGULATION

During  the  six  months  ended  June  30,  2003  and 2002, one of the Company's
subsidiaries was not in compliance with a regulatory requirement that limits the
amount  of  the  subsidiary's administrative expenses as a percentage of premium
revenue.  The  Company  has  discussed  this  noncompliance  with the applicable
regulatory  agency,  and  that  agency  has taken no action with respect to this
noncompliance.  The  Company  believes  this  instance  of  noncompliance  with
regulatory  requirements  will  have  no  significant effect on its consolidated
financial  statements.


                                       13
<PAGE>
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. The following risk factors, as well
as  the  risk factors identified in the Company's Annual Report on Form 10-K for
the  year ended December 31, 2002, and the Company's Current Reports on Form 8-K
filed on February 14, 2003, April 3, 2003, April 25, 2003, May 5, 2003, and July
2,  2003,  all  of  which  have  been  filed  with  the  Securities and Exchange
Commission,  should be read in conjunction with this Management's Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations  ("MD&A").

The statements contained in this MD&A 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.

All  of  the  risks  set forth below 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 premium
rates,  revenue,  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.

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.

INTEGRATION  OF  ACQUIRED  COMPANIES

The Company completed the acquisition of Paramount effective on August 30, 2002,
and  the  acquisition of Ameritas effective on March 31, 2003. The Company is in
the  process  of  integrating  the  business  operations  of  both Paramount and
Ameritas  into  the  Company's  pre-existing operations. Due to the complexities
inherent  in  this  process, there is a risk that the Company may not be able to
complete  such  integration  in a timely and effective manner. In such case, the
Company  may  not  be  able  to  retain  all  of  the  customers of the acquired
companies,  resulting  in  a  loss  of  revenue,  and  the Company's health care
services  or  general and administrative expenses could be higher than expected,
which  could  have  a  negative  impact  on the Company's overall profitability.

INTEGRATION  OF  PENDING  ACQUISITIONS

The  Company  expects to complete the acquisitions of HN Dental and HN Vision in
late  2003.  See  Note  4  to  the accompanying condensed consolidated financial
statements  for  more  information  on  these  transactions. The combined annual
revenue  of  HN  Dental,  HN  Vision,  and  the  related group dental and vision
insurance business underwritten by HN Life was approximately $65 million for the
year  ended  December  31,  2002,  which  is  material compared to the Company's


                                       14
<PAGE>
existing  operations.  After  the  completion of these acquisitions, the Company
expects to integrate the operations of HN Dental and HN Vision into its existing
operations. Due to the relatively large size of the business to be acquired, and
the  complexities inherent in this process, there is a risk that the Company may
not  be  able  to complete such integration in a timely and effective manner. In
such  case,  the  Company  may not be able to retain all of the customers of the
acquired  companies,  resulting  in  a loss of revenue, and the Company's health
care  services  or  general  and  administrative  expenses  could be higher than
expected,  which  could  have  a  negative  impact  on  the  Company's  overall
profitability.

GOVERNMENT  REGULATION

The dental benefits industry is subject to extensive state and local laws, rules
and  regulations. Several of the Company's operating subsidiaries 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, and these requirements 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, which are primarily
related  to  protecting  confidential information related to its subscribers and
their  dependents.  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.

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. All of the office lease agreements
related  to  those  practices  either  have  been  assigned  to  the  respective
purchasers  of  the practices, or have expired. As of June 30, 2003, the Company
is  contingently liable for an aggregate of approximately $2.5 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.

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 Company's common stock is currently
traded  on  the  NASDAQ  Over-The-Counter  Bulletin Board, and 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.


                                       15
<PAGE>
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.

ABILITY  TO  MAINTAIN  REVENUE

The  combined  premium  revenue of the Company, Paramount and Ameritas decreased
slightly  from  $46.6  million  on a pro forma basis during the six months ended
June  30,  2002,  to  $45.9  million  on a pro forma basis during the comparable
period  in  2003,  primarily due to the loss of a number of customers, and a net
decrease  in  the  enrollment  within retained 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  maintain its
relationships  with  existing  customers  and  brokers,  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 dental PPO/indemnity plan designs, the Company assumes the
entire  underwriting  risk  related to the frequency and cost of dental services
provided  to  the  covered  individuals.  Under  the  Company's  dental HMO plan
designs,  the  Company  assumes  a  portion  of the underwriting risk, primarily
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.


