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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

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(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, 2001

|/ / | 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: 000-25549

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INTERDENT, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

95-4710504(I.R.S. Employer
Identification No.)


222 No. Sepulveda Blvd., Suite 740, El Segundo, CA 90245-4340(Address of principal executive offices)

(310) 765-2400(Registrant's telephone number, including area code)

No Change(Former name, former address and former fiscal year, if changed since last report)

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Indicate
by check mark whether the registrant (1) 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, 2001 23,993,540 shares of the issuer's common stock were outstanding.

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

INTERDENT, INC.  AND SUBSIDIARIES        Condensed Consolidated Balance Sheets        (Unaudited, in thousands, except share amounts)

|                                                                                                                            |                                                                                                        | March 31,
2001                                                                                             |                       | December 31,
2000                                                   |       
|--------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------------------------------------------------- | ------
|Assets                                                                                                                      |                                                                                                        |                                                                                                            |                       |                                                                     |       
|Current assets:                                                                                                             |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            | Cash and cash equivalents                                                                              |                                                                                                            | $                     | 9,340                                                               |       
|                                                                                                                            | Accounts receivable, net                                                                               |                                                                                                            |                       | 24,899                                                              |       
|                                                                                                                            | Management fee receivables                                                                             |                                                                                                            |                       | 5,498                                                               |       
|                                                                                                                            | Current portion of notes and advances receivable from professional associations, net                   |                                                                                                            |                       | 925                                                                 |       
|                                                                                                                            | Supplies inventory                                                                                     |                                                                                                            |                       | 4,982                                                               |       
|                                                                                                                            | Prepaid and other current assets                                                                       |                                                                                                            |                       | 5,453                                                               |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       | Total current assets                                                |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|Property and equipment, net                                                                                                 |                                                                                                        |                                                                                                            | 33,077                |                                                                     |       
|Intangible assets, net                                                                                                      |                                                                                                        |                                                                                                            | 152,524               |                                                                     |       
|Notes and advances receivable from professional associations, net of current portion                                        |                                                                                                        |                                                                                                            | 5,732                 |                                                                     |       
|Other assets                                                                                                                |                                                                                                        |                                                                                                            | 7,419                 |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            | Total assets          |                                                                     | $     
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|Liabilities, Redeemable Common Stock and Shareholders' Equity                                                               |                                                                                                        |                                                                                                            |                       |                                                                     |       
|Current liabilities:                                                                                                        |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            | Accounts payable                                                                                       |                                                                                                            | $                     | 10,864                                                              |       
|                                                                                                                            | Accrued payroll and payroll related costs                                                              |                                                                                                            |                       | 9,162                                                               |       
|                                                                                                                            | Other current liabilities                                                                              |                                                                                                            |                       | 21,591                                                              |       
|                                                                                                                            | Current portion of long-term debt and capital lease obligations                                        |                                                                                                            |                       | 22,055                                                              |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       | Total current liabilities                                           |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|Long-term liabilities:                                                                                                      |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            | Obligations under capital leases, net of current portion                                               |                                                                                                            |                       | 2,714                                                               |       
|                                                                                                                            | Long-term debt, net of current portion                                                                 |                                                                                                            |                       | 117,797                                                             |       
|                                                                                                                            | Convertible senior subordinated debt                                                                   |                                                                                                            |                       | 33,292                                                              |       
|                                                                                                                            | Other long-term liabilities                                                                            |                                                                                                            |                       | 119                                                                 |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       | Total long-term liabilities                                         |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       | Total liabilities                                                   |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|Redeemable common stock, $0.001 par value, 133,394 and 137,109 shares issued and outstanding in 2001 and 2000, respectively |                                                                                                        |                                                                                                            | 1,434                 |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|Shareholders' equity:                                                                                                       |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            | Preferred stock, $0.001 par value, 30,000,000 shares authorized:                                       |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        | Preferred stockSeries A, 100 shares authorized and outstanding                                            |                       |                                                                     | 1     
|                                                                                                                            |                                                                                                        | Convertible Preferred stockSeries B, 70,000 shares authorized, zero shares issued and outstanding         |                       |                                                                     |      
|                                                                                                                            |                                                                                                        | Preferred stockSeries C, 100 shares authorized, zero shares issued and outstanding                        |                       |                                                                     |      
|                                                                                                                            |                                                                                                        | Convertible Preferred stockSeries D, 2,000,000 shares authorized, 1,628,663 shares issued and outstanding |                       |                                                                     | 12,089
|                                                                                                                            | Common stock, $0.001 par value, 50,000,000 shares authorized, 23,860,146 shares issued and outstanding |                                                                                                            |                       | 24                                                                  |       
|                                                                                                                            | Additional paid-in capital                                                                             |                                                                                                            |                       | 76,278                                                              |       
|                                                                                                                            | Notes receivable:                                                                                      |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            | Shareholder           |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            | Deferred compensation |                                                                     |       
|                                                                                                                            | Accumulated deficit                                                                                    |                                                                                                            |                       | (47,665                                                             | )     
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       | Total shareholders' equity                                          |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       | Total liabilities, redeemable common stock and shareholders' equity |       
|                                                                                                                            |                                                                                                        |                                                                                                            |                       |                                                                     |       

See accompanying notes to condensed consolidated financial statements.

2

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INTERDENT, INC.  AND SUBSIDIARIES        Condensed Consolidated Statements of Operations        (Unaudited, in thousands, except per share amounts)

|                                                             |                                                        | Three Months Ended March 31, |                                               
|------------------------------------------------------------ | ------------------------------------------------------ | ---------------------------- | ----------------------------------------------
|
|Revenues:                                                    |                                                        |                              |                                               
|                                                             | Dental practice net patient service revenue            |                              | $                                             
|                                                             | Net management fees                                    |                              |                                               
|                                                             | Licensing and other fees                               |                              |                                               
|                                                             |                                                        |                              |                                               
|                                                             |                                                        |                              | Total revenues                                
|                                                             |                                                        |                              |                                               
|Operating expenses:                                          |                                                        |                              |                                               
|                                                             | Clinical salaries, benefits, and provider costs        |                              |                                               
|                                                             | Practice non-clinical salaries and benefits            |                              |                                               
|                                                             | Dental supplies and lab expenses                       |                              |                                               
|                                                             | Practice occupancy expenses                            |                              |                                               
|                                                             | Practice selling, general and administrative expenses  |                              |                                               
|                                                             | Corporate selling, general and administrative expenses |                              |                                               
|                                                             | Management merger and retention bonus                  |                              |                                               
|                                                             | Stock compensation expense                             |                              |                                               
|                                                             | Corporate merger and restructure costs                 |                              |                                               
|                                                             | Depreciation and amortization                          |                              |                                               
|                                                             |                                                        |                              |                                               
|                                                             |                                                        |                              | Total operating expenses                      
|                                                             |                                                        |                              |                                               
|                                                             |                                                        |                              | Operating income                              
|                                                             |                                                        |                              |                                               
|Nonoperating income (expense):                               |                                                        |                              |                                               
|                                                             | Interest expense, net                                  |                              |                                               
|                                                             | Other, net                                             |                              |                                               
|                                                             |                                                        |                              |                                               
|                                                             |                                                        |                              | Nonoperating expense, net                     
|                                                             |                                                        |                              |                                               
|                                                             |                                                        |                              | Income (loss) before income taxes             
|Provision for income taxes                                   |                                                        |                              | 50                                            
|                                                             |                                                        |                              |                                               
|                                                             |                                                        |                              | Net income (loss)                             
|Accretion of redeemable common stock                         |                                                        |                              | (1                                            
|                                                             |                                                        |                              |                                               
|                                                             |                                                        |                              | Net income (loss) attributable to common stock
|                                                             |                                                        |                              |                                               
|Income (loss) per share attributable to common stockbasic   |                                                        | $                            | (.02                                          
|                                                             |                                                        |                              |                                               
|Income (loss) per share attributable to common stockdiluted |                                                        | $                            | (.02                                          
|                                                             |                                                        |                              |                                               

See
accompanying notes to condensed consolidated financial statements.

3

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INTERDENT, INC.  AND SUBSIDIARIES        Condensed Consolidated Statements of Cash Flows        (Unaudited, in thousands)

|                                               |                                                                                          | Three Months Ended March 31,                                                  |                                          
|---------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:          |                                                                                          |                                                                               |                                          
|                                               | Net income (loss)                                                                        |                                                                               | $                                        
|                                               | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                               |                                          
|                                               |                                                                                          | Depreciation and amortization                                                 |                                          
|                                               |                                                                                          | Loss on disposal of assets                                                    |                                          
|                                               |                                                                                          | Non-employee stock options granted and stock issued for fees and compensation |                                          
|                                               |                                                                                          | Amortization of stock compensation expense                                    |                                          
|                                               |                                                                                          | Interest income on shareholder notes                                          |                                          
|                                               |                                                                                          | Notes issued or accrued as interest payment-in-kind                           |                                          
|                                               |                                                                                          | Interest amortization on deferred financing costs and discounted debt         |                                          
|                                               |                                                                                          | Change in assets and liabilities, net of the effect of acquisitions:          |                                          
|                                               |                                                                                          |                                                                               | Accounts receivable, net                 
|                                               |                                                                                          |                                                                               | Management fees receivable               
|                                               |                                                                                          |                                                                               | Supplies inventory                       
|                                               |                                                                                          |                                                                               | Prepaid expenses and other current assets
|                                               |                                                                                          |                                                                               | Other assets                             
|                                               |                                                                                          |                                                                               | Accounts payable                         
|                                               |                                                                                          |                                                                               | Accrued payroll and payroll related costs
|                                               |                                                                                          |                                                                               | Accrued merger and restructure           
|                                               |                                                                                          |                                                                               | Other liabilities                        
|                                               |                                                                                          |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|Cash flows from investing activities:          |                                                                                          |                                                                               |                                          
|                                               | Purchase of property and equipment                                                       |                                                                               |                                          
|                                               | Net payments received on notes receivable from professional associations                 |                                                                               |                                          
|                                               | Net advances to professional associations                                                |                                                                               |                                          
|                                               | Cash paid for acquisitions and earn-outs, including direct costs, net of cash acquired   |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|Cash flows from financing activities:          |                                                                                          |                                                                               |                                          
|                                               | Net proceeds from credit facilities                                                      |                                                                               |                                          
|                                               | Payments on long-term debt and obligations under capital leases                          |                                                                               |                                          
|                                               | Payments of deferred financing costs                                                     |                                                                               |                                          
|                                               | Proceeds from issuance of common and preferred stock                                     |                                                                               |                                          
|                                               | Exercise of put rights                                                                   |                                                                               |                                          
|                                               | Exercise of stock options                                                                |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|                                               |                                                                                          |                                                                               |                                          
|Cash and cash equivalents, beginning of period |                                                                                          |                                                                               | 5,293                                    
|                                               |                                                                                          |                                                                               |                                          
|Cash and cash equivalents, end of period       |                                                                                          | $                                                                             | 9,340                                    
|                                               |                                                                                          |                                                                               |                                          
|Cash paid for interest                         |                                                                                          | $                                                                             | 3,596                                    
|                                               |                                                                                          |                                                                               |                                          
|Cash paid (refunded) for income taxes          |                                                                                          | $                                                                             | (1,437                                   
|                                               |                                                                                          |                                                                               |                                          

