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 March 31, 2004

                                       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 May 1, 2004, the number of shares of registrant's common stock, par value
$0.01  per  share,  outstanding  was  5,770,590  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 MARCH 31, 2004



                                                                                                    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     13

  Item 3.   Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . .    20

  Item 4.   Controls and Procedures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    20

PART II.  OTHER INFORMATION

  Item 1.   Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    21

  Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . .    21

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

CERTIFICATIONS BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER  . . . . . . . . . . . . . .    23
</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)


                                                                                    MARCH 31,    DECEMBER 31,
                                                                                      2004           2003
                                                                                   -----------  --------------
<S>                                                                                <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                        $    4,799   $       3,201
  Investments available-for-sale, at fair value                                        24,467          24,998
  Accounts receivable, net of allowances                                                4,949           5,486
  Deferred tax assets, net of valuation allowance                                       1,538           1,871
  Other current assets                                                                  1,284           1,548
                                                                                   -----------  --------------
    Total current assets                                                               37,037          37,104

Property and equipment, net of accumulated depreciation and amortization                4,869           4,823
Restricted investments available-for-sale, at fair value                                2,940           2,932
Goodwill                                                                               12,347          12,365
Intangible assets, net of accumulated amortization                                      9,817           9,862
Deferred tax assets, net of valuation allowance                                         2,778           3,432
Other assets                                                                              739             720
                                                                                   -----------  --------------
    Total assets                                                                   $   70,527   $      71,238
                                                                                   ===========  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                                 $    2,114   $       1,716
  Accrued expenses                                                                      7,014           7,919
  Current portion of long-term convertible debt and capital lease obligations             253             313
  Claims payable and claims incurred but not reported                                   9,763          10,109
  Deferred premium revenue                                                              2,675           3,531
                                                                                   -----------  --------------
    Total current liabilities                                                          21,819          23,588

Long-term convertible debt and capital lease obligations, net of current portion       22,502          22,537
Other long-term liabilities                                                             1,167           1,223
Commitments and contingencies

Stockholders' equity:
  Convertible preferred stock and additional paid-in capital                           41,250          41,250
  Common stock and additional paid-in capital                                          22,798          22,766
  Retained earnings (accumulated deficit)                                             (21,248)        (22,357)
  Accumulated other comprehensive income                                                   65              57
  Treasury stock, at cost                                                             (17,826)        (17,826)
                                                                                   -----------  --------------
    Total stockholders' equity                                                         25,039          23,890
                                                                                   -----------  --------------

    Total liabilities and stockholders' equity                                     $   70,527   $      71,238
                                                                                   ===========  ==============
<FN>
                    See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>


                                        1
<PAGE>
<TABLE>
<CAPTION>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                   THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)



                                                                2004      2003
                                                              --------  --------
<S>                                                           <C>       <C>
Premium revenue, net                                          $43,496   $21,912

Health care services expense                                   31,195    15,093
Selling, general and administrative expense                    10,383     6,354
                                                              --------  --------

Operating income                                                1,918       465

Investment and other income                                       122        79
Interest expense                                                 (356)     (100)
                                                              --------  --------

Income before income taxes                                      1,684       444
Income tax expense                                                575        --
                                                              --------  --------

    Net income                                                $ 1,109   $   444
                                                              ========  ========

Basic net income per share                                    $  0.03   $  0.01
Weighted average basic shares outstanding                      35,758    35,693

Diluted net income per share                                  $  0.03   $  0.01
Weighted average diluted shares outstanding                    49,768    35,989
<FN>
     See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>

                         SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                            (IN THOUSANDS)
                                             (UNAUDITED)



                                                                                    2004       2003
                                                                                  ---------  --------
<S>                                                                               <C>        <C>
Cash flows from operating activities:
  Net income                                                                      $  1,109   $   444
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization                                                    1,073       420
    Deferred income tax expense                                                        547        --
    Bad debt expense                                                                    75        39
    Contribution to retirement plan in the form of common stock, at fair value          42        24
  Changes in operating assets and liabilities, excluding effects of acquisition:
    Accounts receivable                                                                462       396
    Other current assets                                                               264       264
    Other assets                                                                       (26)       10
    Accounts payable                                                                  (229)     (124)
    Accrued expenses                                                                  (915)     (244)
    Claims payable and claims incurred but not reported                               (346)      134
    Deferred premium revenue                                                          (856)       82
                                                                                  ---------  --------
      Net cash provided by operating activities                                      1,200     1,445

Cash flows from investing activities:
  Purchase of investments available-for-sale                                       (28,027)     (777)
  Proceeds from sale/maturity of investments available-for-sale                     28,558       760
  Cash acquired in acquisition of business                                              --       287
  Purchases of property and equipment                                                 (563)     (131)
  Payments received on notes receivable                                                  7        10
  Additions to intangible assets                                                       (38)       --
                                                                                  ---------  --------
      Net cash (used in) provided by investing activities                              (63)      149

Cash flows from financing activities:
  Increase in bank overdrafts                                                          627        96
  Payments on convertible debt and capital lease obligations                          (110)     (623)
  Decrease in other long-term liabilities                                              (56)      (42)
                                                                                  ---------  --------
      Net cash provided by (used in) financing activities                              461      (569)
                                                                                  ---------  --------
Net increase in cash and cash equivalents                                            1,598     1,025
Cash and cash equivalents at beginning of period                                     3,201     3,036
                                                                                  ---------  --------
Cash and cash equivalents at end of period                                        $  4,799   $ 4,061
                                                                                  =========  ========