                                       16
<PAGE>
CRITICAL  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 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 condensed consolidated financial statements. The
Company  believes  the  most  critical  accounting  policies used to prepare the
accompanying  condensed  consolidated  financial  statements  are the following:

ACCOUNTS  RECEIVABLE

Accounts  receivable  represent uncollected premiums related to coverage periods
prior  to  the  balance  sheet date, and are stated at the estimated collectible
amounts,  net  of  an allowance for bad debts. The Company continuously monitors
the  timing  and  amount of its premium collections, and maintains a reserve for
estimated  bad  debt losses. The amount of the reserve is based primarily on the
Company's historical experience and any customer-specific collection issues that
are identified. The Company believes its reserve for bad debt losses is adequate
as of June 30, 2003. However, there can be no assurance that the bad debt losses
ultimately incurred will not exceed the reserve for bad debts established by the
Company.

NOTES  RECEIVABLE

Notes  receivable  are  stated  at  their estimated realizable values, 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,
2003.  However,  there  can  be  no  assurance that the Company will realize the
carrying  amount  of  its  notes  receivable.

GOODWILL

The  Company's  accounting  for  goodwill  is  in  accordance  with Statement of
Financial  Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets,"  which  the  Company adopted as of January 1, 2002. Goodwill as of June
30,  2003  consists  of  $4.7  million of goodwill related to the acquisition of
Paramount in August 2002, $3.9 million of goodwill related to the acquisition of
a  Texas-based  dental HMO company in 1996, and $0.1 million of goodwill related
to  the  acquisition  of  Ameritas in March 2003. See Note 3 to the accompanying
condensed  consolidated  financial  statements  for  more  information  on  the
Paramount  and  Ameritas acquisitions. In the case of each acquisition, goodwill
represents  the  excess  of  the purchase price of the acquired company over the
fair  value of the net assets acquired. In the case of the 1996 acquisition, the
balance  is  net  of  an  adjustment in 1999 to reduce the carrying value of the
goodwill  to  its  estimated realizable value. The Company has not yet completed
its  identification  of the intangible assets that were acquired in the Ameritas
acquisition, or its determination of the fair values and amortization periods of
those  intangible  assets.  The  accompanying  condensed  consolidated financial
statements  reflect  the  Company's  preliminary  estimate of the aggregate fair
value  of  the intangible assets acquired, and the amortization periods of those
assets,  pending  its  final  determination.

SFAS  No.  142 requires that goodwill be evaluated for possible impairment on an
annual  basis  and  any time an event occurs that may have affected the value of
the  goodwill.  The  Company  has  established October 1 as the date on which it
conducts  its  annual  evaluation  of  goodwill  for  possible  impairment.  In
accordance  with  SFAS  No.  142,  the  Company tested its goodwill for possible
impairment  by  estimating  the  fair  value of each of its reporting units that
include  goodwill,  and  comparing  the fair value of each reporting unit to the
book  value  of  the  net  assets of each reporting unit. The fair value of each
reporting unit was determined primarily by estimating the discounted future cash
flows  of  the  reporting  unit,  and  by  estimating  the  amount for which the
reporting  unit  could  be  sold to a third party, based on a market multiple of
earnings.  The  Company had no impairment of its goodwill as of October 1, 2002,
based  on  the method of testing for possible impairment established by SFAS No.
142.  The  estimates  to  which  the  results of the Company's test are the most
sensitive  are the amounts of shared administrative expenses that are charged to


                                       17
<PAGE>
each  reporting  unit,  and  the  market  multiple  of  earnings that is used to
estimate  the  fair  value  of  each  reporting  unit.  The Company believes the
estimates  used  in  its  test are reasonable and appropriate, but a significant
change  in  either  of  these  estimates  could  result  in the indication of an
impairment  of  goodwill.  The  Company  is  not  aware  of any events that have
occurred  since  October  1,  2002,  that  represent an indication of a possible
impairment. However, there can be no assurance that impairment will not occur in
the  future.