See
accompanying notes to condensed consolidated financial statements.

4

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INTERDENT, INC.  AND SUBSIDIARIES        March 31, 2001 and 2000        Notes to Condensed Consolidated Financial Statements        (Unaudited, in
thousands, except per share and share amounts)

(1) ORGANIZATION

InterDent, Inc. ("InterDent" or the "Company"), incorporated on October 13, 1998, is a Delaware corporation headquartered in El Segundo,
California. The Company is a provider of dental practice management services to multi-specialty dental professional corporations and associations ("PAs") in the United States. Each PA employs and
directs the professional dental staff and provides all of the clinical services to the patients. The Company provides management services to dental practices in selected
markets in Arizona, California, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Maryland, Michigan, Nevada, Oklahoma, Oregon, Pennsylvania, Virginia and Washington.

As
part of a delivery network of multi-specialty dental care, the Company provides management services to affiliated PAs under long-term management service agreements.
Under the terms of the management service agreements, the Company bills and collects patient receivables and provides all administrative support services to the PAs. The dentists employed through the
Company's network of affiliated dental associations provide comprehensive general dentistry services and offer specialty dental services, which include endodontics, oral pathology, oral surgery,
orthodontics, pedodontics, periodontics, and prosthodontics.

(2) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached a consensus on the accounting for transactions between physician
practice management companies and physician practices and the financial reporting of such entities (EITF issue number 97-2). For financial reporting purposes, EITF 97-2
mandates the consolidation of physician practice activities with the practice management company when certain conditions have been met, even though the practice management company does not have an
equity investment in the physician practice. The accompanying financial statements are prepared in conformity with the consensus reached in EITF 97-2.

Corporate
practice of medicine laws in the states in which InterDent currently operates prohibit it from owning dental practices. In response to these laws the Company has executed
management services agreements ("MSAs") with various PAs. Under those circumstances where the MSAs meet the criteria for consolidation as outlined in EITF 97-2, all the accounts of those
PAs are included in the accompanying condensed consolidated financial statements. Accordingly, the condensed consolidated statements of operations include the net patient revenues and related expenses
of these PAs. In
instances where the MSAs have not met the criteria for consolidation, the Company does not consolidate the accounts of the PAs. Accordingly, the condensed consolidated statements of operations exclude
the net patient revenues and expenses of these PAs. Rather, the condensed consolidated statements of operations include only the Company's net management fee revenues generated from those MSAs and the
Company's expenses associated with those MSAs.

Interim reporting

The accompanying unaudited interim condensed consolidated financial statements of InterDent have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual consolidated financial

5

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statements have been condensed or omitted as permitted under those rules and regulations. We believe all adjustments, consisting only of normal, recurring adjustments considered necessary for a fair
presentation, have been included and that the disclosures made are adequate to insure that the information presented is not misleading. To obtain a more detailed understanding of our results, it is
suggested that these financial statements be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2000 included in
Form 10-K/A filed on May 1, 2001. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results of operations for
the entire year.

Net revenues

Revenues consist primarily of PA net patient service revenue ("net patient revenue") and Company net management fees. Net patient revenue represents the
consolidated revenue of the PAs reported at the estimated net realizable amounts from patients, third party payors and others for services rendered, net of contractual adjustments. Net management fees
represent amounts charged to the unconsolidated PAs in accordance with the respective MSAs as a percentage of the PAs net patient service revenue under MSAs, net of provisions for contractual
adjustments and doubtful accounts. Such revenues are recognized as services are performed based upon usual and customary rates or contractual rates agreed to with managed care payors. Revenues for
orthodontic services are recognized based upon the percentage of costs incurred in the initial month of service compared to estimated total costs, with the remaining revenue realized over the
contractual service period.

Accounts receivable

Accounts receivable principally represent receivables from patients and insurance carriers for dental services provided by the related PAs at established
billing rates, less allowances and discounts for patients covered by third party payors contracts. Payments under these programs are primarily based on predetermined rates. Settlements for
retrospectively determined rates are estimated in the period the related services are rendered and are adjusted in future periods, as final settlements are determined. Management believes that
adequate provision has been made for adjustments that may result from final determination of amounts earned under these contracts. In addition, a provision for doubtful accounts is provided based upon
expected collections and is included in practice selling, general and administrative expenses. These contractual allowances and discounts and provision for doubtful accounts are deducted from accounts
receivable in the accompanying condensed consolidated balance sheets.

Management fee receivable and notes and advances receivable from professional associations

Management fee receivable represent amounts owed to the Company from unconsolidated PAs related to revenue recorded in accordance with their MSAs and is
recorded based upon the net realizable value of patient accounts receivables of the PAs. The Company reviews the collectibility of the patient accounts receivables of the PAs and adjusts its
management fee receivable accordingly.

Advances
consist primarily of receivables from PAs due in connection with cash advances for working capital and operating purposes to certain unconsolidated PAs. The Company typically
advances funds to the PAs during the initial years of operations, until the PA owner repays existing debt, and the

6

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operations improve. The Company has an established reserve policy for advances to PAs. Based upon such factors as operational performance history and initial acquisition funding, the Company reserves
against management fees and advances made to individual PAs for those practices which do not meet expectations after a certain period of time. Such reserves are increased or decreased as appropriate
according to performance trends of the individual practices. The Company has established a reserve of $21,436 as of March 31, 2001, including amounts recorded as an impairment of receivables
from PAs during the fourth quarter of 2000 as a result of the value contemplated in the agreement to sell DCA stock that is anticipated to close in the second quarter of 2001, as discussed in
note 9. An additional reserve of receivables from PAs of $839 was recorded for the three months ended March 31, 2001.

Notes
receivable from PAs relates to financing of certain medical and non-medical capital additions made by certain unconsolidated PAs.

Advance
and note amounts to be collected within the next year are classified as current in the accompanying condensed consolidated balance sheets. Advances to PAs bear interest at
10.5%. The notes receivable from PAs generally have terms of 2 to 10 years and are interest bearing with rates between 8.5% and 18.5%. Both advance and note amounts are secured by the assets of
the PAs and are generally personally guaranteed by the PA owners and cross-collateralized by the PAs under common ownership.

Intangible assets

Intangible assets result primarily from the excess of cost over the fair value of net tangible assets purchased. Such intangibles relate primarily to
noncompetition covenants, MSAs, and goodwill associated with dental practice acquisitions. Intangibles relating to MSAs consist of the costs of purchasing the rights to provide management support
services to PAs over the initial noncancelable terms of the related agreements, usually 25 to 40 years. Under these agreements, the PAs have agreed to provide dental services on an exclusive
basis only through facilities provided by the Company, which is the exclusive administrator of all non-dental aspects of the acquired PAs, providing facilities, equipment, support
staffing, management and other ancillary services. The agreements are noncancelable except for performance defaults. Intangible assets are amortized on the straight-line method, ranging
from 5 years for other intangibles to 25 years for MSAs and goodwill.

Intangible
assets included in the condensed consolidated balance sheets primarily represent the value assigned to MSAs and goodwill in connection with certain completed dental
practice affiliations. Periodically, the Company reviews the recoverability of these intangible assets for possible impairment on an individual practice level basis, which is the lowest level of
identifiable cash flows. This measurement evaluates the ability to recover the balance of the intangible asset from expected future operating cash flows on an undiscounted basis through the remaining
amortization period. In determining expected future cash flows, the Company considers current operating results in connection
with anticipated future cash flows, which includes assumptions relating to revenue growth, capital improvements, debt service, operational initiatives, and other circumstances to make such estimates
and evaluations. If impairment exists, the amount of such impairment is calculated based upon the estimated fair value of the asset. During the fourth quarter of 2000, the Company recorded an
impairment of certain intangibles as a result of the value indicated by the agreement to sell DCA stock

7

---

that is anticipated to close in the second quarter of 2001, as discussed in note 9. No additional impairment of intangible assets was recorded during the three months ended March 31,
2001.

Investment

On September 3, 1999, the Company entered into a seven year collaborative Internet strategy agreement with Dental X Change, Inc. ("DXC"). DXC is
a commercial Internet company servicing the professional dental market. Services provided by DXC include: web development, hosting, content, education, e-commerce, practice management
services in an application service provider model, and dental oriented web services to dental practices and both the professional and consumer dental markets through its various web sites, intranets
and other online technologies. In exchange for a cash contribution of $1,020, the Company received 1,000,000 shares of DXC Series A Convertible Preferred Stock, 1,949,990 shares of DXC common
stock, and a warrant to purchase 4,054,010 additional shares of DXC common stock at $0.10 per share. The investment is carried at cost in the absence of other than temporary decline in value as the
Company is not able to exercise significant influence over DXC, and the Company's ownership is less than 20%. The investment is included within other assets in the accompanying condensed consolidated
balance sheets.