Supplementary information:
  Cash paid during the period for interest                                        $    265   $   102

Supplementary disclosure of non-cash activities:
  Liabilities assumed in acquisition of business:
    Fair value of identifiable assets acquired, excluding cash                    $     --   $   660
    Goodwill related to transaction                                                     --       699
    Add - Cash received in transaction                                                  --       287
    Less - Liability for purchase price, which was paid in April 2003                   --    (1,100)
    Less - Liability for contingent purchase price                                      --      (176)
                                                                                  ---------  --------
      Liabilities assumed in acquisition of business                              $     --   $   370
                                                                                  =========  ========
<FN>
                See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>


                                        3
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004
                                   (UNAUDITED)

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

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
SafeGuard  Health Enterprises, Inc. and subsidiaries (the "Company") as of March
31,  2004, and for the three 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, 2003, 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 March 31, 2004 is related to the following acquisitions
(in  thousands):

<TABLE>
<CAPTION>
<S>                                                                        <C>
   Health Net Dental, Inc. ("HN Dental") and
     Health Net Vision, Inc. ("HN Vision") - October 2003                  $ 3,163
   Paramount Dental Plan, Inc. ("Paramount") - August 2002                   5,264
   First American Dental Benefits, Inc. ("First American") - October 1996    3,920
                                                                           -------
       Total                                                               $12,347
                                                                           =======
</TABLE>

See  Note 3 for more information on the HN Dental and HN Vision 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,
and  in  the  case  of  the  First  American  acquisition, the balance is net of
previously  accumulated  amortization  and  an  adjustment in 1999 to reduce the
carrying  value  of  the  goodwill  to  its  estimated  realizable  value.

Changes  in  the  carrying  amount  of  goodwill were as follows (in thousands):

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                           -----------------------
                                                              2004         2003
                                                           -----------  ----------
<S>                                                        <C>          <C>
   Balance at beginning of period                          $   12,365   $    8,590
   Goodwill acquired                                               --          699
   Adjustment to goodwill, related to purchase accounting         (18)          --
                                                           -----------  ----------
     Balance at end of period                              $   12,347   $    9,289
                                                           ===========  ==========
</TABLE>

SFAS  No. 142 requires that all goodwill be evaluated for possible impairment on
an  annual  basis  and any time an event that may have affected the value of the
goodwill occurs. SFAS No. 142 also established the appropriate method of testing
for  possible  impairment.  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  as  of  October 1, 2003, 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. For
purposes  of  this  test,  the  Company has three reporting units, which are its
operations  in California, Florida and Texas. The Company had goodwill in two of
the  three  reporting  units  as  of  October  1,  2003.


                                        4
<PAGE>
The fair value of each reporting unit was determined primarily by estimating the
discounted  future  cash  flows of the reporting unit, and 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,  2003,  based  on  the  method  of  testing  for possible impairment
established by SFAS No. 142. The estimates to which the results of the Company's
test  are  the  most  sensitive are the amount of shared administrative expenses
charged  to  each  reporting  unit,  and the market multiple of earnings 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,  2003,  that may have resulted in impairment of the
value  of  its  goodwill.

INTANGIBLE  ASSETS

Intangible  assets  as  of  March  31,  2004  consist of customer relationships,
provider  networks  and other intangible assets with an aggregate net book value
of  $9.8  million, all of which were acquired in connection with the acquisition
of  HN  Dental  and  HN  Vision in October 2003, the acquisition of Paramount in
August  2002,  and  the  acquisition  of  Ameritas  Managed  Dental  Plan,  Inc.
("Ameritas") in March 2003. See Note 3 for more information on the HN Dental, HN
Vision  and  Ameritas  acquisitions.  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  income  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
income.  Stock  options  granted  generally  become  exercisable in equal annual
installments  over  a  three-year  period  after  the  date  of  grant.


                                        5
<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
                                                            MARCH 31,
                                                    ------------------------
                                                       2004         2003
                                                    -----------  -----------
<S>                                                 <C>          <C>
   Net income, as reported                          $    1,109   $      444
   Less -  Employee compensation expense based on
     the fair value method of accounting for stock
     options, net of applicable income tax effect          (49)        (161)
                                                    -----------  -----------
   Pro forma net income                             $    1,060   $      283
                                                    ===========  ===========

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

   Diluted net income per share, as reported        $     0.03   $     0.01
   Pro forma diluted net income per share                 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 in 2003 were: an average
expected  life of four years; expected volatility of 75%; no expected dividends;
and  a  risk-free  annual  interest  rate  of  2.2%. There were no stock options
granted  in 2004. 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 holders
of  the  convertible  preferred  stock  participate in any dividends paid on the
Company's  common  stock  on  an  as-converted  basis,  and  because the Company
believes  the  convertible  preferred  stock is a participating security that 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  ended  March  31,  2004  and  2003, 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 calculation of diluted net income per share
for  2004  includes  the  effect  of  all  outstanding  convertible  notes.  All
outstanding  convertible  notes  would  have  had an anti-dilutive effect on net
income  per  share  in  2003,  and  accordingly,  they  are  excluded  from  the
calculation  of  diluted  net  income  per share for this period. See Note 4 for
information  on  convertible notes that were outstanding during the three months
ended  March  31,  2004  and  2003.