INTANGIBLE  ASSETS

Intangible  assets  as  of  June  30, 2003 consist of customer relationships and
other intangible assets with an aggregate net book value of $2.4 million, all of
which  were  acquired in connection with the acquisitions of Paramount in August
2002  and  Ameritas  in  March  2003, as discussed in Note 3 to the accompanying
condensed  consolidated  financial  statements. The amount of the purchase price
that  was  allocated to each of the intangible assets was equal to the Company's
estimate  of  the  fair  value  of  each  asset.  Each intangible asset is being
amortized  over  its  estimated  useful  life  on  a  straight-line  basis.

CLAIMS  PAYABLE  AND  CLAIMS  INCURRED  BUT  NOT  REPORTED

The  estimated liability for claims payable and claims incurred but not reported
("IBNR")  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.

RECOGNITION  OF  PREMIUM  REVENUE

Premium  revenue  is  recognized  in  the period during which dental coverage is
provided to the covered individuals. Payments received from customers in advance
of  the  related  period of coverage are reflected on the accompanying condensed
consolidated  balance  sheet  as  deferred  premium  revenue.

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  assets  and  liabilities 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 assets and liabilities 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  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 large losses incurred by the
Company  during 1998, 1999 and 2000, relative to the amounts of income earned by
the  Company  during 2001, 2002 and the first six months of 2003, as well as the
existence  of  significant  net  operating  loss  carryforwards.


                                       18
<PAGE>
RESULTS  OF  OPERATIONS

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

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED      SIX MONTHS ENDED
                                                     JUNE 30,               JUNE 30,
                                             ----------------------  --------------------
                                                2003        2002       2003       2002
                                             ----------  ----------  --------  ----------
<S>                                          <C>         <C>         <C>       <C>
Premium revenue, net                             100.0%      100.0%    100.0%      100.0%

Health care services expense                      68.9        72.8      68.9        71.5
Selling, general and administrative expense       28.4        28.6      28.7        28.4
                                             ----------  ----------  --------  ----------
  Operating income                                 2.7        (1.4)      2.4         0.1

Investment and other income                        0.3         0.5       0.3         0.5
Interest expense                                  (0.4)       (0.1)     (0.4)       (0.1)
                                             ----------  ----------  --------  ----------
Income before income taxes                         2.6        (1.0)      2.3         0.5
Income tax expense                                (0.2)         --      (0.1)         --
                                             ----------  ----------  --------  ----------

  Net income                                       2.4%      (1.0)%      2.2%        0.5%
                                             ==========  ==========  ========  ==========
</TABLE>

THREE  MONTHS  ENDED  JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002

Premium  revenue increased by $2.9 million, or 14.7%, from $20.2 million in 2002
to  $23.1 million in 2003. The average membership for which the Company provided
dental  coverage  increased  by  approximately  216,000  members, or 39.7%, from
544,000  members in 2002 to 760,000 members in 2003. The operations of Paramount
are  included  in  the  Company's financial statements beginning on September 1,
2002,  and  the  operations of Ameritas are included beginning on April 1, 2003.
Average membership increased in 2003 by approximately 220,000 members due to the
Paramount  acquisition,  and by approximately 25,000 members due to the Ameritas
acquisition,  but  these increases were partially offset, primarily due to a net
decrease  in  its enrollment within retained customers, and some lost customers.
The  Company  believes  the  net  decrease  in  its  enrollment  within retained
customers is primarily due to reduced employment levels within its customers due
to  general  economic  conditions,  and  to  reduced enrollment in the Company's
dental  benefit  plans  due  to  significant  increases  in  the cost of medical
coverage,  which may cause employers and employees to allocate less spending for
the  purchase  of  dental  coverage,  which  is  usually  viewed  as  being more
discretionary  than  medical  coverage.  Premium revenue increased by only 14.7%
even  though  average  membership increased 39.7%. This was primarily due to the
Paramount  acquisition, as the business acquired from Paramount consists largely
of  products  that  have  significantly  lower  premium rates than the Company's
pre-existing  business.  This  is  because  the  dental  plan designs offered by
Paramount include a significantly lower level of benefits than the benefit plans
offered  by the Company prior to the acquisition of Paramount. Substantially all
of  the  Company's premium revenue was derived from dental benefit plans in 2003
and  2002.  Premium revenue from vision benefit plans and other products was not
material  in  2003  or  2002.

