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 September 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  November 1, 2003, the number of shares of registrant's common stock, par
value $0.01 per share, outstanding was 5,737,380 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>
<TABLE>
<CAPTION>
                                   SAFEGUARD HEALTH ENTERPRISES, INC.
                      INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2003


                                                                                                    PAGE
                                                                                                    ----
<S>         <C>                                                                                     <C>
PART I.     FINANCIAL INFORMATION

   Item 1.  Condensed Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . .      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  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     25

CERTIFICATIONS  BY  CHIEF  EXECUTIVE  OFFICER  AND  CHIEF  FINANCIAL  OFFICER . . . . . . . . . .     26
</TABLE>


                                        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)
                                                                            SEPTEMBER 30,    DECEMBER 31,
                                                                                2003             2002
                                                                           ---------------  --------------
<S>                                                                        <C>              <C>
                                                  ASSETS
Current assets:
  Cash and cash equivalents                                                $        4,461   $       3,036
  Investments available-for-sale, at fair value                                     9,602           9,668
  Accounts receivable, net of allowances                                            1,770           2,554
  Other current assets                                                                463             853
                                                                           ---------------  --------------
    Total current assets                                                           16,296          16,111

Property and equipment, net of accumulated depreciation and amortization            3,686           3,532
Restricted investments available-for-sale, at fair value                            3,091           3,254
Notes receivable, net of allowances                                                   379             457
Goodwill                                                                            8,737           8,590
Intangible assets, net of accumulated amortization                                  2,267           2,013
Other assets                                                                          210             157
                                                                           ---------------  --------------

    Total assets                                                           $       34,666   $      34,114
                                                                           ===============  ==============

                                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                         $        1,070   $       1,661
  Accrued expenses                                                                  3,842           3,526
  Current portion of long-term debt and capital lease obligations                   1,189           2,430
  Claims payable and claims incurred but not reported                               5,822           4,690
  Deferred premium revenue                                                          1,386           1,786
                                                                           ---------------  --------------
    Total current liabilities                                                      13,309          14,093

Long-term debt and capital lease obligations, net of current portion                2,785           2,997
Other long-term liabilities                                                           937           1,013
Commitments and contingencies (Note 8)

Stockholders' equity:
  Convertible preferred stock and additional paid-in capital                       41,250          41,250
  Common stock and additional paid-in capital                                      22,742          22,662
  Retained earnings (accumulated deficit)                                         (28,612)        (30,170)
  Accumulated other comprehensive income                                               81              95
  Treasury stock, at cost                                                         (17,826)        (17,826)
                                                                           ---------------  --------------
    Total stockholders' equity                                                     17,635          16,011
                                                                           ---------------  --------------

    Total liabilities and stockholders' equity                             $       34,666   $      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 SEPTEMBER 30, 2003 AND 2002
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


                                                                2003      2002
                                                              --------  --------
<S>                                                           <C>       <C>
Premium revenue, net                                          $23,009   $20,682

Health care services expense                                   16,118    14,546
Selling, general and administrative expense                     6,243     6,040
                                                              --------  --------

Operating income                                                  648        96

Investment and other income                                        73        92
Interest expense                                                  (76)      (84)
                                                              --------  --------

Income before income taxes                                        645       104
Income tax expense                                                 81        --
                                                              --------  --------

    Net income                                                $   564   $   104
                                                              ========  ========

Basic net income per share                                    $  0.02   $  0.00
Weighted average basic shares outstanding                      35,729    35,161

Diluted net income per share                                  $  0.02   $  0.00
Weighted average diluted shares outstanding                    36,421    35,526
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.


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


                                                                2003      2002
                                                              --------  --------
<S>                                                           <C>       <C>
Premium revenue, net                                          $68,050   $61,544

Health care services expense                                   47,158    43,772
Selling, general and administrative expense                    19,162    17,656
                                                              --------  --------

Operating income                                                1,730       116

Investment and other income                                       231       311
Interest expense                                                 (262)     (115)
                                                              --------  --------

Income before income taxes                                      1,699       312
Income tax expense                                                141        --
                                                              --------  --------

    Net income                                                $ 1,558   $   312
                                                              ========  ========

Basic net income per share                                    $  0.04   $  0.01
Weighted average basic shares outstanding                      35,711    34,817

Diluted net income per share                                  $  0.04   $  0.01
Weighted average diluted shares outstanding                    36,272    35,374
</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
                            NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
                                            (IN THOUSANDS)
                                             (UNAUDITED)