Long-lived assets

The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may
not be recoverable. To perform that review, the Company estimates the sum of expected future undiscounted net cash flows from assets. If the estimated net cash flows are less than the carrying amount
of the asset, the Company recognizes an impairment loss in an amount necessary to write-down the assets to its fair value as determined from expected future discounted cash flows. During
the fourth quarter of 2000, the Company recorded an impairment for certain receivables from PAs and intangibles as a result of the value indicated by the agreement to sell DCA stock that is
anticipated to close in the second quarter of 2001, as discussed in note 9. An additional $1,029 has been reserved for collectibility of advances to PAs during the three months ended
March 31, 2001.

Deferred compensation

The Company made advances to certain officers of the Company in order to retain and provide incentives to such officers. In connection with these advances,
such officers issued interest-bearing notes receivable to the Company. Shares of the Company's common stock and options owned by such officers have been pledged to secure the notes. The notes
receivable are included in shareholders' equity as a reduction to equity. Interest on the notes accrues at rates ranging from 6.4% to 10.2%. The notes and accrued interest are due June 2004,
payable in cash or Company common stock and options with varying minimum values. The notes and accrued interest are with recourse to the officer until May or June of 2002, depending upon the
individual note agreement, after which the notes and accumulated interest are non-recourse, subject only to the underlying pledged collateral. The difference in the amount of the notes and
the value of the collateral at the date of the loans is being amortized over the life of the notes, representing stock compensation expense. The amortization reflects the deficit of the underlying
pledged collateral on the individual note dates. The Company also adjusts the amortization

8

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to reflect changes in the quoted fair market value. The decline, if any, is amortized as stock compensation expense over the life of the notes. The amortization expense is adjusted cumulatively for
changes in fair value of the collateral. Increases in the stock price, if any, would result in a credit to expense, up to the amount of prior expense recognized for this portion of the notes.

Net income (loss) per share

The Company has adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). In accordance with SFAS 128,
the Company presents "basic" earnings per share, which is net income or loss divided by the average weighted common shares outstanding during the period, and "diluted" earnings per share, which
considers the impact of common share equivalents. Dilutive potential common shares represent shares issuable using the treasury stock method.

For
the three months ended March 31, 2001, and 2000, dilutive potential common shares of 16,882,350 and 3,257,328, respectively, consisting of convertible subordinated debt and
the exercise of certain options and warrants have been excluded from the computation of diluted income (loss) per share as their effect is anti-dilutive.

The
following table summarizes the computation of net income per share:

Three Months Ended March 31,2001

2000Net income (loss) attributable to common stock

$
(521
)
$
831Basic shares reconciliation:Weighted average common shares outstanding


23,993,540


21,162,937Contingently issuable common shares





Contingently repurchaseable common shares


(358,220
)

(568,712
)Basic shares


23,635,320


20,594,225Convertible preferred stock





1,628,665Warrants





96,083Put rights





56,471Contingent shares





15,856Assumed conversion of options





340,794Diluted shares


23,635,320


22,732,094Net income (loss) attributable to common stock:Basic

$
(0.02
)
$
0.04Diluted

$
(0.02
)
$
0.04


Segment reporting

The Company has adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 supersedes

9

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SFAS 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. The management approach designates the internal
reporting that is used by management for making operating decisions and assessing the performance as the source of the Company's reportable segments. The adoption of SFAS 131 did not have an
impact for the reporting and display of segment information as each of the affiliated dental practices is evaluated individually by the chief operating decision maker and considered to have similar
economic characteristics, as defined in the pronouncement, and therefore are aggregated.

Income taxes

Income taxes are accounted for under the asset and liability method in accordance with Statement of Financial and Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS 109"). Under the asset and liability approach of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences
attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Income tax expense recorded for the quarter ended
March 31, 2001 represents the Company's estimate of state income tax estimated to be payable. The Company has a valuation allowance to offset the federal tax benefit of loss carryforwards.

Use of estimates

In preparing the financial statements conforming to Generally Accepted Accounting Principals ("GAAP"), we have made estimates and assumptions that affect the
following:



Actual
results could differ from those estimates.

New accounting pronouncements

FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, was adopted effective January 1, 2001. The
Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in
earnings. The implementation of FASB No. 133 in 2001 has not had a material impact on the Company's financial position or results of operations.

In
September 2000, the FASB issued Statement of Financial Accounting Standards No. 140. "Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". The statement replaces Statement of Financial Accounting Standards No. 125, and is effective in the second quarter of 2001. SFAS 140 revises the accounting for
securitizations and other transfers of financial

10

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assets. The adoption of SFAS 140 will not have a material impact on the Company's financial position or results of operations.

Reclassifications

Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation.

(3) REVENUES

Revenues consist primarily of PA net patient service revenue and Company net management fees. Net patient revenue represents the consolidated revenue of the
PAs at normal and customary rates from patients, third party payors and others for services rendered, net of contractual adjustments. Net management fees represent amounts charged under MSAs to the
unconsolidated PAs on an agreed-upon percentage of the PAs net patient service revenue, net of provisions for contractual adjustments and doubtful accounts.

The
following represents amounts included in the determination of dental practice net patient service revenue and net management fees:

Three Months Ended
March 31,2001

2000Dental practice net patient service revenueall PAs

$
90,453

$
76,886Less: Dental practice net patient service revenueunconsolidated PAs


(18,627
)

(16,716
)Reported practice net patient service revenue

$
71,826

$
60,170Dental practice net patient service revenueunconsolidated PAs

$
18,627

$
16,716Less: Amounts retained by dentists


(7,094
)

(5,911
)Net management fees

$
11,533

$
10,805


(4) BUSINESS COMBINATIONS, DENTAL PRACTICE AFFILIATIONS AND ACQUISITIONS

Business combinations

On March 12, 1999, Gentle Dental Service Corporation ("GDSC") and Dental Care Alliance, Inc. ("DCA") completed mergers in which each entity
became a wholly owned subsidiary of InterDent, Inc. a newly formed company.

During
the three months ended March 31, 2000 and for the year ended December 31, 2000, the Company recorded a restructuring charge of $1,183 relating to the Company's
restructuring plan as a result of the mergers. There were no merger or restructure charges recorded during the three months ended March 31, 2001. The Company's restructuring plan is
substantially complete and management does not anticipate additional restructuring charges as a result of the mergers. Included in other

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current liabilities at March 31, 2001 is $1,950 in accrued merger and restructure costs. The Company is pursuing discounts on previously expensed merger and restructure costs. The Company
expects to make payment upon finalization of such discounts, if any.

Terminated merger

On October 22, 1999, the Company announced the signing of a definitive merger agreement between the Company and a group consisting of an affiliate of
Leonard Green & Partners, L.P. ("Leonard Green"), and certain members of Company management. In May 2000, InterDent and Leonard Green
mutually agreed to terminate the merger agreement and the related recapitalization transaction. The Company recorded direct merger expenses of $547 associated with this agreement during the three
months ended March 31, 2000, and for the year ended December 31, 2000, consisting of investment banker fees, advisors fees, legal fees, accounting fees, printing expense, and other
costs. All of these expenses have been accrued in prior periods, and no expenses related to the terminated merger were recorded in the three months ended March 31, 2001. All costs incurred as a
result of the terminated merger have been paid as of March 31, 2001.

The
following summarizes the merger and restructure activities and accrued merger and restructure liability for the GDSC and DCA business combinations, and InterDent and Leonard Green
terminated merger from January 1, 2000 through March 31, 2001:

|                                             |                                                                      | Three-Months
Ended March 31,
2000 |   | Year Ended
December 31,
2000
|-------------------------------------------- | -------------------------------------------------------------------- | --------------------------------- | - | ----------------------------
|Corporate merger and restructure costs:      |                                                                      |                                   |   |                             
|GDSC and DCA combination:                    |                                                                      |                                   |   |                             
|                                             | Direct investment banking, accounting, legal and other advisory fees |                                   | $ | 47                          
|                                             | Employee retention, severance and training costs                     |                                   |   | 39                          
|                                             | Systems integration and conversion                                   |                                   |   | 1,097                       
|                                             | Redirection of duplicative operations, programs and other costs      |                                   |   |                            
|                                             |                                                                      |                                   |   |                             
|                                             | Total                                                                |                                   |   | 1,183                       
|                                             |                                                                      |                                   |   |                             
|InterDent and Leonard Green proposed merger: |                                                                      |                                   |   |                             
|                                             | Direct investment banking, accounting, legal and other advisory fees |                                   |   | 547                         
|                                             |                                                                      |                                   |   |                             
|                                             | Total corporate merger and restructure costs                         |                                   | $ | 1,730                       
|                                             |                                                                      |                                   |   |                             

|                                                                          |  | Beginning
Balance |       | Expense |   | Payments |  | Ending
Balance
|------------------------------------------------------------------------- |  | ----------------- | ----- | ------- | - | -------- |  | --------------
|Accrued merger and restructure liability:                                 |  |                   |       |         |   |          |  |               
|Merger and restructure activity for the year ended December 31, 2000      |  | $                 | 2,925 |         | $ | 1,730    |  | $             
|                                                                          |  |                   |       |         |   |          |  |               
|Merger and restructure activity for the three-months ended March 31, 2001 |  | $                 | 2,052 |         | $ |         |  | $             
|                                                                          |  |                   |       |         |   |          |  |               

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Dental practice affiliations

In connection with certain completed affiliation transactions, the Company has agreed to pay to the sellers future consideration in the form of cash and
Company capital stock. The amount of future consideration payable by the Company under earn-outs is generally computed based upon financial
performance of the affiliated dental practices during certain specified periods. The Company accrues for earn-out payments with respect to prior practice acquisitions when such amounts are
probable and reasonably estimable. During the three months ended March 31, 2001, the Company agreed with sellers to convert $723 of amounts due during the period under earn-out agreements into
long-term notes payable. As of March 31, 2001, the Company had accrued $11,264 for future earn-out payments, of which all are anticipated cash payments and are included in other
current liabilities. For those acquisitions with earn-out provisions, the Company estimates the total maximum earn-out that could be paid, including amounts already accrued, is
between $18,000 and $23,000 from April 2001 to December 2003, of which the majority is expected to be paid in cash. In future years, such additional earn-out consideration
could result in additional amortization of $720 to $920 annually.