Health  care  services  expense  increased  by $1.3 million, or 8.7%, from $14.6
million  in  2002  to  $15.9  million in 2003. Health care services expense as a
percentage of premium revenue (the "loss ratio") decreased from 72.8% in 2002 to
68.9%  in 2003, which is primarily related to the Company's products with an HMO
plan design.  The Company believes the decrease is primarily due to premium rate
increases  that  slightly exceeded the increases in the cost of providing dental
services  to  its members.  The decrease in the loss ratio is also partially due
to  a  significantly  lower  loss ratio in the business acquired from Paramount,
compared  to  the  loss  ratio in the Company's pre-existing business. The lower
loss  ratio  in  the  Paramount business is primarily due to the type of benefit
plan  designs  sold  by  Paramount,  as  discussed  above.

Selling,  general and administrative ("SG&A") expense as a percentage of premium
revenue  decreased  from  28.6% in 2002 to 28.4% in 2003, although the amount of
SG&A  expense  increased by $0.8 million, or 13.6%, from $5.8 million in 2002 to
$6.6  million  in  2003.  The  increase  in  SG&A  expenses  is primarily due to
increases in broker commissions, amortization expense, and salaries and internal
sales  commissions,  and  a  $350,000 refund of maintenance fees from one of the
Company's  vendors in 2002, which were partially offset by a $250,000 expense in


                                       19
<PAGE>
2002  related to the settlement of a stockholder litigation matter. The increase
in  broker  commissions  is  primarily  related  to  a 14.7% increase in premium
revenue,  as  discussed  above.  The  increase in amortization expense is due to
amortization  of  the intangible assets acquired in the Paramount acquisition in
August  2002,  as  there  was  no amortization expense in 2002.  The increase in
salaries  and  internal sales commissions are primarily related to the Company's
efforts  to  increase  its new sales activity in 2003. The refund of maintenance
fees in 2002 was primarily due to the settlement of a dispute over the amount of
equipment  maintenance  fees paid by the Company in several prior years. See the
Company's  Annual  Report  on Form 10-K for the year ended December 31, 2002 for
more information on the settlement of the stockholder litigation matter in 2002.

Investment  and other income decreased from $103,000 in 2002 to $79,000 in 2003,
which  was  primarily due to a decrease in the amount of investments held by the
Company.  The  decrease  in the amount of the Company's investments is primarily
due to a total of $3.6 million of net cash used in the acquisitions of Paramount
and  Ameritas,  and  to  $2.4  million of principal payments on debt and capital
lease  obligations  during  the  twelve  months  ended June 30, 2003, which were
partially  offset  by  a  $2.0  million  borrowing  in  August  2002.

Interest  expense  increased  from $24,000 in 2002 to $86,000 in 2003, which was
primarily  due to the fact that most of the Company's existing debt was incurred
after  June  30, 2002, as discussed in more detail in Note 5 to the accompanying
condensed  consolidated  financial  statements.

Income  before income taxes improved significantly, from a $200,000 loss in 2002
to income of $610,000 in 2003, which was primarily due to a decrease in the loss
ratio  from  72.8%  in  2002  to  68.9%  in  2003,  as  discussed  above.

SIX  MONTHS  ENDED  JUNE  30,  2003  COMPARED  TO SIX MONTHS ENDED JUNE 30, 2002

Premium  revenue increased by $4.2 million, or 10.2%, from $40.8 million in 2002
to  $45.0 million in 2003. The average membership for which the Company provided
dental  coverage  increased  by  approximately  201,000  members, or 36.7%, from
548,000  members in 2002 to 749,000 members in 2003. The operations of Paramount
are  included  in  the  Company's financial statements beginning on September 1,
2002,  and  the  operations of Ameritas are included beginning on April 1, 2003.
Average membership increased in 2003 by approximately 220,000 members due to the
Paramount  acquisition,  and by approximately 13,000 members due to the Ameritas
acquisition,  but  these increases were partially offset by the loss of a number
of the Company's customers, and a net decrease in its enrollment within retained
customers.  The  Company  believes  the  net  decrease  in its enrollment within
retained  customers  is  primarily  due  to reduced employment levels within its
customers  due  to general economic conditions, and to reduced enrollment in the
Company's  dental  benefit  plans  due  to  significant increases in the cost of
medical  coverage,  which  may  cause  employers  and employees to allocate less
spending  for  the purchase of dental coverage, which is usually viewed as being
more  discretionary  than  medical  coverage.  Premium revenue increased by only
10.2%  even though average membership increased 36.7%. This was primarily due to
the  Paramount  acquisition,  as  the  business acquired from Paramount consists
largely  of  products  that  have  significantly  lower  premium  rates than the
Company's pre-existing business. This is because the dental plan designs offered
by  Paramount  include  a significantly lower level of benefits than the benefit
plans  offered  by  the  Company  prior  to  the  acquisition  of  Paramount.
Substantially  all  of  the  Company's  premium  revenue was derived from dental
benefit  plans  in  2003 and 2002. Premium revenue from vision benefit plans and
other  products  was  not  material  in  2003  or  2002.