                                        6
<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
                                                                     MARCH 31,
                                                               --------------------
                                                                 2004       2003
                                                               ---------  ---------
<S>                                                            <C>        <C>
   Weighted average basic shares outstanding                      35,758     35,693
   Effect of convertible notes                                    12,790         --
   Effect of dilutive stock options                                1,220        296
                                                               ---------  ---------
     Weighted average diluted shares outstanding                  49,768     35,989
                                                               =========  =========
</TABLE>

For  purposes of computing the net income per diluted share of common stock, the
Company's  net  income  was  adjusted  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                             ----------------------
                                                                2004        2003
                                                             ----------  ----------
<S>                                                          <C>         <C>
   Net income, as reported                                   $    1,109  $      444
   Interest expense on convertible notes, net of tax effect         208          --
                                                             ----------  ----------
     Adjusted net income                                     $    1,317  $      444
                                                             ==========  ==========
</TABLE>

RECENTLY  ADOPTED  ACCOUNTING  PRINCIPLES

In  May  2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150,  "Accounting  for  Certain  Instruments  with  Characteristics  of  Both
Liabilities  and  Equity." In November 2003, the FASB issued FASB Staff Position
No.  150-3  ("FSP  150-3"),  which deferred indefinitely the effective dates for
applying  certain  provisions  of SFAS No. 150 related to mandatorily redeemable
financial instruments. The adoption of SFAS No. 150 had no significant effect on
the  Company's  consolidated  financial  statements.

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

HEALTH  NET  DENTAL,  INC.  AND  HEALTH  NET  VISION,  INC.

Effective  October 31, 2003, the Company acquired all of the outstanding capital
stock of HN Dental, which was a California dental HMO, and certain PPO/indemnity
dental  business  underwritten by Health Net Life Insurance Company ("HN Life"),
which  was formerly an affiliate of HN Dental, for $10.7 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 former 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 HN Vision, which
was  a  California  vision  HMO and a former affiliate of HN Dental, and certain
PPO/indemnity vision business underwritten by HN Life, for $4.5 million in cash.
The  combined  revenue  of the acquired businesses was approximately $61 million
during  the  ten  months ended October 31, 2003. The operations of HN Dental, HN
Vision, and the related dental and vision PPO/indemnity business are included in
the  Company's  consolidated financial statements beginning on November 1, 2003.

The  dental  and vision PPO/indemnity business referred to above was transferred
to  the Company through two Assumption and Indemnity Reinsurance Agreements with
HN  Life  (the  "Agreements").  In  connection  with the Agreements, the Company
assumed  an  estimated  amount  of  claims  payable  and claims incurred but not
reported,  and  certain  other  assets  and  liabilities, in exchange for a cash
payment from HN Life. Also in connection with the Agreements, the Company and HN
Life agreed to adjust the cash payment subsequently, based on subsequent payment
of  claims,  subsequent  collection  of  receivables, and other information that
becomes available to the parties during the six months after the effective date.

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


                                        7
<PAGE>
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
170,000  members.

The  acquisitions  were  financed  through  the  issuance  of  $19.0  million of
unsecured  convertible  promissory  notes  to certain of the Company's principal
stockholders  in October 2003. The proceeds from the convertible notes were used
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,  which  is estimated to be $3.8 million, to provide working
capital  that may be required in connection with the integration of the acquired
businesses  into  the  Company's  pre-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, provided that it redeems all
the convertible notes held by each holder for which it redeems any of the notes.

The  aggregate  cost of the acquisitions was allocated among the assets acquired
as  follows  (in  thousands):

<TABLE>
<CAPTION>
<S>                                                                     <C>
   Cost of acquisitions:
     Cash purchase price, including estimated post-closing adjustments  $15,158
     Transaction expenses incurred by the Company                            68
                                                                        -------
      Total cost                                                        $15,226
                                                                        =======

   Fair value of net assets acquired (liabilities assumed):
     Cash and cash equivalents                                          $ 5,672
     Investments, including restricted investments                        3,147
     Accounts receivable                                                  2,864
     Property and equipment                                                 795
     Goodwill                                                             4,191
     Intangible assets                                                    7,768
     Other assets                                                         1,110
     Accounts payable                                                      (537)
     Accrued expenses                                                    (3,121)
     Claims payable and claims incurred but not reported                 (4,755)
     Deferred premium revenue                                            (1,908)
                                                                        -------
      Net assets acquired                                               $15,226
                                                                        =======
</TABLE>



The  intangible  assets  acquired  consist  of  the  following  (in  thousands):

<TABLE>
<CAPTION>
                                                                      WEIGHTED
                                                                      AVERAGE
                                                          AMOUNT    AMORTIZATION
                                                        ALLOCATED      PERIOD
                                                        ----------  ------------
<S>                                                     <C>         <C>
  Customer relationships                                $    5,237     6.2 years
  Provider networks                                          2,230    20.0 years
  Other intangible assets                                      301    11.7 years
                                                        ----------
    Total                                               $    7,768    10.4 years
                                                        ==========
</TABLE>


                                        8
<PAGE>
The  Company plans to make an election under Section 338 of the Internal Revenue
Code  to  treat  the  acquisition  of  HN  Dental  as  an asset purchase for tax
purposes.  Assuming  this  election  is  made,  the  Company  estimates  that
approximately  $8.9  million of goodwill and intangible assets related to the HN
Dental  and  HN  Vision  acquisitions  will  be  amortized  over  15  years on a
straight-line  basis  for  income  tax  purposes.