                                                                                     2003      2002
                                                                                   --------  --------
<S>                                                                                <C>       <C>
Cash flows from operating activities:
  Net income                                                                       $ 1,558   $   312
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Bad debt expense                                                                   117       160
    Depreciation and amortization                                                    1,343       908
    Contribution to retirement plan in the form of common stock, at fair value          86        68
    Gains on sale of assets                                                            (25)      (11)
  Changes in operating assets and liabilities, excluding effects of acquisitions:
    Accounts receivable                                                                732       101
    Other current assets                                                               508       457
    Other assets                                                                       (53)       74
    Accounts payable                                                                   (51)       96
    Accrued expenses                                                                    17      (740)
    Claims payable and claims incurred but not reported                              1,100      (968)
    Deferred premium revenue                                                          (658)      270
                                                                                   --------  --------
      Net cash provided by operating activities                                      4,674       727

Cash flows from investing activities:
  Purchase of investments available-for-sale                                        (8,991)   (3,130)
  Proceeds from sale/maturity of investments available-for-sale                      9,672     6,893
  Cash paid for acquisition of business, net of cash acquired                         (858)   (2,702)
  Purchases of property and equipment                                                 (741)     (311)
  Payments received on notes receivable                                                102        27
  Proceeds from sale of subsidiary                                                      --        72
                                                                                   --------  --------
      Net cash (used in) provided by investing activities                             (816)      849

Cash flows from financing activities:
  Borrowings on long-term debt                                                          --     2,000
  Decrease in bank overdrafts                                                         (582)   (1,746)
  Payments on debt and capital lease obligations                                    (1,775)   (1,099)
  Exercise of stock options                                                             --        49
  (Decrease) increase in other long-term liabilities                                   (76)       61
                                                                                   --------  --------
    Net cash used in financing activities                                           (2,433)     (735)
                                                                                   --------  --------
Net increase in cash and cash equivalents                                            1,425       841
Cash and cash equivalents at beginning of period                                     3,036     1,497
                                                                                   --------  --------
Cash and cash equivalents at end of period                                         $ 4,461   $ 2,338
                                                                                   ========  ========

                            (Continued on next page)


                                        4
<PAGE>
                         SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
                            NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
                                            (IN THOUSANDS)
                                             (UNAUDITED)


                                                                                      2003      2002
                                                                                   --------  --------

Supplementary information:
  Cash paid during the period for interest                                         $   267   $   115

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, excluding cash                     $ 1,336   $   408
    Goodwill related to transaction                                                    147     6,926
    Less - Secured convertible note issued in transaction                               --    (2,625)
    Less - Common stock issued in transaction                                           --    (1,040)
    Less - Cash paid in transaction, net of cash acquired                             (858)   (2,702)
    Less - Liability for contingent purchase price                                    (293)       --
                                                                                   --------  --------
      Liabilities assumed in acquisition of business                               $   332   $   967
                                                                                   ========  ========
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.


                                        5
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                   (UNAUDITED)

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

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
SafeGuard  Health  Enterprises,  Inc.  and  subsidiaries  (the  "Company") as of
September  30,  2003,  and for the three months and nine months then ended, have
been prepared in accordance with accounting principles generally accepted in the
United  States  of  America  with  respect  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.  In
accordance with the regulations of the Securities and Exchange Commission, these
financial  statements  omit  certain  footnote disclosures and other information
that  would be necessary to present the Company's financial position and results
of operations in accordance with accounting principles generally accepted in the
United  States  of  America  with  respect  to  annual periods.  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."  Goodwill as of September 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  fair 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  estimated  future  cash  flows,  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.


                                        6
<PAGE>
Changes  in  the  carrying  amount  of  goodwill  during  the  nine months ended
September  30,  2003  were  as  follows  (in  thousands):

<TABLE>
<CAPTION>
<S>                                                            <C>
     Balance at December 31, 2002                              $   8,590
     Goodwill acquired (see Note 3)                                  147
                                                               ---------

       Balance at September 30, 2003                           $   8,737
                                                               =========
</TABLE>

INTANGIBLE  ASSETS

Intangible assets as of September 30, 2003 consist of customer relationships and
other intangible assets with an aggregate net book value of $2.3 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

The  Company's  accounting  for  stock  options is in accordance with Accounting
Principles  Board  Opinion  ("APB")  No.  25,  "Accounting  for  Stock Issued to
Employees."  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.