Health  care  services  expense  increased  by $1.8 million, or 6.2%, from $29.2
million in 2002 to $31.0 million in 2003. The loss ratio decreased from 71.5% in
2002 to 68.9% in 2003, which is primarily related to the Company's products with
an  HMO  plan  design.  The  Company  believes  the decrease is partially due to
premium  rate  increases  that  slightly  exceeded  the increases in the cost of
providing  dental  services  to  its members.  The decrease in the loss ratio is
also  partially due to a significantly lower loss ratio in the business acquired
from  Paramount,  compared  to  the  loss  ratio  in  the Company's pre-existing
business. The lower loss ratio in the Paramount business is primarily due to the
type  of  benefit  plan  designs  sold  by  Paramount,  as  discussed  above.

SG&A  expense increased by $1.3 million, or 11.2%, from $11.6 million in 2002 to
$12.9 million in 2003. SG&A expense as a percentage of premium revenue increased
slightly  from 28.4% in 2002 to 28.7% in 2003.  The increase in SG&A expenses is
primarily  due  to  increases  in  broker commissions, amortization expense, and
salaries  and  internal  sales commissions, and a $350,000 refund of maintenance
fees from one of the Company's vendors in 2002, which were partially offset by a
$250,000  expense  in 2002 related to the settlement of a stockholder litigation


                                       20
<PAGE>
matter.  The  increase  in  broker  commissions  is primarily related to a 14.7%
increase  in  premium  revenue, as discussed above. The increase in amortization
expense  is  due  to  amortization  of  the  intangible  assets  acquired in the
Paramount  acquisition  in  August 2002, as there was no amortization expense in
2002.  The  increase  in  salaries  and internal sales commissions are primarily
related to the Company's efforts to increase its new sales activity in 2003. The
refund  of  maintenance  fees  in  2002 was primarily due to the settlement of a
dispute  over  the  amount  of equipment maintenance fees paid by the Company in
several  prior  years. See the Company's Annual Report on Form 10-K for the year
ended  December  31,  2002  for  more  information  on  the  settlement  of  the
stockholder  litigation  matter  in  2002.

Investment and other income decreased from $219,000 in 2002 to $158,000 in 2003,
which  was  primarily due to a decrease in the amount of investments held by the
Company.  The  decrease  in the amount of the Company's investments is primarily
due to a total of $3.6 million of net cash used in the acquisitions of Paramount
and  Ameritas,  and  to  $2.4  million of principal payments on debt and capital
lease  obligations  during  the  twelve  months  ended June 30, 2003, which were
partially  offset  by  a  $2.0  million  borrowing  in  August  2002.

Interest  expense  increased from $31,000 in 2002 to $186,000 in 2003, which was
primarily  due to the fact that most of the Company's existing debt was incurred
after  June  30, 2002, as discussed in more detail in Note 5 to the accompanying
condensed  consolidated  financial  statements.

Income  before  income taxes increased from $0.2 million in 2002 to $1.1 million
in  2003,  which was primarily due to a decrease in the loss ratio from 71.5% in
2002  to  68.9%  in  2003,  as  discussed  above.