(5) DEBT

In 1998, the Company issued $30,000 of subordinated convertible notes ("Convertible Notes"). The Convertible Notes have an eight-year term and bear
interest at 7.0%, payable semi-annually with an option to pay the interest in a payment-in-kind ("PIK") note. The PIK notes also bear interest at 7%. During the
three months ended March 31, 2001, the Company issued/accrued a total of $561 in PIK notes. The Convertible Notes are convertible into shares of the common stock at $9.21 for each share of
common stock issuable upon conversion of outstanding principal and accrued but unpaid interest on such subordinated notes.

In
March 2000, the Company entered into an agreement to increase its existing senior revolving credit facility (the "Credit Facility") from $90,000 to $120,000, with immediate
funding available of $101,000. The revolving feature of the Credit Facility expires on September 30, 2001, at which time it will convert into a term loan to be repaid in equal quarterly
installments and maturing on March 31, 2005. Principal amounts owed under the Credit Facility bear interest at varying amounts over LIBOR (3.00% - 3.50%) or the prime rate (1.25% - 1.75%), at
the Company's option, based on the level of its leverage ratio. The Credit Facility requires the Company to pay an unused commitment fee in an amount of 0.50%
per annum of the average daily amount by which the bank commitment under the Credit Facility exceeds the aggregate amount of all loans then outstanding.

The
Credit Facility contains several covenants, including but not limited to, restrictions on the ability of the Company to incur indebtedness or repurchase shares, a prohibition on
dividends without prior approval and requirements relating to maintenance of a specified net worth and compliance with specified financial ratios. In addition, the Credit Facility requires the Company
to notify the lenders prior to making any acquisition and to obtain the consent of the lenders prior to making acquisitions over a specified purchase price. The obligations of the Company under the
Credit Facility and the subsidiaries under the guarantees are secured by a security interest in the equipment, fixtures, inventory, receivables, subsidiary stock, certain debt instruments, accounts
and general intangibles of each of such entities.

13

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In June 2000, the Company raised $36,500 from the sale of debt and equity to Levine Leichtman Capital Partners II, L.P. ("Levine") under a securities purchase agreement (the
"Securities Purchase Agreement"). The equity portion of the transaction is comprised of 2,750,000 shares of common stock valued at $11,000. The debt portion of the transaction is comprised of a senior
subordinated note with a face value of $25,500 (the "Levine Note"). The net proceeds from the transaction were partially utilized to pay down existing balances outstanding under the Credit Facility,
as required under the Credit Facility.

The
entire principal of the Levine Note is due September 2005 but may be paid earlier at the Company's election, subject to a prepayment penalty. Additionally, the Levine Note
has mandatory principal prepayments based upon a change in ownership, certain asset sales, or excess cash flows. The
Levine Note bears interest at 12.5%, payable monthly, with an option to pay the interest at 15% in a PIK note. PIK notes also bear interest at 12.5%. The Securities Purchase Agreement contains
covenants, including but not limited to, restricting the Company's ability to incur certain indebtedness, liens or investments, restrictions relating to agreements affecting capital stock, maintenance
of a specified net worth, and compliance with specified financial ratios.

As
part of the transaction with Levine, the Company also issued a warrant to purchase 2,125,000 shares of the Company's common stock at an initial price of $6.84 per share. The
initial exercise price per share may be adjusted, ranging from $4.45 to $6.19, subject to certain conditions as outlined in the warrant. The issuance of the warrant was valued at $2,739 and reflected
as a discount to the face value of the Levine Note. The discount is being amortized to interest expense over the remaining life of the Levine Note.

Each
of the agreements has been amended in April 2001 to waive the defaults that existed at December 31, 2000 due to failure to meet certain financial ratio covenants
and reset all covenants for 2001 and subsequent periods, see note 9.

(6) SHAREHOLDERS' EQUITY

Deferred Compensation

During 2000, the Company advanced $11,500 to certain officers of the Company in order to retain and provide incentives to such officers. In connection with
these advances, such officers issued interest-bearing note receivables to the Company. Shares of the Company's common stock and options owned by such officers have been pledged to secure the notes.
Interest on the notes accrues at rates ranging from 6.4% to 10.2%. The Company discounts the notes at the market interest rate. The notes and accrued interest have various maturity dates through
June 2004, payable in cash or Company common stock and options with varying minimum values. The notes and accrued interest are with recourse to the officer until May or June of 2002, depending
upon the individual note agreement, after which the notes and accumulated interest are non-recourse, subject only to the underlying pledged collateral. Approximately $5,970 of the notes is
being amortized over the life of the notes as stock compensation expense, representing the difference in the amount of the notes and the value of the collateral at the date of the loans. During the
three months ended March 31, 2001, the Company recorded an expense of $382 for amortization of stock compensation expense. The remaining amount to be amortized as of March 31, 2001 is
$4,781.

14

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The Company also adjusts the amortization to reflect changes in the quoted fair market value of the underlying shares of stock. The decline, if any, is amortized as stock compensation
expense over the life of the notes. The amortization expense is adjusted cumulatively for changes in fair value of the collateral. Increases in the stock price, if any, would result in a credit to
expense, up to the amount of prior expense recognized for this portion of the notes. During the three months ended March 31, 2001, the Company recorded amortization expense of $486. As of
March 31, 2001, a decline on the value of stock of $3,897 remains to be amortized over the note lives if the stock price remains at current levels.

Shareholder Notes Receivable

In 1997, the Company was issued a shareholder note receivable by an officer with a face amount of $150. In connection with the execution of the officer's
amended employment agreement in May 2000, the note and related accrued interest of $182, subject to provisions of the agreement, will be forgiven in May 2002. The note and accrued
interest is being expensed over the twenty-four month period. The Company recorded a stock compensation expense of $23 in the three months ended March 31, 2001. The remaining amount
to be amortized as of March 31, 2001 is $132.

(7) CONTINGENCIES

On November 12, 1999, Robert D. Rutner filed a lawsuit seeking to rescind his May 14, 1999 sale of Serra Park Services, Inc. and seeking
damages. The complaint named InterDent, as well as Gentle Dental Service Corporation and Serra Park Services, Inc. as defendants. InterDent, along with others, filed an answer on
January 21, 2000 along with a cross-complaint alleging causes of action for breach of employment agreement, breach of stock purchase agreement, fraud, negligent misrepresentation, breach of the
dentist employment agreement, interference with contractual relations and indemnity. No trial date has been set. InterDent believes that this case is without merit and intends to vigorously defend all
allegations. Accordingly, no liability for this suit has been recorded at this time.

On
October 18, 2000 Amerident Dental Corporation ("Amerident") filed a lawsuit against InterDent and Gentle Dental Management seeking damages related to the July 21,
1999 sale of substantially all of the assets of ten dental practices in California and Nevada. On November 28, 2000, the Court entered its Order of Related Cases with regard to an action
previously filed by InterDent on September 28, 2000 Los Angeles Superior Court Case No. BC237600, wherein InterDent alleged causes of action against Amerident for breach of contract, breach of
the implied covenant of good faith and fair dealing,
intentional misrepresentation, and negligent misrepresentation. Discovery is ongoing and no trial date has been set. InterDent believes that this case is without merit and intends to vigorously defend
all allegations. Accordingly, no liability for this suit has been recorded at this time.

The
Company has been named as a defendant in various other lawsuits in the normal course of business, primarily for malpractice claims. The Company and affiliated dental practices,
and associated dentists are insured with respect to dentistry malpractice risks on a claims-made basis. Management believes all of these pending lawsuits, claims, and proceedings against
the Company are without merit or will not have a material adverse effect on the Company's consolidated operating results, liquidity or financial position.

15

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The Company has guaranteed a portion of the PAs debt. The guarantees relate primarily to debt incurred related to the acquisition of dental practices, and is in addition to collateral
already provided by the PA. As of March 31, 2001, the amount of PA debt guaranteed by the Company is approximately $3,190.

(8) LIQUIDITY

The Company believes that cash flow from operations and payment of certain obligations under earn-out arrangements with notes payable will be
sufficient to fund obligations during the twelve months ended March 31, 2002. However, at March 31, 2001, current liabilities exceeded current assets by $12,815. The Company is required
to begin quarterly payments of $7,214 to its senior lenders beginning
October 1, 2001, and has obligations to fund payments of $7,800 through March 31, 2002 to sellers of dental practices under notes payable and an additional amount for
earn-out agreements, depending on practice performance, estimated to be $11,264 at March 31, 2001. Furthermore, the Company advances funds to the PAs to finance their repayment of
debt to the sellers of dental practices purchased by the PA owners. These advances are expected to equal approximately $5,000 in 2001, net of repayments, of which $1,219 has already been advanced as
of March 31, 2001. The Company expects to significantly improve cash flow from operations in 2001 compared to 2000 as a result of growth and operational improvements, before considering the
impact of the sale of DCA. The Company also expects to pay certain earn-out obligations with notes payable issued by the Company. Additional funds are required to meet its obligation of
$7,214 due to senior lenders January 1 and April 1, 2002.