                                        7
<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, "Accounting for
Stock-Based  Compensation," on the Company's net income and net income per share
(in  thousands,  except  per  share  amounts):

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED         NINE MONTHS ENDED
                                                          SEPTEMBER 30,              SEPTEMBER 30,
                                                     ------------------------  ------------------------
                                                        2003         2002         2003         2002
                                                     -----------  -----------  -----------  -----------
<S>                                                  <C>          <C>          <C>          <C>
  Net income, as reported                            $      564   $      104   $    1,558   $      312
  Less -Employee compensation expense based on
     the fair value method of accounting for stock
     options, net of applicable income tax effect          (183)        (214)        (505)        (642)
                                                     -----------  -----------  -----------  -----------

  Pro forma net income (loss)                        $      381   $     (110)  $    1,053   $     (330)
                                                     ===========  ===========  ===========  ===========

  Basic net income per share, as reported            $     0.02   $     0.00   $     0.04   $     0.01
  Pro forma basic net income (loss) per share              0.01        (0.00)        0.03        (0.01)

  Diluted net income per share, as reported          $     0.02   $     0.00   $     0.04   $     0.01
  Pro forma diluted net income (loss) per share            0.01        (0.00)        0.03        (0.01)
</TABLE>

SFAS  No.  123  requires  an  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. The assumptions used to
determine the fair value of stock options granted were: an average expected life
of  four  years;  expected  volatility  of  82%;  no  expected  dividends; and a
risk-free  annual  interest rate of 2.0%. The assumptions regarding the expected
life  of  the  options  and  the  expected  volatility  of  the  stock price are
subjective,  and  these  assumptions  have a significant effect on the estimated
fair  value  amounts.

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  nine  months  ended  September  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 4. Each of these convertible notes would have an anti-dilutive
effect  on  net  income  per  share  for  the three months and nine months ended
September  30,  2003  and  2002. Accordingly, the convertible notes are excluded
from  the  calculation  of  diluted  net income per share for all periods. As of
September  30,  2003,  these  two  convertible  notes  were  convertible into an
aggregate  of  2,063,000  shares  of  common  stock.


                                        8
<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     NINE MONTHS ENDED
                                                     SEPTEMBER 30,         SEPTEMBER 30,
                                                 --------------------  --------------------
                                                   2003       2002       2003       2002
                                                 ---------  ---------  ---------  ---------
<S>                                              <C>        <C>        <C>        <C>
  Weighted average basic shares outstanding         35,729     35,161     35,711     34,817
  Effect of dilutive stock options                     692        365        561        557
                                                 ---------  ---------  ---------  ---------

    Weighted average diluted shares outstanding     36,421     35,526     36,272     35,374
                                                 =========  =========  =========  =========
</TABLE>

RECENTLY  ADOPTED  ACCOUNTING  PRINCIPLES

In  July  2002,  the  FASB issued SFAS No. 146, "Accounting for Costs Associated
with  Exit  or  Disposal  Activities."  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." 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 is effective for fiscal years ending after December 15, 2002.
The  adoption  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.  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 September
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." SFAS No. 150 is effective
for  financial instruments created or modified after May 31, 2003, and otherwise
is  effective  at the beginning of the first interim period beginning after June
15,  2003.  The  adoption  of  SFAS  No.  150  had  no significant effect on the
Company's  consolidated  financial  statements.

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. As a result of the
acquisition, the number of individuals in Florida for which the Company provides
dental  benefits  increased  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


                                        9
<PAGE>
to  the  Company's  historical  financial  statements  for the nine months ended
September 30, 2002, as if the acquisition had been completed as of the beginning
of  that  period  (in  thousands):

<TABLE>
<CAPTION>
<S>                                                              <C>
  Premium revenue, net                                           $   66,823
  Operating income                                                      354
  Net income                                                            383

  Basic net income per share                                     $     0.01
  Diluted net income per share                                         0.01
</TABLE>

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 September 30, 2003, the Company has accrued
a  total  of  $293,000 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  September  30,  2003,  plus  the  estimated contingent monthly payments
related  to the remaining portion of annual customer contracts that are in force
as of October 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. Based on
the  amount of premium revenue during the period from April 1, 2003 to September
30,  2003,  from  customers  of  Ameritas that existed as of March 31, 2003, the
maximum  aggregate  amount  of  the  contingent  monthly  payments  would  be
approximately  $1.3  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  2003.

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
penetration  in  California,  which  is  one of the Company's primary geographic
markets. As a result of the acquisition, the number of individuals in California
for  which  the  Company  provides  dental benefits increased from approximately
300,000  members  to  approximately  330,000  members.

The  aggregate  purchase price recorded by the Company as of September 30, 2003,
including  the  amount paid at closing, the contingent purchase price accrued as
of  September  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):

<TABLE>
<CAPTION>
<S>                                                                              <C>
     Fair value of net assets acquired:
       Cash and cash equivalents                                                 $     276
       Investments                                                                     465
       Intangible assets                                                               675
       Goodwill                                                                        147
       Other assets                                                                    196
       Accounts payable and claims payable and claims incurred but not reported        (74)
       Deferred premium revenue                                                       (258)
                                                                                 ----------
         Total cost of acquisition                                               $   1,427
                                                                                 ==========
</TABLE>

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
estimated  amount  of  intangible  assets  acquired  is  being  amortized  on  a
straight-line  basis  over  a


                                       10
<PAGE>
period  of  approximately five years. The operations of Ameritas are included in
the  Company's  consolidated  financial  statements  beginning on April 1, 2003.