AMERITAS  MANAGED  DENTAL  PLAN,  INC.

Effective  March  31,  2003, the Company acquired all of the outstanding capital
stock  of  Ameritas  for  $1.0 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 March 31, 2004,
the  Company has accrued a total of $341,000 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 March 31, 2004, plus the estimated contingent monthly
payments  related to the remaining portion of annual customer contracts that are
in force as of April 1, 2004.  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
March  31,  2004,  from customers of Ameritas that existed as of March 31, 2003,
the  maximum  aggregate  amount  of  the  contingent  monthly  payments would be
approximately  $1.2  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 the twelve months ended March 31, 2004. The operations of
Ameritas  are  included  in  the  Company's  consolidated  financial  statements
beginning  on  April  1,  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  cost  of the acquisition was allocated among the assets acquired as follows
(in  thousands):

<TABLE>
<CAPTION>
<S>                                                         <C>
  Cost of acquisition:
    Cash purchase price, net of post-closing adjustments    $1,034
    Contingent purchase price accrued as of March 31, 2004     341
                                                            ------
     Total cost                                             $1,375
                                                            ======

  Fair value of net assets acquired (liabilities assumed):
    Cash and cash equivalents                               $  276
    Investments                                                465
    Intangible assets                                        1,308
    Other assets                                               150
    Deferred income tax liability                             (458)
    Deferred premium revenue                                  (258)
    Other current liabilities                                 (108)
                                                            ------
     Total cost of acquisition                              $1,375
                                                            ======
</TABLE>

The  intangible  assets  acquired  consist  of  the  following  (in  thousands):

<TABLE>
<CAPTION>
                                                                      WEIGHTED
                                                                      AVERAGE
                                                          AMOUNT    AMORTIZATION
                                                        ALLOCATED      PERIOD
                                                        ----------  ------------
<S>                                                     <C>         <C>
  Customer relationships                                $    1,079     9.5 years
  Other intangible assets                                      229    10.8 years
                                                        ----------
    Total                                               $    1,308     9.8 years
                                                        ==========
</TABLE>


                                        9
<PAGE>
The  Company  estimates that approximately $0.1 million of the intangible assets
related  to  the  acquisition  of  Ameritas will be amortized over 15 years on a
straight-line  basis  for  income  tax  purposes.

PRO  FORMA  RESULTS  OF  OPERATIONS

Following  is  certain pro forma statement of income information, which reflects
adjustments  to  the  Company's  historical  financial  statements for the three
months  ended  March  31, 2003, as if the acquisition of HN Dental and HN Vision
had  been  completed  as  of  the  beginning  of  that  period  (in  thousands):

<TABLE>
<CAPTION>
<S>                                                                 <C>
  Premium revenue, net                                              $35,434
  Operating income                                                      247
  Net income                                                            120

  Basic net income per share                                        $  0.00
  Diluted net income per share                                         0.00
</TABLE>

The  above pro forma statement of income 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. The above pro forma information does not reflect any adjustments related
to the acquisition of Ameritas, because any such pro forma adjustments would not
be  significant.

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

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

<TABLE>
<CAPTION>
                                                          MARCH 31,    DECEMBER 31,
                                                            2004           2003
                                                         ----------   -------------
<S>                                                      <C>          <C>
  Unsecured convertible promissory notes - October 2003  $   19,000   $      19,000
  Secured convertible promissory note - September 2002        1,602           1,602
  Unsecured convertible promissory note - August 2002         1,538           1,538
  Capital lease obligations                                     615             710
                                                         ----------   -------------
    Total debt                                               22,755          22,850
  Less - short-term portion                                    (253)           (313)
                                                         ----------   -------------
    Long-term debt and capital lease obligations         $   22,502   $      22,537
                                                         ==========   =============
</TABLE>

See  Note  3  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. None of the outstanding convertible
notes  include  any  financial  covenants  or  similar  restrictions.

In  September 2002, the Company issued a secured convertible promissory note for
$2,625,000.  The  secured  convertible note bears interest at 7.0% annually, and
was  originally  payable  in  36  equal  monthly  installments  of principal and
interest,  beginning  in October 2002. The terms of the note were amended in the
fourth  quarter  of  2003, and the outstanding balance is now payable in monthly
installments  of interest only until a date to be specified by the holder of the
convertible  note  at  least  90  days in advance of such date, which must be no
later  than  January 1, 2007. Effective on the date specified by the holder, the
convertible  note  will be payable in 21 equal monthly installments of principal
and  interest.  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.

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


                                       10
<PAGE>
balance under the unsecured convertible note is convertible into common stock of
the  Company  at  a  conversion  price  of  $1.625  per  share.

The  Company  has  several  capital leases outstanding, which are related to the
purchase  of  certain  office  and  computer  equipment.

NOTE  5.  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.