The
Company expects to receive net proceeds of $25,000 cash from the sale of DCA, including license fees, which will be used to pay the $1,000 amendment fee on the senior revolving
credit facility, as discussed in note 9, and to reduce the credit facility. Furthermore, the sale of DCA would eliminate the ongoing requirement to fund advances to PAs, as described above, which is
expected to result in a net improvement in cash flow. The Company believes that cash flow from operations, payment of certain obligations under earn-out arrangements with notes payable,
the sale of DCA and sale of other non-core dental practices will be sufficient to fund its obligations through the next fiscal year, including the obligation of $7,214 due to the senior
lenders January 1 and April 1, 2002. If the sale of DCA is not completed, the Company will require at least $14,428 additional funding through sale of assets, payment of additional
obligations to sellers using notes payable, additional borrowing arrangements or issuance of equity securities, in addition to the achievement of improved operating cash flows described above, to meet
its obligations through April 1, 2002. There can be no assurance that any such asset sales or financing will be available or will be available on terms acceptable to InterDent or that
operational improvements will be achieved.

(9) SUBSEQUENT EVENTS

In April 2001, we entered into an amendment to our existing senior revolving credit facility (the "Credit Facility") to provide a maximum available
funding of $101,000 and amend certain covenants. In connection with the execution of the amendment, the banks waived the defaults under the Credit Facility that existed at December 31, 2000 due
to failure to meet certain financial ratio covenants and reset all covenants for 2001 and subsequent years. Additionally, the banks agreed to certain other

16

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changes including a revised term and provisions regarding asset sales and new financing. As consideration for these modifications, the Company agreed to an amendment fee of $1,000 payable on or before
September 30, 2001 and an additional fee of $1,000 payable at maturity of the term loan. The Company also issued a warrant to purchase 1,000,000 shares of the Company's common stock at a strike
price equal to the common stock fair market value one day prior to the close of the transaction.

The
revolving feature of the Credit Facility expires on October 1, 2001, at which time it will convert into a term loan to be repaid in equal quarterly installments of $7,214
and a final payment of the remaining balance at maturity on September 30, 2003. The Credit Facility also has mandatory prepayment provisions for certain asset sale transactions and excess cash
flows, as defined. These prepayment provisions are applied to future required quarterly installments

The
Credit Facility requires us to pay an unused commitment fee in an amount of 0.50% per annum of the average daily amount by which the bank commitment under the Credit Facility
exceeds the aggregate amount of all loans then outstanding. Principal amounts owed under the Credit Facility bear interest at LIBOR plus 5.50% or the prime rate plus 3.75%, at our option. If we raise
qualified additional capital, by April 1, 2002 ("Equity Conversion Date"), the interest rate under the Credit Facility reduces to LIBOR plus 3.50% or the prime rate plus 1.75%, at our option.
The interest rates also increase by 1% on each anniversary of the Conversion Date.

The
Credit Facility contains several covenants, including but not limited to, restrictions on the ability of us to incur indebtedness or repurchase shares, a prohibition on dividends
without prior approval, prohibition on acquisitions, requirement to defer a minimum of $4,500 of earnout payments under earnout arrangements to 2002, requirements relating to maintenance of specified
levels of cashflows and compliance with specified financial ratios. Our obligations, including all subsidiaries in the guarantees, under the Credit Facility are secured by a security interest in the
equipment, fixtures, inventory, receivables, subsidiary stock, certain debt instruments, accounts and general intangibles of each of such entities.

Upon
execution of the amended agreement, we will incur a non-cash charge of approximately $850 in April 2001 for the write-off of certain prepaid debt
costs related to previously entered Credit Facility agreements.

In
April 2001, the Company entered into an amendment to its Levine Note. In connection with the amendment, the lender waived the defaults under the Levine Note that existed at
December 31, 2000 due to failure to meet certain financial ratio covenants and reset all covenants for 2001 and subsequent years, in addition to certain other modifications. As consideration
for the amendment, the Company has agreed to pay an amendment fee of $2,250, payable in additional notes, increase the PIK interest rate to 16.5%, and reduce the price of the warrants from an initial
strike price of $6.84 per share to $4.13 per share.

In
April 2001, we entered into an amendment to the Convertible Notes. In connection with the amendment, the lender waived the cross-default provision under the Convertible
Notes that existed at December 31, 2000 due to the covenant violations under the Credit Facility and agreed to reset all covenants for 2001 and subsequent years, in addition to certain other
modifications. As consideration for the amendment, the Company has agreed to reduce the conversion price of the notes from an initial price of $9.21 per share to $6.50 per share.

17

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In April 2001, the Company entered into a definitive agreement to sell the stock of DCA, a wholly-owned subsidiary, and certain other assets in Maryland, Virginia, and Indiana
that were acquired in the DentalCo transaction that was consummated in August 2000. The transaction also includes the assets associated with the notes receivable made to officers of DCA. The
total consideration is $36,000, including cash of $23,000 and the assumption of related debt and operating liabilities, and a license fee of $2,000 in cash. Upon the two-year anniversary
of the transaction close, InterDent shall have the right to repurchase the assets of DCA, based upon a multiple of EBITDA subject to a minimum price, as defined in the agreement. In connection with
the sale of assets, InterDent entered into a five-year license agreement for $2,000 in cash, payable in installments, for its proprietary practice management system, subject to
negotiations for additional term extensions. Simultaneous with the execution of the definitive agreement, the parties also entered into a business collaboration agreement delineating the use of the
practice management system, the joint purchase of supplies, the joint negotiation for managed care contracts, training systems, and other similar operational matters. The transaction is expected to be
completed in the second quarter of 2001. Accordingly, pursuant to FASB Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to be Disposed of", the Company evaluated the recoverability of the long-lived assets as a result of the proposed sale of DCA stock, including notes and
advances to PAs and intangibles. In the fourth quarter of 2000, the Company estimated future undiscounted cashflow from certain long-lived assets was below the carrying value of these
long-lived assets and advances to PAs. Accordingly, the Company adjusted the carrying value of these assets to their estimated fair value, resulting in a non-cash impairment
charge of $49,802 for a write-down of notes and advances to PAs of $18,124 and intangibles of $31,678. In addition, interest income from the notes and advances from PAs previously recorded
in 2000 of $1,789 was written off to net interest expense. An additional reserve of receivables from PAs of $839 was recorded for the three months ended March 31, 2001.

18

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

Forward-looking and Cautionary Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Certain
information included in this Form 10-Q and other materials filed with the Securities and Exchange Commission (as well as information included in oral statements or other written
statements made or to be made by the Company) contain statements that are forward looking, such as statements relating to business strategies, plans for future development and upgrading, capital
spending, financing sources, changes in interst rates, planned sales of assets, existing and expected competition and the effects of regulations. Such forward-looking statements involve important
known and unknown risks and uncertainties that could cause actual results and liquidity to differ materially from those expressed or anticipated in any forward-looking statements. Such risks and
uncertainties include, but are not limited to: those related to the effects of competition; leverage and debt service; financing needs or efforts; actions taken or omitted to be taken by third
parties, including the Company's customers, suppliers, competitors, and stockholders, as well as legislative, regulatory, judicial, and other governmental authorities; changes in business strategy;
general economic conditions; changes in health care laws, regulations or taxes; risks related to development and upgrading systems; and other factors described from time to time in the Company's
reports filed with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.
Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and, as such, speak only as of the date made. The Company undertakes no obligation to revise
publicly these forward-looking statements to reflect subsequent events or circumstances.

Overview

As of March 31, 2001, we provided comprehensive management services to a dental practice network that employed 813 dentists, including 197 specialists,
practicing out of 244 dental offices and 2,197 operatories. Our dental practice network is located in selected markets in Arizona, California, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas,
Maryland, Michigan, Nevada, Oklahoma, Oregon, Pennsylvania, Virginia and Washington.

Our
practice management services facilitate the delivery of convenient, high quality, comprehensive and affordable dental care to patients in a comfortable environment. The dentists
affiliated through our
network of affiliated dental practices provide comprehensive general dentistry services and offer specialty dental services, which include endodontics, oral pathology, oral surgery, orthodontics,
pedodontics, periodontics, and prosthodontics. Our strategic objective is to maintain and expand our leadership position in the dental practice management industry. To achieve this objective, we seek
to enter selected geographic markets and develop locally prominent, multi-specialty dental delivery networks. The key elements of our strategy are as follows:



As
part of a delivery network of multi-specialty dental care, we provide management and licensing services to our affiliated dental practices under long-term management
service agreements. Under the

19

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terms of the management service agreements, we bill and collect patient receivables and provide all administrative and management support services to our affiliated dental practices. These
administrative and management support services include: financial, accounting, training, efficiency and productivity enhancement, recruiting, team building, marketing, advertising, purchasing, and
related support personnel. Licensing services include marketing, advertising and purchasing.

As
compensation for services provided under management service agreements, we receive management fees from our affiliated dental practices. Depending upon the individual management
service agreement provisions, the management fee is calculated based upon one of two methods. Under one method, the management fee is equal to reimbursement of expenses incurred in the performance of
our obligations under the management service agreements, plus an additional fee equal to a percentage of the net revenues of the affiliated dental practices. Under the other method, the management fee
is a set percentage of the net revenues of the affiliated dental practices.

The
management service agreements have initial terms ranging from 25 to 40 years with automatic extensions, unless either party gives notice before the end of the term. The
management service agreements are not subject to early termination by the affiliated dental practices unless we are subject to bankruptcy proceedings or we materially breach the management service
agreements and do not cure the breach following notice. Certain management service agreements have additional termination events, including the refusal to comply with the decisions of the joint
operating committee, failure to pay the management fee, and a material change in applicable federal or state law.

The
Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board evaluated certain matters relating to the physician practice management industry (EITF issue number
97-2) and reached a consensus on the accounting for transactions between physician practice management companies and physician practices and the financial reporting of such entities. For
financial reporting purposes, EITF 97-2 mandates the consolidation of physician practice activities with the practice management company when certain conditions have been met, even though
the practice management company does not have an equity investment in the physician practice. Our condensed consolidated financial statements, included elsewhere herein, are prepared in conformity
with the consensus reached in EITF 97-2.