See  Note  9 for information on the acquisitions of Health Net Dental, Inc. ("HN
Dental")  and  Health  Net  Vision,  Inc.  ("HN  Vision"),  which were completed
effective  October  31,  2003.

NOTE  4.  LONG-TERM  DEBT  AND  CAPITAL  LEASE  OBLIGATIONS
-----------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                   SEPTEMBER 30,    DECEMBER 31,
                                                       2003             2002
                                                  ---------------  --------------
<S>                                               <C>              <C>
  Secured convertible promissory note             $        1,813   $       2,427
  Unsecured convertible promissory note                    1,539           1,798
  Capital lease obligations                                  622           1,202
                                                  ---------------  --------------
    Total debt and capital lease obligations               3,974           5,427
  Less - Current portion                                  (1,189)         (2,430)
                                                  ---------------  --------------
    Long-term debt and capital lease obligations  $        2,785   $       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 is payable
in 36 equal monthly installments of principal and interest, beginning in October
2002.  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. 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,  and  the  purchase  of  formerly leased furniture for the Company's
primary  administrative  office  in June 2002. 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  9  for  a  description  of  $19.0  million  of  unsecured convertible
promissory  notes  that  were  issued  in  October  2003, in connection with the
acquisitions  of  HN  Dental  and  HN  Vision.

NOTE  5.  EXCHANGE  OF  CONVERTIBLE  PREFERRED  STOCK
-----------------------------------------------------

Prior  to  May  2002,  there  were 300,000 shares of convertible preferred stock
issued  and  outstanding.  Each  share had a par value of $100 and a liquidation
preference  of $100, and was convertible into 100 shares of the Company's common
stock.  In  May  2002, each outstanding share of convertible preferred stock was
exchanged  for  100 new shares of convertible preferred stock. Each new share of
convertible  preferred  stock  has  a  par  value  of  $1.00  and  a liquidation
preference  of  $1.00, and is convertible into one share of the Company's common
stock.  All  other  rights  and  preferences  of the convertible preferred stock
remained  the  same.  All  references  to the convertible preferred stock in the
accompanying  condensed consolidated financial statements reflect the effects of
this  exchange  on  a  retroactive  basis.


                                       11
<PAGE>
NOTE  6.  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 nine 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 nine
months ended September 30, 2003. Its taxable income was completely offset by net
operating  loss  carryforwards  from  previous years, but the Company recognized
current  federal income tax expense in 2003, due to the alternative minimum tax.
For  California state income tax purposes, the Company had taxable income during
the  first nine months of 2003. The State of California suspended the use of net
operating  loss  carryforwards to offset current taxable income for 2003 for all
corporations.  Accordingly,  the  Company  recognized  current  state income tax
expense for the nine months ended September 30, 2003. The Company incurred a net
loss  for  both  federal and state income tax purposes for the nine months ended
September  30, 2002, and therefore, recognized no current income tax expense for
this  period.  The  Company recognized no deferred income tax expense or benefit
during  the  nine  months ended September 30, 2003 or 2002, due to the valuation
allowance  against  its  net  deferred  tax  assets,  as  discussed  above.

NOTE  7.  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 nine
months  ended  September  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 $(22,000) and $47,000 for the
three  months ended September 30, 2003 and 2002, respectively, and $(14,000) and
$38,000  for  the  nine  months ended September 30, 2003 and 2002, respectively.
Total  comprehensive income was $542,000 and $151,000 for the three months ended
September  30,  2003 and 2002, respectively, and $1,544,000 and $350,000 for the
nine  months  ended  September  30,  2003  and  2002,  respectively.

NOTE  8.  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.


                                       12
<PAGE>
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  September  30, 2003, the total of the minimum annual payments
under  these leases was approximately $1.2 million, and the aggregate contingent
liability  of the Company related to these leases was approximately $2.2 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 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  nine  months  ended  September  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  nine months ended September 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.

NOTE  9.  SUBSEQUENT  EVENTS
----------------------------

Effective  October 31, 2003, the Company acquired 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, for $10.4
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 transaction, subject to certain conditions.  Effective October 31,
2003,  the  Company also acquired 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  $4.4  million  in  cash.


                                       13
<PAGE>
The  aggregate  cost  of  the  acquisitions  was  approximately  $16.3  million,
including  estimated severance liabilities related to employees of HN Dental and
HN  Vision,  and  other acquisition expenses. The combined annual revenue of the
acquired  businesses  was  approximately $65 million for the year ended December
31,  2002.