LIQUIDITY  AND  CAPITAL  RESOURCES

The Company's net working capital increased from $2.0 million as of December 31,
2002,  to  $2.8 million as of June 30, 2003. The increase in net working capital
was  primarily  due  to  $1.9  million  of  net  income  plus  depreciation  and
amortization  expense,  and  a  $1.1 million reduction in the current portion of
long-term  debt  and  capital  lease obligations, which were partially offset by
$1.2  million  of  debt  payments, and the impact of the Ameritas acquisition in
March  2003,  as  discussed in Note 3 to the accompanying condensed consolidated
financial  statements.  The  Ameritas acquisition decreased working capital by a
net  amount of $0.8 million, which represents the intangible assets and goodwill
acquired in the transaction. The $1.1 million decrease in the current portion of
long-term debt and capital lease obligations was the result of amendments to the
payment  terms  of  the  Company's  unsecured  convertible  note  and  secured
convertible  note  during  the second quarter of 2003, as discussed in Note 5 to
the  accompanying  condensed  consolidated  financial  statements.

The Company's total debt decreased from $5.4 million as of December 31, 2002, to
$4.6 million as of June 30, 2003, primarily due to $1.2 million of debt payments
during  the  first  six  months  of  2003,  which were partially offset by a new
capital  lease  during  the  second  quarter  of  2003. The new capital lease is
related  to  a  new  telephone  system  for the Company's primary administrative
office.  The  aggregate  principal payments due under all of the Company's debt,
including  its  capital  leases,  are $0.8 million during the remainder of 2003,
$0.9  million  in 2004, $0.6 million in 2005, $0.6 million in 2006, $1.0 million
in  2007,  and  $0.7  million  in  2008.

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 capital lease obligations entered
into  in  June  2002,  as  discussed  in  Note  5  to the accompanying condensed
consolidated financial statements, and to provide for the payments due under the
settlement of the stockholder litigation matter. The borrowing was made under an
unsecured  convertible note that bears interest at 7.0% annually, and is payable
in  monthly  installments  of  interest  only  through May 2006, then in monthly
installments  of  principal and interest from June 2006 through August 2008. The
outstanding  balance under the convertible note is convertible into common stock
of  the  Company  at  a  conversion  price  of  $1.625  per  share.

Effective  August  30, 2002, the Company acquired all of the outstanding capital
stock of Paramount for a total cost of approximately $6.8 million, consisting of
$3.0  million in cash, a secured convertible note for $2,625,000, 769,231 shares
of the Company's common stock, and $164,000 of transaction expenses. The secured
convertible  note  bears  interest  at  7.0% annually, and is payable in varying
monthly  installments  of  principal  and  interest  through September 2008. The
outstanding  balance  under  the  secured  convertible  note is convertible into
common  stock  of  the Company at a conversion price of $1.625 per share, at any
time  after August 30, 2003. The convertible note is secured by the stock of the


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<PAGE>
Company's  dental  HMO  subsidiary  in  Florida. The operations of Paramount are
included  in  the  Company's  consolidated  financial  statements  beginning  on
September  1,  2002.

Effective  March  31,  2003, the Company acquired all of the outstanding capital
stock  of Ameritas for a purchase price of $1.1 million in cash, plus contingent
monthly  payments  during  the  five  years following the acquisition date. Each
contingent  monthly payment is equal to 10% of the actual premium revenue during
the  month  from  customers of Ameritas that existed as of March 31, 2003. As of
June  30,  2003,  the  Company  has  accrued  a  total of $255,000 of contingent
purchase  price,  which  has  been  added  to  the  cost  of the acquisition for
accounting  purposes.  Ameritas  had  premium revenue of $3.7 million during the
year  ended  December 31, 2002, and accordingly, the maximum aggregate amount of
the  contingent  monthly  payments  would  be approximately $1.8 million, if the
Company  retained all of the existing customers of Ameritas for five years after
the  acquisition  date at the premium rates in effect during 2002. See Note 3 to
the  accompanying  condensed  consolidated  financial  statements  for  more
information  on this acquisition. The operations of Ameritas are included in the
Company's  consolidated  financial  statements  beginning  on  April  1,  2003.

On  April  7,  2003, the Company entered into a definitive agreement to purchase
all  of  the outstanding capital stock of Health Net Dental, Inc. ("HN Dental"),
which  is  a  California  dental  HMO, and certain PPO/indemnity dental business
underwritten  by  Health  Net  Life  Insurance  Company ("HN Life"), which is an
affiliate  of  HN  Dental, subject to regulatory approval. The purchase price is
$9.0  million  in  cash and an agreement to provide private label dental HMO and
PPO/indemnity  products  to be sold in the marketplace by subsidiaries of Health
Net,  Inc., the parent company of HN Dental, for a period of at least five years
following  the  closing  of  the transaction, subject to certain conditions. The
transaction  is  currently  pending  regulatory  approval.