Under
those circumstances where the management service agreements meet the criteria for consolidation as outlined in EITF 97-2, all the accounts of those affiliated dental
practices are included in our condensed consolidated financial statements included elsewhere herein. Accordingly, our condensed consolidated statements of operations include the dental practice net
patient revenue and related expenses of those affiliated dental practices. In instances where the management service agreements have not met the criteria for consolidation, we do not consolidate the
accounts of the affiliated dental practices. Accordingly, our condensed consolidated statements of operations exclude the dental practice net patient revenues and expenses of these affiliated dental
practices. Rather, our condensed consolidated statements of operations include only our net management fees generated from those management service agreements and our expenses incurred in the
performance of our obligations under those management service agreements.

Results of Operations

The following discussion highlights changes in historical revenues and expense levels for the three-month period ended March 31, 2001, compared to the
three-month period ended March 31, 2000, as reported in our condensed consolidated financial statements and the related notes thereto appearing elsewhere herein.

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Three Months Ended March 31, 2001 Statement of Operations Compared to Three Months Ended March 31, 2000

Dental Practice Net Patient Revenue.Dental practice net patient revenue represents the
clinical patient revenues at 166 current clinical locations through March 31, 2001 where the consolidation requirements of EITF 97-2 have been met. Dental practice net patient
revenue was $71.8 million for 2001 compared to $60.2 million for the three months ended March 31, 2000, representing a 19.3% increase.

The
majority of this revenue growth is due to the addition of 4 affiliated dental practices during the third quarter of 2000, representing 21 locations. These affiliated dental
practices have management service agreements that meet consolidation requirements outlined in EITF 97-2. We were also effectively able to increase total dental practice net patient revenue
at existing facilities. We worked with affiliated dental practices to recruit new dentists to meet increased demand, negotiated additional contracts with managed care organizations and third
party-payors, leveraged additional specialty dental services, and increased the number of patients successfully completing their treatment programs with the use of internally developed proprietary
software. For those locations affiliated as of January 1, 2000, where the management service agreements meet the EITF criteria for consolidation, same-store dental practice net
patient revenue for the three months ended March 31, 2001 increased by approximately 10.7% when compared to revenue for the three months ended March 31, 2000.

Net Management Fees.Net management fees consist of revenue earned in the performance of our
obligations under management service agreements at 78 current unconsolidated affiliated dental practice clinical locations through March 31, 2001. At January 1, 2000 we were affiliated
with 79 unconsolidated clinical locations. Net management fees were $11.5 million for the three months ended March 31, 2001 and $10.8 million for the three months ended
March 31, 2000, representing an increase of 6.5%, associated with a same store unconsolidated practice net patient revenue growth of 12.1%. Substantially all of our management fees revenues are
earned by our DCA subsidiary, which we plan to sell as described in note 9 to the condensed consolidated financial statements.

Licensing and Other Fees.We earn certain fees from unconsolidated affiliated dental practices
for various licensing and consulting services. These revenues were $0.2 million for the three months ended March 31, 2001 and 2000.

Practice Operating Expenses.Practice operating expenses represent the direct costs associated
with operating and managing the practice facility locations, including regional support departments. These costs are comprised of the following expenses:

Clinical Salaries, Benefits and Provider Costsinclude all patient service provider staff compensation and related payroll costs at the
consolidated affiliated dental practices, including dentists, hygienists and dental assistants, and dental assistants for the unconsolidated affiliated dental practices;

Practice Non-clinical Salaries and Benefitsinclude all staff compensation and related payroll costs at all dental and
regional facilities other than dentists, hygienists, and dental assistants;

Dental Supplies and Lab Expensesinclude all direct supply costs in the performance of patient treatment programs;

Practice Occupancy Expensesinclude facility leases, property taxes, utilities, janitorial services, repairs and maintenance; and

Practice Selling, General, and Administrative Expensesinclude general office, advertising, professional services (excluding
dentistry), office supplies, bank processing fees, local taxes, insurance, bad debt expense, and other miscellaneous costs at the dental facilities and regional centers.

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Practice operating expenses were $71.2 million for the three months ended March 31, 2001 compared to $58.2 million for the three months ended March 31,
2000, representing a 22.3% increase. The majority of this increase in practice operating expenses is due to the addition of 4 affiliated dental practices (representing 21 current clinical locations)
during the third quarter of 2000, and higher clinical costs in same store operations. Practice operating expenses for the three months ended March 31, 2001 were 85.2% of total revenue compared
to 81.7% for the three months ended March 31, 2000. The practice operating margin for the three months ended March 31, 2001 was 14.8% compared to 18.3% for the three months ended
March 31, 2000.

The
overall decrease in operating margin is primarily related to a higher cost structure at certain dental practices affiliated during 2000. In particular, as a percentage of total
revenues, salary costs are approximately 2.6% higher for the three months ended March 31, 2001 as compared to the three months ended March 31, 2000 due to increased provider cost. To
reduce dental supplies and lab expense, we have changed the existing vendor for dental supplies to our preferred vendor, and are in
the process of changing our lab providers to preferred vendors. Such other operating costs are expected to decline as a percent of revenue and reflect costs in line with our better practices once the
Company's best practices model is fully operational at these locations.

Corporate Selling, General and Administrative Expenses.Corporate selling, general and
administrative expenses include: corporate salaries, general office costs, investor relations expense, legal and audit fees, general insurance, director and officer liability insurance, corporate
office supplies, and other miscellaneous costs at our corporate facilities. Corporate selling, general and administrative expenses were $3.2 million for the three months ended March 31,
2001 compared to $3.3 million for the three months ended March 31, 2000, representing a 3.0% decrease. The decrease in total corporate selling, general and administrative expenses is the
result of implementation of strategic management initiatives in corporate staffing levels in our marketing, human resource, and other corporate support departments to leverage cost effective solutions
in solving the infrastructure needs of the Company. We seek to always maximize the effectiveness of corporate infrastructure costs, and as such, these corporate costs as a percentage of revenues have
decreased to 3.8% for the three months ended March 31, 2001 compared to 4.7% for the three months ended March 31, 2000.

Management Merger and Retention Bonus.On October 22, 1999, we announced the signing of
a definitive merger agreement between us and a group consisting of an affiliate of Leonard Green & Partners, L.P., and certain members of our management. The board of directors approved a bonus
plan in the first quarter 2000 to help motivate and retain management to implement our plan for a changed strategic direction. We recorded a charge for the year ended December 31, 2000 of
$1.2 million relating to our management merger and retention bonus plan, all of which was recorded for the three months ended March 31, 2000. In May 2000, we mutually agreed with
Leonard Green & Partners, L.P. to terminate the merger agreement and the related recapitalization transaction. No management merger and retention bonuses were expensed in the first quarter of
2001.

Stock Compensation Expense.We have advanced $11.5 million to certain officers as note
receivables in order to retain and provide incentives to such officers, where shares of our stock owned by each officer serve as collateral. The entire balance of the notes is recorded as deferred
compensation in shareholders' equity in the condensed consolidated financial statements. Approximately $6 million of the notes are being amortized over the life of the notes as stock
compensation expense, representing the difference in the amount of the notes and the value of the collateral at the date of the loans. During the three months ended March 31, 2001, we recorded
an expense of $0.4 million for amortization of the deficit of the underlying pledged collateral on the individual note dates. As of March 31, 2001, $4.8 million remains to be
amortized over the lives of the notes.

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We also adjust the amortization to reflect changes in the quoted fair market value of the underlying shares of stock. The decline, if any, is amortized as stock compensation expense
over the life of the notes. The amortization expense is adjusted cumulatively for changes in fair market value of the collateral. Increases in the stock price, if any, would result in a credit to
expense, up to the amount of
prior expense recognized for this portion of the notes. We recorded an expense of $0.5 million during the three months ended March 31, 2001 for the amortization of the decline in the
quoted fair market value of the underlying collateral. As of March 31, 2001, a decline in the value of stock of $3.9 million remains to be amortized over the lives of the notes if the
stock price remains at current levels.

Also,
in connection with the execution of an officer's amended employment agreement, a note receivable and related accrued interest of $0.2 million will be forgiven, subject to
provisions of the agreement. The note and accrued interest are being expensed over the twenty-four month service period ended May 2002. We recorded an expense of
$0.02 million in the three months ended March 31, 2001.

Corporate Merger and Restructure Costs.We recorded corporate restructure and merger costs
associated with the business combinations between Gentle Dental Service Corporation and Dental Care Alliance, each of which became a wholly-owned subsidiary of InterDent in March 1999. The
business combination has been accounted for as a pooling-of-interests. As a result of the business combination we recorded a restructuring charge of $1.2 million for the
year ended December 31, 2000, all of which was recorded for the three months ended March 31, 2000, relating to our restructuring plan, including charges for system conversions,
redirection of certain duplicative operations and programs, and other costs. As of March 31, 2001, our restructuring plan is substantially complete and we do not anticipate additional
restructuring charges as a result of the business combination.

We
also recorded direct merger expenses of $0.5 million for the three months ended March 31, and for the year ended December 31, 2000 associated with the proposed
merger with Leonard Green & Partners, L.P. that was terminated in the second quarter of 2000. These expenses consist primarily of investment banking, accounting, legal, and other advisory fees.
No additional merger and restructure costs were recorded in 2001.

Depreciation and Amortization.Depreciation and amortization were $3.2 million for the
three months ended March 31, 2001 compared to $2.9 million for the three months ended March 31, 2000. This increase of 10.3% is primarily due to additional property and equipment
and intangible costs assigned to management services agreements associated with dental practice affiliations completed and earn-out payments made or converted to notes in 2000. It is
anticipated that future earn-out payments on completed acquisitions and additional capital expenditure needs will result in additional depreciation and amortization throughout future
periods.