The  business purpose of these acquisitions was to increase the Company's market
penetration  in  California,  which  is  one of the Company's primary geographic
markets, and to gain vision benefit products that are internally administered by
the  Company.  As  a  result  of  the acquisitions, the number of individuals in
California  for  which  the  Company  provides  dental  benefits  increased from
approximately  350,000  members to approximately 800,000 members, and the number
of  individuals  in  California  for  which the Company provides vision benefits
increased  from  approximately  20,000 members to approximately 150,000 members.

The  acquisitions  were  financed  through  the  issuance  of  $19.0  million of
unsecured  convertible promissory notes to certain of its principal stockholders
in  October 2003. The proceeds from the convertible notes were used primarily to
finance  the  acquisitions,  to satisfy the increase in the Company's regulatory
net  worth  requirements related to the PPO/indemnity dental and vision business
that  was  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  convertible  notes bear interest at 6.0% annually, and are convertible into
the  Company's common stock at the rate of $1.75 per share, at the option of the
holder. There are no principal payments due under the convertible notes prior to
January 31, 2010, then principal payments are due beginning on January 31, 2010,
and  each  three months thereafter through July 31, 2013, pursuant to a ten-year
amortization  schedule,  and the remaining balance is payable in full on October
31,  2013. The convertible notes are payable in full upon a change in control of
the Company, at the holder's option. The Company has the option of redeeming the
convertible  notes for 229% of face value during the first seven years after the
date  of issuance, for 257% of face value during the eighth year after issuance,
for  286%  of  face  value during the ninth year after issuance, and for 323% of
face  value  during  the  tenth  year  after  issuance.

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, July 2,
2003,  August  13,  2003,  November 7, 2003, and November 10, 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


                                       14
<PAGE>
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  the  Company's  future  operating  results.

INTEGRATION  OF  ACQUIRED  BUSINESS

The  Company  completed  the  acquisition  of  HN Dental, HN Vision, and certain
PPO/indemnity  dental  and vision business underwritten by HN Life in the fourth
quarter  of  2003.  See  Note  9  to  the  accompanying  condensed  consolidated
financial  statements  for  more information on these transactions. The combined
annual  revenue of the acquired businesses was approximately $65 million for the
year  ended  December  31,  2002,  which  is  material compared to the Company's
existing  operations.  The  Company  expects  to  integrate the operations of HN
Dental,  HN  Vision  and  the  related  PPO/indemnity business into its existing
operations  during  the next several months. Due to the relatively large size of
the business 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.

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 September 30, 2003, the
Company is contingently liable for an aggregate of approximately $2.2 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. The net book value of the remaining
two  promissory  notes  is  $379,000  as  of September 30, 2003. 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. The Company's common stock is currently traded on the
NASDAQ  Over-The-Counter  Bulletin  Board,  and  the  fact  that


                                       15
<PAGE>
the  Company's  common  stock  is  not listed on an exchange can have a negative
influence  on  the  trading  volume  of the stock. 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. Broad stock market fluctuations, which
may  be  unrelated  to  the  Company's  operating performance, could also have a
negative  effect  on  the  Company's  stock  price.

COMPETITIVE  MARKET

The Company operates in a highly competitive industry. Its ability to operate on
a  profitable  basis  is affected by significant competition for employer groups
and  for  contracting  dental  providers.  Dental  providers  are  becoming more
sophisticated,  their  dental 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  $69.6  million on a pro forma basis during the nine months ended
September  30, 2002, to $68.9 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


                                       16
<PAGE>
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.

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  September 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 September
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."  Goodwill as of September 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  First  American  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
these  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 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.


                                       17
<PAGE>
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 of each year 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  estimates  of  future  cash  flows,  the  amounts 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 any 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 September 30, 2003 consist of customer relationships and
other intangible assets with an aggregate net book value of $2.3 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. The estimates
to  which the fair value of each intangible asset are the most sensitive are the
estimate of future cash flows related to the asset, the estimated useful life of
the  asset,  and  the  weighted  average  cost  of  capital assumed. The Company
believes  the  estimates  used  in determining the fair value of each intangible
asset  are  reasonable and appropriate, but a significant change in any of these
estimates  could  result  in  a  significant  change  in  the fair values of the
intangible  assets,  or  the  amortization  periods  of  those  assets, or both.