In  the  fourth  quarter of 2003, the Company reduced the valuation allowance on
its  net  deferred  tax  assets by $5.7 million, based on its determination that
this  amount  of  the  net  deferred  tax  assets  is more likely than not to be
realized,  primarily  due to a significant improvement in the Company's reported
operating  results  and  its expected future operating results. Accordingly, the
Company  recognized  deferred  income  tax  expenses  and  benefits  in  2004.

The  Company incurred a net loss for income tax purposes during the three months
ended  March  31,  2003, primarily due to temporary differences that reduced the
Company's  income  for  tax  purposes.  Accordingly,  the  Company recognized no
current  income  tax  expense  for  this  period. The Company's net deferred tax
assets  were  fully  reserved  during  the period from the third quarter of 1999
through  the  third quarter of 2003, as the Company believed at the time that it
was more likely than not that the net deferred tax assets would not be realized.
Accordingly,  the  Company's  deferred income tax expense in 2003 was completely
offset  by  adjustments  to the valuation allowance against its net deferred tax
assets.

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, 2003, the Company had net operating loss carryforwards for federal
and  California  state  tax  purposes  of  approximately  $6.7  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.

NOTE  6.  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
three  months  ended  March  31,  2004  and  2003, 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 $8,000 and $(10,000) for the three
months  ended  March 31, 2004 and 2003, respectively. Total comprehensive income
was  $1,117,000 and $434,000 for the three months ended March 31, 2004 and 2003,
respectively.

NOTE  7.  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 providers in


                                       11
<PAGE>
the  Company's  network,  or  will  not  have  a  material adverse effect on the
Company's  consolidated  financial  position  or  results  of  operations.

CONTINGENT  LEASE  OBLIGATIONS

The  Company  sold all of its general dental practices and orthodontic practices
in  1996,  1997  and  1998.  The  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 March 31, 2004, the total of the minimum annual payments under
these  leases  was  approximately  $0.9  million,  and  the aggregate contingent
liability  of the Company related to these leases was approximately $1.6 million
over  the  terms  of the lease agreements, which expire at various dates through
2009.  In  the  event  the  parties  to  which  these lease agreements have been
assigned  defaulted  on  the  leases,  the  aggregate  contingent  liability  of
approximately  $1.6  million could be mitigated by the Company by subleasing the
related  office  space  to  other parties, although there can be no assurance it
would  be  able  to  do  so.  The  aggregate contingent lease obligation of $1.6
million  excludes $337,000 of estimated lease obligations that have been accrued
as  of  December 31, 2003, due to the failure by one of the entities to make the
lease  payments  under  a lease that was assigned to that entity by the Company.
This  estimated  lease  obligation  is  included  in  the accompanying condensed
consolidated balance sheet under the caption "Accrued expenses." The Company has
not  been  notified  of  any other defaults under these leases that would have a
material  effect  on  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  three  months  ended  March  31,  2004.

GOVERNMENT  REGULATION

During  the three months ended March 31, 2004 and 2003, certain of the Company's
subsidiaries  were not in compliance with regulatory requirements that limit the
amount  of  the  subsidiary's  administrative  expenses  as  a percentage of its
premium  revenue.  The  Company  has  discussed  this  noncompliance  with  the
applicable  regulatory  agencies,  and  those agencies have taken no action with
respect  to  this  noncompliance.  The  Company  believes  these  instances  of
noncompliance  with  regulatory  requirements will have no significant effect on
its  consolidated  financial  statements.

NOTE  8.  CAPITAL  STOCK
------------------------

PENDING  REVERSE  STOCK  SPLIT

In  November  2003,  the  Company's  board of directors approved a reverse stock
split and certain related transactions, pursuant to which: (i) each 1,500 shares
of  the  Company's outstanding common stock would be converted into one share of
new  common  stock;  (ii)  the Company would pay cash for fractional shares that
result  from  the reverse stock split at the rate of $2.25 per share of existing
common  stock;  (iii)  the  Company  would  acquire  all  the  shares  of  its


                                       12
<PAGE>
common  stock  that  are  held  by  the  Company's  401(k)  retirement  plan
(approximately 172,000 shares) for a price of $2.25 per share of existing common
stock;  (iv)  each  outstanding  option to purchase 1,500 shares of common stock
would  be converted into an option to purchase one share of new common stock, at
an  exercise  price per share that is equal to 1,500 times the existing exercise
price per share; and (v) the Company would pay cash equal to the excess, if any,
of  $2.25 per existing share over the existing exercise price per share, for the
fractional  options  that  result  from  the  reverse  split.

The  purpose of the reverse stock split is to reduce the number of the Company's
stockholders  below  300,  after  which  the  Company intends to de-register its
common stock with the United States Securities and Exchange Commission and cease
being a publicly traded company. The Company estimates the aggregate cost of the
reverse  stock  split and related transactions to be approximately $1.2 million,
including the cost of acquiring shares of stock and fractional stock options and
transaction  expenses.  The  reverse  stock  split  and related transactions are
currently  pending  stockholder  approval.

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, 2003, which has been filed with the Securities and
Exchange  Commission,  should  be  read  in  conjunction  with this Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results  of Operations
("MD&A").