Interest Expense.Interest expense, net of interest income, was $5.5 million for the
three months ended March 31, 2001 compared to $2.5 million for the three months ended March 31, 2000. This increase in interest expense was due to additional debt incurred under
our credit facility (the "Credit Facility") to complete additional dental practice affiliations and earn-out payments associated with past affiliations throughout 2001 and for the year
ended December 31, 2000. In 2001 and for the year ended December 31, 2000, we paid total cash consideration for practice affiliations of $27.7 million. In addition, we experienced
an overall increase in market rates of interest during 2000. Easing of interest rates by the Federal Reserve, along with a projected pay down on the Credit Facility resulting from the proposed sale of
DCA, as discussed in note 9 in the notes to the condensed consolidated financial statements, is anticipated to reduce our borrowing costs associated with our credit facility.

In
June 2000, we also issued a $25.5 million senior subordinated note. The proceeds from the transaction were primarily utilized to pay down a portion of the outstanding
balance on the Credit Facility, as required under the terms of the Credit Facility. The interest rate on the senior subordinated

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note is 12.5%, subject to incremental charges as outlined in the agreement. An incremental charge of approximately of $0.4 million was recorded in 2001, resulting from
non-compliance with certain covenants as of December 31, 2000. Subsequent to March 31, 2001, the notes were amended to waive the non-compliance as of
December 31, 2000 and reset all covenants for 2001 and subsequent years, as discussed in note 9 to the condensed consolidated financial statements.

Provision for Income Taxes.Our statutory tax rate for federal and state purposes is
approximately 39%. Income tax expense of $0.05 million recorded for 2001 represents the company's estimate of state income tax estimated to be payable. The Company expects to utilize its loss
carryforward to offset federal taxes for 2001. For the three months ended March 31, 2000, we recorded a provision of $0.6 million at our statutory rate.

Liquidity and Capital Resources

At March 31, 2001, cash and cash equivalents were $9.3 million, representing a $4.0 million increase in cash and cash equivalents from
$5.3 million available at December 31, 2000. The increase in cash from year-end was due to improvement in receivable collections, and timing in expenditures for accounts
payable and certain earn-out payments due. Our negative working capital at March 31, 2001 of $12.6 million increased from a negative working capital at December 31,
2000 of $4.1 million. The primary factor for the decrease in working capital is the inclusion of $7.2 million in additional current portion of long-term debt for the
January 2002 quarterly credit facility principal payment. These quarterly payments on the credit facility of $7.2 million commence in October 2001, with the final remaining
balance due September 30, 2003, as discussed below.

Net
cash provided by operations amounted to $8.1 million for the three months ended March 31, 2001 compared to $4.2 million for the three months ended
March 31, 2000. The increase in net cash provided by operations is primarily attributed to a decline in prepaid assets of $1.5 million and an increase in accounts payable of
$3.3 million.

Net
cash used in investing activities was $3.4 million for the three months ended March 31, 2001 and $7.0 million for the three months ended March 31,
2000. Included in the investing activities is cash paid for affiliated dental practices of $1.5 million for the three months ended March 31, 2001 and $1.9 million for the three
months ended March 31, 2000. We also paid $0.7 million for property and equipment for
the three months ended March 31, 2001 versus $2.3 million for the three months ended March 31, 2000, which decrease is due to completion of our hardware conversion costs to our
revenue and receivable software system. Advances to unconsolidated affiliated practices of $1.2 million for the three months ended March 31, 2001 and $3.0 million for the three
months ended March 31, 2000 were also made. Advances consist primarily of receivables from PAs due in connection with cash advances for working capital and operating purposes to certain
unconsolidated PAs. The Company typically advances funds to the PAs during the initial years of operations, until the PA owner repays the seller debt, and the operations improve. These uses of cash in
investing activities were funded through borrowing under our existing credit facility of $0.6 million for the three months ended March 31, 2001 and $4.4 million for the three
months ended March 31, 2000, as well as by cash provided from operations.

In
connection with certain completed affiliation transactions, we have agreed to pay to the sellers future consideration in the form of cash and Company capital stock. The amount of
future consideration payable under earn-outs is generally computed based upon financial performance of the affiliated dental practices during certain specified periods. We accrue for
earn-out payments with respect to these acquisitions when such amounts are probable and reasonably estimable. During the three months ended March 31, 2001, the Company agreed with
sellers to convert $0.7 million of amounts due during the period under earn-out agreements into long-term notes payable. As of March 31, 2001, future anticipated
earn-out payments of $11.3 million are accrued and included in

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other current liabilities. For those acquisitions with earn-out provisions, the Company estimates the total maximum earn-out that could be paid, including amounts already
accrued, is between $18.0 and $23.0 million from April 2001 to December 2004. In future years, such additional earn-out consideration could result in additional
amortization of approximately $0.72 to $0.92 million annually.

We
have made loans to various unconsolidated affiliated dental practices in connection with their acquisition of assets of dental practices and have made working capital advances to
certain unconsolidated affiliated dental practices for their operations. Advance and note amounts to be collected within the next year are classified as current in the accompanying condensed
consolidated balance sheets. Advances to PAs bear interest at a rate of 10.5%. The notes receivable from PAs generally have terms of 2 to 10 years and are interest bearing with rates between
8.5% and 18.5%. Both advance and note amounts are secured by the assets of the PAs and are personally guaranteed by the PA owners.

In
April 2001, we entered into an amendment to our existing senior revolving credit facility (the "Credit Facility") to provide a maximum available funding of
$101 million and amend certain covenants. In connection with the execution of the amendment, the banks waived the defaults under the Credit Facility that existed at December 31, 2000 due
to failure to meet certain financial ratio covenants and reset all covenants for 2001 and subsequent years. Additionally, the banks agreed to certain other changes including a revised term and
provisions regarding asset sales and new financing. As consideration for these modifications, we agreed to an amendment fee of $1.0 million payable on or before September 30, 2001 and an
additional fee of $1.0 million payable at maturity of the term loan.
We also issued a warrant to purchase 1,000,000 shares of the Company's common stock at a strike price equal to the common stock fair market value one day prior to the close of the transaction.

The
revolving feature of the Credit Facility expires on October 1, 2001, at which time it will convert into a term loan to be repaid in equal quarterly installments of
$7.2 million, and a final payment of the remaining balance at maturity on September 30, 2003. The Credit Facility also has mandatory prepayment provisions for certain asset sale
transactions, including the sale of DCA, and excess cash flows, as defined in the Credit Facility. These prepayment provisions are applied to future required quarterly installments.

The
Credit Facility requires us to pay an unused commitment fee in an amount of 0.50% per annum of the average daily amount by which the bank commitment under the Credit Facility
exceeds the aggregate amount of all loans then outstanding. Principal amounts owed under the Credit Facility bear interest at LIBOR plus 5.50% or the prime rate plus 3.75%, at our option. If we raise
qualified additional capital by April 1, 2002 ("Equity Conversion Date"), the interest rate under the Credit Facility reduces to LIBOR plus 3.50% or the prime rate plus 1.75%, at our option.
The interest rates also increase by 1% on each anniversary of the Equity Conversion Date.

The
Credit Facility contains several covenants, including but not limited to, restrictions on the ability of us to incur indebtedness or repurchase shares, a prohibition on dividends,
prohibition on acquisitions, requirement to defer a minimum of $4.5 million of earn-out payments due under earn-out arrangements to 2002, requirements relating to
maintenance of specified levels of cash flows, and compliance with specified financial ratios. Based upon management's projections, we believe that we will be able to meet the covenants on all debt
through March 31, 2002. Our obligations, including all subsidiaries in the guarantees, under the Credit Facility are secured by a security interest in the equipment, fixtures, inventory,
receivables, subsidiary stock, certain debt instruments, accounts and general intangibles of each of such entities.

Upon
execution of the amended agreement, we expensed a non-cash charge of approximately $0.85 million in April 2001 for the write-off of certain
prepaid debt costs related to previously entered Credit Facility agreements.

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In June 2000 we raised $36.5 million from the sale of debt and equity to Levine Leichtman Capital Partners II, L.P. ("Levine") under a securities purchase agreement (the
"Securities Purchase Agreement"). The net proceeds from the transaction were partially utilized to pay down existing balances outstanding under the Credit Facility, as required under the Credit
Facility.

The
equity portion of the transaction is comprised of 2,750,000 shares of common stock valued at $11.0 million. The debt portion of the transaction is comprised of a senior
subordinated note with a face value of $25.5 million (the "Levine Note"). As part of the transaction we also issued a warrant to purchase 2,125,000 shares of the Company's common stock at an
initial price of $6.84 per share. The initial exercise price per share may be adjusted, ranging from $4.45 to $6.19, subject to certain conditions as outlined in the warrant.

The
entire principal of the Levine Note is due September 2005 but may be paid earlier at our election, subject to a prepayment penalty. Additionally, the Levine Note has
mandatory principal prepayments based upon a change in ownership, certain asset sales, or excess cash flows. The Levine Note bears interest at 12.5%, subject to certain escalation clauses, payable
monthly, with an option to pay the interest at 15% in a payment-in-kind ("PIK") note. PIK notes bear interest at 12.5%. The Securities Purchase Agreement contains covenants,
including but not limited to, restricting our ability to incur certain indebtedness, liens or investments, restrictions relating to agreements affecting capital stock, maintenance of a specified net
worth, and compliance with specified financial ratios.

In
April 2001, we entered into an amendment to the Levine Note. In connection with the amendment, the lender waived the defaults under the Levine Note that existed at
December 31, 2000 due to failure to meet certain financial ratio covenants and reset all covenants for 2001 and subsequent years, in addition to certain other modifications. As consideration
for the amendment, the Company has agreed to pay an amendment fee of $2.25 million, payable in additional notes, increased the PIK interest rate to 16.5%, and reduced the price of the warrants
from an initial strike price of $6.84 per share to $4.13 per share.