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.  The  use  of  average  historical lag times to estimate current lag
times  is  dependent  on  the assumption that the average time to process claims
currently  is  consistent  with the average time to process claims historically.
The Company makes adjustments to the average historical lag times to account for
any  changes  in  claims  processing  times,  but  a significant change in these
adjustments could result in a significant change in the estimated liability. The
estimate  of  the  liability is also dependent on the assumption that the recent
trend  in  payment  rates  and the average number of incurred claims per covered
individual  has  continued  to  the  balance sheet date. A significant change in
provider  payment  rates or utilization rates related to claims not yet received
by  the  Company  could  result  in  a  significant  change in the amount of the
liability.  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.


                                       18
<PAGE>
INCOME  TAXES

The  Company's  accounting  for income taxes is in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax  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 nine months of 2003, as well as the
existence  of  significant  net  operating  loss  carryforwards.

RESULTS  OF  OPERATIONS

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

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED       NINE MONTHS ENDED
                                                  SEPTEMBER 30,           SEPTEMBER 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                      70.1        70.3        69.3        71.1
Selling, general and administrative expense       27.1        29.2        28.2        28.7
                                             ----------  ----------  ----------  ----------
  Operating income                                 2.8         0.5         2.5         0.2

Investment and other income                        0.3         0.4         0.4         0.5
Interest expense                                  (0.3)       (0.4)       (0.4)       (0.2)
                                             ----------  ----------  ----------  ----------
  Income before income taxes                       2.8         0.5         2.5         0.5
Income tax expense                                 0.4          --         0.2          --
                                             ----------  ----------  ----------  ----------

  Net income                                       2.4%        0.5%        2.3%        0.5%
                                             ==========  ==========  ==========  ==========
</TABLE>

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

Premium  revenue increased by $2.3 million, or 11.3%, from $20.7 million in 2002
to  $23.0 million in 2003. The average membership for which the Company provided
dental  coverage  increased  by  approximately  139,000  members, or 22.9%, from
607,000  members in 2002 to 746,000 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 125,000 members due to the
Paramount  acquisition,  and by approximately 25,000 members due to the Ameritas
acquisition,  and  these  increases were partially offset by a small decrease in
enrollment  within  the  Company's  pre-existing  business.

Premium revenue increased by only 11.3% even though average membership increased
22.9%.  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.


                                       19
<PAGE>
Health  care  services  expense  increased by $1.6 million, or 10.9%, from $14.5
million  in  2002  to  $16.1  million in 2003. Health care services expense as a
percentage  of  premium revenue (the "loss ratio") decreased slightly from 70.3%
in  2002  to  70.1%  in  2003.

Selling,  general and administrative ("SG&A") expense as a percentage of premium
revenue  decreased from 29.2% in 2002 to 27.1% in 2003, while the amount of SG&A
expense  increased  by  $0.2 million, or 3.3%, from $6.0 million in 2002 to $6.2
million in 2003.  The increase in SG&A expenses is primarily due to increases in
broker  commissions  and  amortization  expense,  which were partially offset by
decreases  in  various  other  expenses, including telephone, equipment rent and
maintenance  and  consulting.  The  increase  in broker commissions is primarily
related  to  an  11.3%  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  and  the  Ameritas
acquisition  in  March  2003.

Investment  and  other income decreased from $92,000 in 2002 to $73,000 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  an  aggregate  of  $3.6 million of net cash used in the acquisitions of
Paramount  in  August  2002  and  Ameritas in March 2003, and to $2.3 million of
principal  payments  on  debt  and  capital  lease obligations during the twelve
months  ended  September 30, 2003, which were partially offset by a $2.0 million
borrowing  in  August  2002.

Interest  expense  decreased  from $84,000 in 2002 to $76,000 in 2003, which was
primarily due to debt payments made during the twelve months ended September 30,
2003.

Income  before  income  taxes  improved  significantly, from $104,000 in 2002 to
$609,000  in  2003,  which  was primarily due to a decrease in SG&A expense as a
percentage of premium revenue, from 29.2% in 2002 to 27.1% in 2003, as discussed
above.

Income tax expense increased from zero in 2002 to $81,000 in 2003. The Company's
effective  tax  rate  was  relatively low in 2003 primarily due to net operating
loss  carryforwards from previous years. The Company had a loss for tax purposes
in  2002,  and  accordingly,  recorded  no income tax expense. See Note 6 to the
accompanying condensed consolidated financial statements for more information on
income  tax  expense.

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002

Premium  revenue increased by $6.5 million, or 10.6%, from $61.5 million in 2002
to  $68.0 million in 2003. The average membership for which the Company provided
dental  coverage  increased  by  approximately  180,000  members, or 31.7%, from
568,000  members in 2002 to 748,000 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 190,000 members due to the
Paramount  acquisition,  and by approximately 17,000 members due to the Ameritas
acquisition,  and  these  increases were partially offset by a small decrease in
enrollment  within  the  Company's  pre-existing  business.