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

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

RISK  FACTORS
-------------

The  Company's  business  and  competitive environment includes numerous factors
that  expose  the Company to risk and uncertainty. Some risks are related to the
dental or vision 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  3  to  the  accompanying  condensed


                                       13
<PAGE>
consolidated  financial  statements  for more information on these transactions.
The  combined  revenue  of the acquired businesses was approximately $74 million
for  the year ended December 31, 2003, which is significant compared to the size
of  the  Company's  pre-existing  operations.  The  Company is in the process of
integrating  the  acquired business into its pre-existing operations. 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  and  vision  benefits industries are 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 or vision 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.  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 March 31, 2004, the Company is contingently
liable  for  an  aggregate  of  approximately  $1.6  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.

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 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 and vision providers. Dental and vision providers are
becoming  more  sophisticated,  their  practices  are  busier, and they are less
willing  to  join  the  Company's  networks  under  capitation  arrangements  or
discounted  fees.  There can be no assurance the Company will be able to compete
successfully  enough  to be profitable. Existing or new competitors could have a
negative  impact  on  the Company's revenues, earnings and growth prospects. The
Company  expects  the  level  of  competition to remain high for the foreseeable
future.

UTILIZATION  OF  DENTAL  AND  VISION  SERVICES

Under  the  Company's  dental  PPO/indemnity plan designs and its vision benefit
plans, the Company assumes the entire underwriting risk related to the frequency
and cost of dental or vision services provided to the covered individuals. Under
the  Company's  dental  HMO  plan  designs, the Company assumes a portion of the
underwriting


                                       14
<PAGE>
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  PROVIDERS

The  Company's success is dependent on maintaining competitive provider networks
in  each  of  the  Company's  geographic markets. Generally, the Company and the
network  providers  enter  into nonexclusive contracts that may be terminated by
either  party  with  limited  notice.  The  Company's operating results could be
negatively  affected  if it is unable to establish and maintain contracts with a
competitive  number  of  providers  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  March  31,  2004.  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.

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  March  31, 2004 consists of $3.1 million of goodwill
related  to  the  acquisition  of  HN Dental and HN Vision in October 2003, $5.3
million  of  goodwill  related to the acquisition of Paramount in 2002, and $3.9
million  of  goodwill  related to the acquisition of First American in 1996. See
Note  3  to  the  accompanying  consolidated  financial  statements  for  more
information  on  the acquisition of HN Dental and HN Vision. 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, and in the case
of  the  First  American


                                       15
<PAGE>
acquisition,  the  balance  is net of previously accumulated amortization and an
adjustment in 1999 to reduce the carrying value of the goodwill to its estimated
realizable  value.

SFAS  No. 142 requires that all goodwill be evaluated for possible impairment on
an  annual  basis, and any time an event that may have affected the value of the
goodwill occurs. SFAS No. 142 also established the appropriate method of testing
for  possible  impairment.  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, 2003,
based  on  the method of testing for possible impairment established by SFAS No.
142.  The  estimates  to  which  the  results of the Company's test are the most
sensitive  are  the amount of shared administrative expenses that are charged to
each  reporting  unit,  and  the  market  multiple  of  earnings that is used to
estimate  the  fair  value  of  each  reporting  unit.  The Company believes the
estimates  used  in  its  test are reasonable and appropriate, but a significant
change  in  either  of  these  estimates  could  result  in the indication of an
impairment  of  goodwill.  The  Company  is  not  aware  of any events that have
occurred since October 1, 2003 that may have affected the value of its goodwill.
However, there can be no assurance that impairment will not occur in the future.

INTANGIBLE  ASSETS

Intangible  assets  as  of  March  31,  2004  consist of customer relationships,
provider  networks, and other intangible assets with an aggregate net book value
of  $9.8 million, all of which were acquired in connection with the acquisitions
of  HN  Dental  and  HN  Vision  in  October  2003,  Ameritas in March 2003, and
Paramount  in August 2002. See Note 3 to the accompanying consolidated financial
statements  for more information on the acquisitions of HN Dental, HN Vision and
Ameritas.  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, the recent
trend  in  payment rates, and the recent trend in 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.


                                       16
<PAGE>
RECOGNITION  OF  PREMIUM  REVENUE

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

INCOME  TAXES

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

In  the  fourth  quarter of 2003, the Company reduced the valuation allowance on
its  net  deferred  tax  assets by $5.7 million, based on its determination that
this  amount  of  the  net  deferred  tax  assets  is more likely than not to be
realized,  primarily  due to a significant improvement in the Company's reported
operating  results  and  its expected future operating results. Accordingly, the
Company  recognized  deferred  income tax expenses and benefits during the three
months  ended  March  31, 2004. The Company's net deferred tax assets were fully
reserved  during  the comparable period in 2003, as the Company believed at that
time that it was more likely than not that the net deferred tax assets would not
be  realized.

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
                                                                 MARCH 31,
                                                          ----------------------
                                                             2004        2003
                                                          ----------  ----------
<S>                                                       <C>         <C>
Premium revenue, net                                          100.0%      100.0%

Health care services expense                                   71.7        68.9
Selling, general and administrative expense                    23.9        29.0
                                                          ----------  ----------
  Operating income                                              4.4         2.1

Investment and other income                                     0.3         0.4
Interest expense                                               (0.8)       (0.5)
                                                          ----------  ----------
  Income before income taxes                                    3.9         2.0
Income tax expense                                              1.3          --
                                                          ----------  ----------

  Net income                                                    2.6%        2.0%
                                                          ==========  ==========
</TABLE>