On  June  30,  2003, the Company entered into a definitive agreement to purchase
all  of  the outstanding capital stock of Health Net Vision, Inc. ("HN Vision"),
which  is  a  California  vision  HMO and an affiliate of HN Dental, and certain
PPO/indemnity vision business underwritten by HN Life, for $3.0 million in cash,
subject  to  regulatory  approval.  A  substantial portion of the business of HN
Vision,  which  consists  of products provided to MediCal beneficiaries, will be
transferred  to  a  third party prior to the Company's acquisition of HN Vision,
and  the  remainder  of  the  business  of HN Vision, which consists of products
provided  to  commercial  customers,  will  be  transferred  to the Company. The
transaction  is  currently  pending  regulatory  approval.

The  Company  plans  to finance the two transactions described above through the
issuance  of up to approximately $18 million of unsecured convertible promissory
notes  to  certain  of  its  principal  stockholders.  The  proceeds  from  the
convertible notes will be used to finance the two pending transactions described
above,  to  satisfy  the  increase  in  the  Company's  regulatory  net  worth
requirements  related  to  the  group dental and vision insurance business to be
acquired, and to provide working capital that may be required in connection with
the  integration  of  the  acquired  businesses  into  the  Company's  existing
operations.

The  Company  has  reached  an  oral agreement with the stockholders referred to
above,  regarding  the  expected  amount  and terms of the convertible notes. In
accordance with this agreement, the convertible notes will bear interest at 6.0%
annually, and will be convertible into the Company's common stock at the rate of
$1.75  per  share,  at  the  option  of  the  holder. There will be no principal
payments  due  under  the  convertible  notes  during  the first six years after
issuance,  principal  payments  will  be  due  during  the succeeding four years
pursuant  to a ten-year amortization schedule, and the remaining balance will be
payable in full ten years after the date of issuance. The convertible notes will
be  payable  in  full  upon  a change in control of the Company, at the holder's
option.  Provided  that  the  Company redeems all of the outstanding convertible
notes  at  the  same  time, it will have the option of redeeming the convertible
notes for 229% of the face value of the notes during the first seven years after
the  date  of  issuance, for 257% of the face value during the eighth year after
issuance,  for  286% of the face value during the ninth year after issuance, and
for 323% of the face value during the tenth year after issuance. The issuance of
the  convertible notes is currently pending negotiation of definitive agreements
and  the  completion  of  the  acquisitions  described  above.

The Company believes it has adequate financial resources to continue its current
operations for the foreseeable future. The Company also believes it will be able
to  meet  all of its financial obligations from its existing financial resources
and future cash flows from its operations, except for the obligation to complete
the  pending  acquisitions  of  HN  Dental,  HN  Vision,  and the related dental
insurance and vision insurance businesses. As discussed above, the Company plans
to  finance  these  acquisitions  through  the  issuance of convertible notes to


                                       22
<PAGE>
certain of its principal stockholders. Although the Company believes it can meet
its  other  financial  obligations  from its internal resources, 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 provided by operating activities was $3.3 million during the six months
ended  June  30,  2003,  compared  to $0.3 million of net cash used by operating
activities  during  the  same  period in 2002. The improvement is due to several
reasons.  There  was  $0.2 million of net cash provided by an increase in claims
payable  and  claims incurred but not reported ("IBNR") during 2003, compared to
$1.2  million of net cash used by a decrease in claims payable and IBNR in 2002.
Net  cash  provided  by  net  income  plus depreciation and amortization expense
increased  from  $0.8  million in 2002 to $1.9 million in 2003. In addition, net
cash  used by a decrease in accrued expenses decreased from $0.8 million in 2002
to  $0.2  million  in  2003. The decrease in claims payable and IBNR in 2002 was
primarily  due  to  an  intentional  acceleration  in  the  Company's payment of
provider  claims. Due in part to a decline in interest rates on investments, the
Company  adopted  the  practice  of  paying  all  provider  claims as rapidly as
possible,  in  order  to  enhance  its image among dental providers. The reduced
processing  times  for  payment  of  provider  claims  have  been  substantially
maintained  through  the  first  six  months  of  2003.  The decrease in accrued
expenses  in  2002  was primarily due to payments made to reduce the obligations
assumed  in  connection  with the re-sale of certain dental practices in October
2000,  and  payments  on  equipment  leases  for  which the future payments were
previously  accrued.