Premium revenue increased by only 10.6% even though average membership increased
31.7%.  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 $3.4 million, or 7.7%, from $43.8
million in 2002 to $47.2 million in 2003. The loss ratio decreased from 71.1% in
2002  to  69.3%  in  2003,  which is primarily 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.


                                       20
<PAGE>
SG&A  expense as a percentage of premium revenue decreased from 28.7% in 2002 to
28.2%  in  2003,  while the amount of SG&A expense increased by $1.5 million, or
8.5%, from $17.7 million in 2002 to $19.2 million in 2003.  The increase in SG&A
expenses  is  primarily  due to increases in broker commissions and amortization
expense.  The  increase  in  broker  commissions is primarily related to a 10.6%
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 and the Ameritas acquisition in March 2003.

Investment and other income decreased from $311,000 in 2002 to $231,000 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  $2.3  million of principal payments on debt and capital
lease  obligations during the twelve months ended September 30, 2003, which were
partially  offset  by  a  $2.0  million  borrowing  in  August  2002.

Interest  expense increased from $115,000 in 2002 to $262,000 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 4 to the accompanying
condensed  consolidated  financial  statements.

Income before income taxes improved significantly, from $312,000 in 2002 to $1.7
million  in  2003,  which was primarily due to a decrease in the loss ratio from
71.1%  in  2002 to 69.3% in 2003, and a decrease in SG&A expense as a percentage
of  premium  revenue,  from  28.7% in 2002 to 28.1% in 2003, as discussed above.

Income  tax  expense  increased  from  zero  in  2002  to  $141,000 in 2003. The
Company's  effective  tax  rate  was relatively low in 2003 primarily due to net
operating loss carryforwards from previous years. The Company had a loss for tax
purposes in 2002, and accordingly, recorded no income tax expense. See Note 6 to
the  accompanying  condensed  consolidated  financial  statements  for  more
information  on  income  tax  expense.

LIQUIDITY  AND  CAPITAL  RESOURCES

The Company's net working capital increased from $2.0 million as of December 31,
2002,  to  $3.0  million  as  of September 30, 2003. The increase in net working
capital  was  primarily  due to $2.9 million of net income plus depreciation and
amortization  expense,  and  a  $1.2 million reduction in the current portion of
long-term  debt  and  capital  lease obligations, which were partially offset by
$1.8  million  of  debt  payments,  and  $0.9  million  of  net cash used in the
acquisition  of  Ameritas  in  March  2003,  as  discussed  in  Note  3  to  the
accompanying  condensed  consolidated  financial  statements.  The  $1.2 million
decrease  in the current portion of long-term debt and capital lease obligations
was  primarily  due  to  an  amendment  to  the  payment  terms of the Company's
unsecured  convertible  note  during the second quarter of 2003, as discussed in
Note  4 to the accompanying condensed consolidated financial statements, and the
payment  in  full of one of the Company's capital lease obligations during 2003.

The Company's total debt decreased from $5.4 million as of December 31, 2002, to
$4.0  million  as  of  September 30, 2003, primarily due to $1.8 million of debt
payments  during the first nine 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 $0.3 million during the remainder of 2003,
$1.1  million  in 2004, $0.8 million in 2005, $0.5 million in 2006, $0.8 million
in  2007,  and  $0.5  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  4  to the accompanying condensed
consolidated financial statements, and to provide for the payments due under the
settlement  of  a 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


                                       21
<PAGE>
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. The
convertible  note is secured by the stock of the 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
September  30,  2003,  the Company has accrued a total of $293,000 of contingent
purchase  price,  which  has  been  added  to  the  cost  of the acquisition for
accounting  purposes.  Based  on the amount of premium revenue during the period
from  April  1,  2003  to  September  30,  2003, from customers of Ameritas that
existed  as  of  March  31, 2003, the maximum aggregate amount of the contingent
monthly  payments  would  be approximately $1.3 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 2003. 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.

Effective  October 31, 2003, the Company acquired 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, for $10.4
million  in  cash  and  an  agreement  to  provide  private label dental HMO and
PPO/indemnity  products to be sold in the marketplace in conjunction with Health
Net  medical products by subsidiaries of Health Net, Inc., the parent company of
HN  Dental,  for  a  period  of  at  least five years following the transaction,
subject  to  certain  conditions.  Effective  October 31, 2003, the Company also
acquired  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 $4.4 million
in cash. The aggregate cost of the acquisitions was approximately $16.3 million,
including  estimated severance liabilities related to employees of HN Dental and
HN  Vision,  and  other  acquisition  expenses.