THREE  MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003

Premium revenue increased by $21.6 million, or 98.5%, from $21.9 million in 2003
to  $43.5  million in 2004, primarily due to the acquisition of HN Dental and HN
Vision  effective  October  31,  2003, and the acquisition of Ameritas effective
March  31, 2003. See Note 3 to the accompanying condensed consolidated financial
statements  for  more  information  on  these acquisitions. The operations of HN
Dental  and  HN  Vision  are  included  in  the  Company's  financial statements
beginning  on  November  1,  2003,  and  the operations of Ameritas are included
beginning  on  April  1,  2003.  The  average  membership  for which the Company
provided  dental  or vision coverage increased by approximately 674,000 members,
or  87.1%,  from  774,000  members in 2003 to 1,448,000 members in 2004. Average
membership  increased  in  2004  by  approximately 621,000 members due to the HN
Dental  and  HN


                                       17
<PAGE>
Vision  acquisition,  and  by  approximately  26,000 members due to the Ameritas
acquisition,  and  the  remaining  increase  of  3.5%  was  due  to net internal
membership  growth.

Premium revenue increased by 98.5% while average membership increased 87.1%. The
increase  in  premium revenue per member was primarily due to the acquisition of
HN Dental and HN Vision, as the acquired business has higher average revenue per
member  than  the  Company's pre-existing business. The Company believes this is
because  the  product  mix  of the acquired business includes benefit plans with
higher  levels  of  coverage  on average, compared to the Company's pre-existing
business.  The  increase in premium revenue per member from 2003 to 2004 is also
partially  due  to  increases  in  premium  rates.

Health  care  services expense increased by $16.1 million, or 106.7%, from $15.1
million  in  2003 to $31.2 million in 2004, primarily due to the acquisitions of
HN  Dental,  HN  Vision  and  Ameritas, as discussed above. Health care services
expense  as  a  percentage  of premium revenue (the "loss ratio") increased from
68.9% in 2003 to 71.7% in 2004. The increase in the loss ratio was primarily due
to  the  acquisition  of HN Dental and HN Vision, as the acquired business had a
higher  loss  ratio  than  the  pre-existing  operations  of  the  Company.

Selling,  general and administrative ("SG&A") expense increased by $4.0 million,
or  63.4%,  from $6.4 million in 2003 to $10.4 million in 2004, primarily due to
the  acquisitions of HN Dental, HN Vision and Ameritas, as discussed above. SG&A
expense as a percentage of premium revenue decreased from 29.0% in 2003 to 23.9%
in  2004.  The  increase  in  SG&A  expenses is primarily due to the increase in
membership  and  premium revenue, as discussed above, while the decrease in SG&A
expense  as  a  percentage  of  premium revenue is primarily due to economies of
scale  that  were  realized  by the Company as a result of the acquisition of HN
Dental  and  HN  Vision.

Investment  and other income decreased from $79,000 in 2003 to $122,000 in 2004,
which  was primarily due to an increase in the amount of investments held by the
Company.  The  increase  in  the  amount  of investments held by the Company was
primarily due to the investments of HN Dental and HN Vision, and the increase in
investments  held  by the Company's insurance subsidiary, which was necessary to
support the PPO/indemnity dental and vision business acquired in connection with
the  acquisition  of  HN  Dental  and  HN Vision. See Note 3 to the accompanying
condensed  consolidated  financial  statements  for  more  information  on  the
acquisition  of HN Dental and HN Vision. The increase in investments held by the
Company's insurance subsidiary was financed by the issuance of convertible notes
in  October  2003,  as  discussed  in  Note  3  to  the  accompanying  condensed
consolidated  financial  statements.

Interest  expense increased from $100,000 in 2003 to $356,000 in 2004, which was
primarily  due  to the issuance of $19.0 million of convertible notes in October
2003,  as  discussed  in  Note  3  to  the  accompanying  condensed consolidated
financial  statements.

Income before income taxes improved significantly, from $444,000 in 2003 to $1.7
million in 2004, which was primarily due to a 98.5% increase in premium revenue,
and a decrease in SG&A expense as a percentage of premium revenue, from 29.0% in
2002  to  23.9%  in  2003,  as  discussed  above.

Income  tax expense increased from zero in 2003 to $575,000 in 2004. The Company
had  a loss for tax purposes in 2003, and its net deferred tax assets were fully
reserved  at  the  time,  and  accordingly,  the  Company recorded no income tax
expense in 2003. See Note 5 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 $13.5 million as of December
31,  2003,  to  $15.2  million as of March 31, 2004. The increase in net working
capital  was  primarily  due  to $1.1 million of net income plus $0.5 million of
deferred  income  tax  expense.

The  Company's  total  debt decreased slightly from $22.9 million as of December
31,  2003,  to  $22.8  million  as of March 31, 2004, as there were no principal
payments due on any of its debt during the first quarter of 2004, except for the
capital lease obligations. The aggregate principal payments due under all of the
Company's  debt,  including


                                       18
<PAGE>
its  capital leases, are $0.2 million during the remainder of 2004, $0.1 million
in  2005,  $0.5 million in 2006, $1.7 million in 2007, $1.2 million in 2008, and
$19.0  million  from  2009  through  2013.