Net cash used by investing activities was $0.5 million in 2003, compared to $1.1
million  in 2002.  The change was primarily due to $0.9 million of net cash used
in  the acquisition of Ameritas, and an increase in net purchases of investments
from  $1.3  million  in 2002 to $0.8 million in 2003. Net cash used in financing
activities  decreased  from  $1.1  million  in  2002  to  $2.0  million in 2003,
primarily  due to an increase in debt payments from $0.5 million in 2002 to $1.2
million  in  2003.

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 expense. 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 partially 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, 2003, the
Company's  total  cash  and  investments  were  approximately  $16.4  million.
Therefore, a one percentage-point change in short-term interest rates would have
a  $164,000 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.


                                       23
<PAGE>
ITEM  4.     CONTROLS  AND  PROCEDURES

EVALUATION  OF  DISCLOSURE  CONTROLS  AND  PROCEDURES

Within  90  days  prior  to  the  date  of this report, the Company completed an
evaluation,  under  the  supervision and with the participation of the Company's
management,  including  the  Chief  Executive  Officer  and  the Chief Financial
Officer,  of  the  effectiveness  of  the  design and operation of the Company's
disclosure  controls and procedures pursuant to Exchange Act Rule 13a-14.  Based
on  that  evaluation,  the  Chief  Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
alerting them, on a timely basis, to material information related to the Company
required  to  be  included in the Company's periodic filings with the Securities
and  Exchange  Commission.

CHANGES  IN  INTERNAL  CONTROLS

No  significant  changes to the Company's internal controls were made during the
periods  covered  by  this  report.

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 then in office violated
certain  securities  laws  by  issuing  alleged  false and misleading statements
concerning  the  Company's  publicly  reported  revenues  and  earnings during a
specified  class  period.  During  2002  the  Company  settled the lawsuit for a
payment  of $1.25 million to the plaintiffs, without any admission of liability.
The  agreement  between  the  Company  and  the  plaintiffs  was approved by the
District  Court  in  September  2002,  and  the  matter  has been dismissed with
prejudice.  The  Company's  insurer  paid  $1.0  million  of  the  cost  of  the
settlement,  and the Company recorded a $250,000 expense during the three months
ended  June  30, 2002, which was included in selling, general and administrative
expenses.

ITEM 6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)  EXHIBITS

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

           3.1.5         Amendment to Restated Certificate of Incorporation
          10.5.2         Amendment to Stock Option Plan
          10.52          Amendment to Convertible Promissory Note dated August
                         8, 2002.

(b)  REPORTS  ON  FORM  8-K.

The  Company  filed  a Current Report on Form 8-K on July 2, 2003, to report the
execution  of a definitive agreement to purchase all of the outstanding stock of
Health  Net  Vision,  Inc.  ("HN  Vision")  and  certain  group vision insurance
business underwritten by Health Net Life Insurance Company ("HN Life"), which is
an  affiliate  of  HN  Vision,  for  $3.0 million in cash, subject to regulatory
approval. The Company previously filed a Current Report on Form 8-K on April 25,
2003,  to  report the execution of a binding letter of intent to purchase all of
the  outstanding  stock  of HN Vision. The terms of the definitive agreement are
substantially  the  same  as  the  terms  of  the  binding letter of intent. The
transaction  is  currently  pending  regulatory  approval.  See  Note  4  to the
accompanying condensed consolidated financial statements for more information on
this  transaction.


                                       24
<PAGE>
The Company filed a Current Report on Form 8-K on August 12, 2003, to report the
issuance  of  a  news release containing information on the Company's results of
operations  for  the  quarter  and  six  months  ended  June  30,  2003.


                                       25
<PAGE>
                                   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  2003.

         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
                   (Principal  Accounting  Officer)


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<PAGE>