The  business purpose of these acquisitions was to increase the Company's market
penetration  in  California,  which  is  one of the Company's primary geographic
markets, and to gain vision benefit products that are internally administered by
the  Company. The acquisitions increased the number of individuals in California
for  which  the  Company  provides  dental  benefits  from approximately 350,000
members  to  approximately  800,000  members,  and  increased  the  number  of
individuals  in  California  for which the Company provides vision benefits from
approximately  20,000  members  to  approximately  150,000  members.

The  acquisitions  were  financed  through  the  issuance  of  $19.0  million of
unsecured convertible promissory notes to certain of its principal stockholders.
The  proceeds  from  the  convertible  notes  were used primarily to finance the
acquisitions,  to  satisfy  the  increase  in the Company's regulatory net worth
requirements  related  to  the PPO/indemnity dental and vision business that was
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  and  other  purposes.

The  convertible  notes bear interest at 6.0% annually, and are convertible into
the  Company's common stock at the rate of $1.75 per share, at the option of the
holder. There are no principal payments due under the convertible notes prior to
January 31, 2010, then principal payments are due beginning on January 31, 2010,
and  each  three months thereafter through July 31, 2013, pursuant to a ten-year
amortization  schedule,  and the remaining balance is payable in full on October
31,  2013. The convertible notes are payable in full upon a change in control of
the Company, at the holder's option. The Company has the option of redeeming the
convertible  notes for 229% of face value during the first seven years after the
date  of issuance, for 257% of face value during the eighth year after issuance,
for  286%  of  face  value during the ninth year after issuance, and for 323% of
face  value  during  the  tenth  year  after  issuance.


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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. Although the Company believes it can
meet  all of its 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 increased significantly from $0.7
million  during the nine months ended September 30, 2002, to $4.7 million in the
same  period in 2003. This was primarily due to an increase in net cash provided
by  net income plus depreciation and amortization expense, and by an increase in
claims  payable and claims incurred but not reported ("IBNR"). Net cash provided
by  net  income  plus  depreciation and amortization expense increased from $1.2
million  in 2002 to $2.9 million in 2003, which is discussed above under Results
from  Operations.  There was $1.1 million of net cash provided by an increase in
claims  payable and IBNR in 2003, compared to $1.0 million of net cash used by a
decrease in claims payable and IBNR in 2002.  The increase in claims payable and
IBNR  in  2003 was primarily due to a temporary decrease in the amount of claims
paid  during  September 2003, in connection with the Company's conversion of its
business to a new primary software application during September. The decrease in
claims payable and IBNR in 2002 was primarily due to an intentional acceleration
in the Company's payment of provider claims, which continued during 2003, except
during  the  month  of  September,  as  noted  above.

Net cash used by investing activities was $0.8 million in 2003, compared to $0.8
million  of  net  cash provided by investing activities in 2002.  The change was
primarily  due  to  a  decrease in net sales of investments from $3.8 million in
2002  to  $0.7  million  in  2003.  The  net  sales  of investments in 2002 were
completed  primarily to raise cash that was needed to finance the acquisition of
Paramount,  a $1.7 million decrease in bank overdrafts, and $1.1 million of debt
payments.  Net  cash used in financing activities increased from $0.7 million in
2002  to  $2.4 million in 2003, primarily due to the $2.0 million borrowing that
was  completed  in  August  2002,  as  discussed  in  Note 4 to the accompanying
condensed  consolidated  financial  statements.

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 September 30, 2003,
the  Company's  total  cash  and  investments  were approximately $17.2 million.
Therefore, a one percentage-point change in short-term interest rates would have
a  $172,000 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.


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ITEM  4.   CONTROLS  AND  PROCEDURES

EVALUATION  OF  DISCLOSURE  CONTROLS  AND  PROCEDURES

The  Company  completed  an  evaluation  as  of  September  30,  2003, 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  lawsuit 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 2002, which was
included  in  selling,  general  and  administrative  expenses.

ITEM  6.   EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)  EXHIBITS

None.

(b)  REPORTS  ON  FORM  8-K.

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.

The  Company  filed  a Current Report on Form 8-K on November 7, 2003, to report
the  completion  of the acquisition of HN Dental and HN Vision effective October
31,  2003, and the issuance of $19.0 million of unsecured convertible promissory
notes  to  certain  of its principal stockholders in October 2003. See Note 9 to
the  accompanying  condensed  consolidated  financial  statements  for  more
information  on  these  events.

The  Company  filed a Current Report on Form 8-K on November 10, 2003, to report
the  issuance  of a news release containing information on the Company's results
of  operations  for  the  quarter  and  nine  months  ended  September 30, 2003.


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                                   SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the  Registrant  has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized, in the City of Aliso
Viejo,  State  of  California,  on  the  10th  day  of  November  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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