Effective  March  31,  2003, the Company acquired all of the outstanding capital
stock  of  Ameritas  for  $1.0 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 March 31, 2004,
the  Company has accrued a total of $341,000 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 March 31,
2004,  from customers of Ameritas that existed as of March 31, 2003, the maximum
aggregate  amount of the contingent monthly payments would be approximately $1.2
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 the
twelve  months  ended  March  31, 2004. 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 HN Dental, which was a California dental HMO, and certain PPO/indemnity
dental  business  underwritten by Health Net Life Insurance Company ("HN Life"),
which  was formerly an affiliate of HN Dental, for $10.7 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 former 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 HN Vision, which
was  a  California  vision  HMO and a former affiliate of HN Dental, and certain
PPO/indemnity vision business underwritten by HN Life, for $4.5 million in cash.
HN  Dental  and HN Vision were merged into the Company's pre-existing California
dental  HMO  subsidiary  effective  April  1,  2004.

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 170,000 members.

The  acquisitions  were  financed  through  the  issuance  of  $19.0  million of
unsecured  convertible  promissory  notes  to certain of the Company's principal
stockholders  in October 2003. The proceeds from the convertible notes were used
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,  which  is estimated to be $3.8 million, 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, provided that it redeems all
the convertible notes held by each holder for which it redeems any of the notes.

The  Company's  primary  source  of  funds  is  cash  flows  from operations and
investment  income.  The  Company  believes  that cash flows from operations and
investment  income  will be adequate to meet the Company's cash requirements for
at  least  the  next twelve months, except for financing that may be required to
complete  additional  potential  acquisitions.  The  Company does not expect any
significant  changes  in its cash requirements in the foreseeable future, except
for  any  financing  that  may  be  required  in  connection  with  potential
acquisitions.


                                       19
<PAGE>
The Company believes it has adequate financial resources to continue its current
operations  for  the  foreseeable  future,  and that it will be able to meet its
financial  obligations  from  its  existing  financial resources and future cash
flows  from  its  operations. However, there can be no assurance that there will
not  be  unforeseen  events  that  could  prevent  the  Company  from  doing so.

Net cash provided by operating activities decreased from $1.4 million in 2003 to
$1.2  million  in  2004.  Net  cash  provided  by  net income plus depreciation,
amortization  and deferred income tax expense increased from $864,000 in 2003 to
$2.7  million  in  2004,  which  was  offset by $1.8 million of net cash used to
decrease accrued expenses and deferred premium revenue in 2004, compared to $0.2
million  of  net  cash  used  to  decrease those items in 2003. The $0.9 million
decrease in accrued expenses in 2004 was primarily due to a $1.3 million payment
to  the  seller of HN Dental and HN Vision in connection with the acquisition of
those  entities  in  October 2003. The $0.9 million decrease in deferred premium
revenue  in 2004 was primarily due to a change in the timing of monthly billings
to  customers of HN Dental and HN Vision during the first quarter of 2004, which
was  implemented  in  connection with the integration of HN Dental and HN Vision
into  the  Company's  pre-existing  operations.

Net cash used by investing activities was $0.1 million in 2004, compared to $0.1
million of net cash provided by investing activities in 2003.  Net proceeds from
the sale or maturity of investments were $0.5 million in 2004, which was used to
finance  $0.6  million of purchases of property and equipment. Net cash provided
by  financing  activities  was $0.5 million in 2004, compared to $0.6 million of
net  cash  used  by  financing  activities in 2003. Payments on debt and capital
lease  obligations  decreased from $0.6 million in 2003 to $0.1 million in 2004,
due  to  amendments  to two of the outstanding convertible notes, which deferred
principal  payments  on  the  notes.  See  Note  4 to the accompanying condensed
consolidated financial statements for more information on the convertible notes.

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 and
vision  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 vision care
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 March 31, 2004, the
Company's  total  cash  and  investments  were  approximately  $32.6  million.
Therefore, a one percentage-point change in short-term interest rates would have
a  $326,000 impact on the Company's annual investment income. The Company is not
subject  to  a  material  amount  of risk related to changes in foreign currency
exchange  rates.

ITEM 4.   CONTROLS AND PROCEDURES

EVALUATION  OF  DISCLOSURE  CONTROLS  AND  PROCEDURES

The  Company completed an evaluation as of March 31, 2004, 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


                                       20
<PAGE>
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 providers in the
Company's  provider  networks, or will not have a material adverse effect on the
Company's  consolidated  financial  position  or  results  of  operations.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)   EXHIBITS

      31.1  Certification of Chief Executive Officer
      31.2  Certification of Chief Financial Officer
      31.1  Certification pursuant to 18 U.S.C. Section 1350

(b)   REPORTS  ON  FORM  8-K.

The  Company  filed  a  Current  Report on Form 8-K/A on January 13, 2004, which
amended  the  Current  Report  on  Form 8-K filed on November 7, 2003, and which
includes  historical  financial  statements  of  HN Dental and HN Vision and pro
forma  financial  information  for  the Company related to the acquisition of HN
Dental  and  HN  Vision.  See  Note 3 to the accompanying condensed consolidated
financial  statements  for  more  information  on  this  acquisition.

The  Company filed a Current Report on Form 8-K on April 15, 2004, to report the
issuance  of  a  news release containing information on the Company's results of
operations  for  the  quarter  and  year  ended  December  31,  2003.


                                       21
<PAGE>
                                   SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the  Registrant  has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized, in the City of Aliso
Viejo,  State  of  California,  on  the  13th  day  of  May  2004.

                         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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