In
1998 we issued $30.0 million of subordinated convertible notes ("Convertible Notes"). The Convertible Notes have an eight-year term and bear interest at 7.0%,
payable semi-annually with an option to pay the interest in a PIK note. The PIK notes also bear interest at 7%. During the three months ended March 31, 2001, and the year ended
December 31, 2000, we issued or accrued a total of $0.6 and $2.7 million in PIK notes, respectively. The Convertible Notes are convertible into shares of the common stock at $9.21 for
each share of Common Stock issuable upon conversion of outstanding principal and accrued but unpaid interest on such Convertible Notes. If certain events of default occur, the Convertible Notes then
outstanding will automatically convert into shares of our Series B Preferred Stock at a rate of one share of Series B Preferred Stock for each $1,000 in outstanding principal and accrued
but unpaid interest on the Convertible Notes, subject to adjustment for stock splits, reverse splits, stock dividends, reorganizations and the like. The Convertible Notes and all outstanding shares of
our Preferred Stock shall be automatically converted into our Common Stock (or, in the case of Series A Preferred Stock and Series C Preferred Stock, redeemed at nominal cost) if the
rolling 21-day average closing market price of our Common Stock on 20 out of any 30 consecutive trading days is more than $17.98.

We
are authorized to issue 30,000,000 shares of Preferred Stock. Presently authorized series of our Preferred Stock include the following series:



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The
shares of Series B Preferred Stock are convertible into shares of our Common Stock at the rate of 108.58 shares of Common Stock for each share of Series B Preferred
Stock (assuming there are no declared but unpaid dividends on the Series B Preferred Stock), and the shares of Series D Preferred Stock are convertible into shares of our Common Stock on
a share for share basis (assuming there are no declared but unpaid dividends on the Series D Preferred Stock), in each case subject to adjustment for stock splits, reverse splits, stock
dividends, reorganizations and similar anti-dilutive provisions. The Series A Preferred Stock and Series C Preferred Stock are not convertible.

In
April 2001, we entered into an amendment to the Convertible Notes. In connection with the amendment, the lender waived the cross-default provision under the Convertible
Notes that existed at December 31, 2000 due to the covenant violations under the Credit Facility and agreed to reset all covenants for 2001 and subsequent years, in addition to certain other
modifications. As consideration for the amendment, the Company has agreed to reduce the conversion price of the notes from an initial price of $9.21 per share to $6.50 per share.

A
total of 221,522 and 339,246 outstanding shares of InterDent Common Stock issued at a price of $0.45 and $0.225 per share, respectively, are subject to repurchase as a result of the
Company's failure to achieve certain specified performance targets. These shares are expected to be repurchased in the future.

In
April 2001, we entered into a definitive agreement to sell the stock of DCA, a wholly-owned subsidiary and certain other assets in Maryland, Virginia, and Indiana that were
acquired in the DentalCo transaction that was consummated in August 2000. The transaction also includes assets associated with the notes receivable made to certain officers of DCA and the
related security agreements. The total consideration is $36 million, including cash of $23 million and the assumption of certain debt and operating liabilities. Upon the
two-year anniversary of the transaction close, we shall have the right to repurchase the assets of DCA, based upon a multiple of EBITDA subject to a minimum price, as defined in the
agreement. In connection with the sale of assets, we entered into a five-year license agreement for $2 million in cash, payable in installments, for our proprietary practice
management system, subject to negotiations for additional term extensions. Simultaneous with the execution of the definitive agreement, the parties also entered into a business collaboration agreement
delineating the use of the practice management system, the joint purchase of supplies, the joint negotiation for managed care contracts, training systems, and other similar operational matters. The
transaction is expected to be completed in the second quarter of 2001.

In
the fourth quarter of 2000, we determined that the estimated future undiscounted cash flow from certain long-lived assets was below the carrying value of these
long-lived assets and advances to PAs. Accordingly, we adjusted the carrying value of these long-lived assets as a result of the proposed transaction to their estimated fair
value, resulting in a non-cash impairment charge of $49.8 million for a write-down of notes and advances to PAs of $18.1 million and intangibles of
$31.7 million. In addition, interest income from the notes and advances from PAs previously recorded in 2000 of $1.7 million was written off to net interest expense. An additional
reserve of receivables from PAs of $0.8 million was recorded for the three months ended March 31, 2001.

The
Company believes that cash flow from operations and payment of certain obligations under earn-out arrangements with notes payable will be sufficient to fund
obligations through March 31, 2002. However, at March 31, 2001, current liabilities exceeded current assets by $12.8 million. The Company is required to begin quarterly payments
of $7.2 million to its senior lenders beginning October 1, 2001, and has obligations to fund payments of $7.8 million through March 31, 2002 to sellers of dental practices
under notes payable and additional amounts for earn-out agreements, depending on practice performance, estimated to be approximately $11.3 million at March 31, 2001.
Furthermore, the Company advances funds to the PAs to finance their repayment of debt to the sellers of dental practices purchased by the PA owners. These advances are expected to equal approximately
$5.0 million

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in 2001, net of repayments, of which $1.2 million has already been advanced as of March 31, 2001. The Company expects to significantly improve cash flow from operations in 2001 compared
to 2000 as a result of growth and operational improvements, before considering the impact of the sale of DCA. The Company also expects to pay certain earn-out obligations with notes
payable issued by the Company. Additional funds are required to meet its obligation of $7.2 million due to senior lenders April 1, 2002.

The
Company expects to receive net proceeds of $25 million cash from the sale of DCA, including license fees, which will be used to pay the $1 million amendment fee on
the senior revolving credit facility, as discussed in note 9 to the condensed consolidated financial statements, and to reduce the credit facility. Furthermore, the sale of DCA would eliminate
the ongoing requirement to fund advances to PAs, as described above, which is expected to result in a net improvement in cash flow. The Company believes that cash flow from operations, payment of
certain obligations under earn-out arrangements with notes payable, the sale of DCA and sale of other non-core dental practices will be sufficient to fund its obligations
through the next fiscal year, including the quarterly obligation of $7.2 million due to the senior lenders on January 1 and April 1, 2002. If the sale of DCA is not completed, the
Company will require at least $14.4 million additional funding through sale of assets, payment of additional obligations to sellers using notes payable, additional borrowing arrangements or
issuance of equity securities, in addition to the achievement of improved operating cash flows described
above, to meet its obligations through April 1, 2002. There can be no assurance that any such asset sales or financing will be available or will be available on terms acceptable to InterDent or
that operational improvements will be achieved.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

We do not utilize financial instruments for trading purposes and hold no derivative financial instruments which could expose us to significant market risk. Our
interest expense is sensitive to changes in the general level of interest rates as our credit facility has interest rates based upon market LIBOR or prime rates, as discussed in Note 5 to the
condensed consolidated financial statements. To mitigate the impact of fluctuations in market rates, we purchase fixed interest rates for periods of up to 180 days on portions of the
outstanding credit facility balance.

At
March 31, 2001, we had $101.0 million in floating rate debt under the credit facility. The detrimental effect on our pre-tax earnings of a hypothetical
100 basis point increase in the interest rate under the credit facility would have been approximately $0.3 million for the three-months ended March 31, 2001. This sensitivity analysis
does not consider any actions we might take to mitigate our exposure to such a change in the credit facility rate. The hypothetical change used in this analysis may be different from what actually
occurs in the future. Our remaining subordinated notes and long-term debt obligations of $74.9 million are at fixed rates of interest.

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PART IIOTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

The payment of dividends is within the discretion of the Board of Directors; however, we intend to retain earnings from operations for use in the operation and
expansion of our business and do not expect to pay cash dividends in the foreseeable future. In addition, our senior credit lender currently prohibits the payment of cash dividends. Any future
decision with respect to dividends will depend on future earnings, operations, capital requirements and availability, restrictions in future financing agreements and other business and financial
considerations.

Item 3. Defaults Upon Senior Securities

As of December 31, 2000, the Company was in default under our existing senior revolving credit facility (the "Credit Facility") due to failure to meet
certain financial ratio covenants. In April 2001, we entered into an amendment to our Credit Facility, which, among other provisions, waived the defaults that existed at December 31,
2000 and reset all covenants for 2001 and subsequent years, see note 9 to the condensed consolidated financial statements.

Item 5. Other Information

On March 23, 2001 we received notification from Nasdaq that we have failed to maintain a minimum bid price of $1.00 over the last thirty consecutive
days as required under Maketplace Rule 4450(a)(5) (the "Rule"). Accordingly, we will be provided until, June 21, 2001 to regain compliance with the Rule. If at anytime before
June 21, 2001 the bid price of our stock is at least $1.00 for a minimum of 10 trading days, the NASDAQ staff will determine if we are in compliance with the Rule. However, if we are unable to
demonstrate compliance with the Rule on or before June 21, 2001, the staff will provide us with written notification that our securities will be delisted. At that time we may appeal the staff's
decision to a Nasdaq Listing Qualification Panel.

If
the Company's Common Stock is delisted from the NASDAQ National Market, and if trading of the Company's Common Stock is to continue, such trading could be conducted on the NASDAQ
Small Cap Market, in the over-the-counter market on the so called "pink sheets" or, if available, on the NASD's Electronic Bulletin Board. In such event, investors could find
it more difficult to dispose of, or to obtain accurate quotations as to the value of, the Company's Common Stock. The trading price per share of the Company's Common Stock could be reduced as a
result.

On
April 2, 2001, First Union National Bank has been appointed as Transfer Agent and Registrar for the stock of InterDent, Inc. Shareholder matters, such as a transfer
of shares, stock transfer requirements, missing stock certificates and changes of address, should be directed to First Union at the following address and telephone number:



Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K





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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|      |  |              |  | INTERDENT, INC.(Registrant)
|----- |  | ------------ |  | ---------------------------
|      |  |              |  |                            
|Date: |  | May 15, 2001 |  | By:                        
|      |  |              |  | By:                        

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