UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON , D.C. 20549

                                    FORM 10-Q
(Mark One)

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

                   For the quarterly period ended     June 30, 2006
                                                      -------------

                                       OR

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

        For the transition period from _______________ to _________________

                         Commission file number 0-23367
                                                -------

                     BIRNER DENTAL MANAGEMENT SERVICES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                    COLORADO                             84-1307044
        ---------------------------------            -------------------
          (State or other jurisdiction                 (IRS Employer
        of incorporation or organization)            Identification No.)



         3801 EAST FLORIDA AVENUE, SUITE 508
                 DENVER, COLORADO                           80210
       ----------------------------------------           ----------
       (Address of principal executive offices)           (Zip Code)

                                 (303) 691-0680
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

                                       N/A
    --------------------------------------------------------------------------
    (Former name, former address and former fiscal year, if changed since last
                                     report)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the Registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.
Yes    X     No
     -----     ------

Indicate  by  check mark whether the Registrant is a large accelerated filer, an
accelerated  filer,  or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange  Act).

Large  accelerated  filer     Accelerated filer      Non-accelerated filer  X
                         ----                  ----                        ----

Indicate  by check mark whether the Registrant is a shell company (as defined in
Rule  12b-2  of  the  Exchange  Act).
Yes          No  X
   -----        ----

Indicate  the  number  of  shares outstanding of each of the issuer's classes of
common  stock,  as  of  the  latest  practicable  date.

             Class                   Shares Outstanding as of August 9, 2006
  -------------------------------    ----------------------------------------
  Common Stock, without par value                   2,311,719*

*  On  July  13,  2005,  the  Company  announced that its Board of Directors had
declared  a  2-for-1  stock split of its Common Stock.  The 2-for-1 stock split,
which  was  effected  as  a stock dividend, was distributed on August 8, 2005 to
shareholders  of  record  at the close of business on August 1, 2005.  The stock
split  increased  the  number  of  shares  outstanding  on  August  8, 2005 from
1,210,295  to  2,420,590.  All share and earnings per share calculations for all
periods  in  this document have been restated to reflect the effect of the stock
split.

                                       1
<PAGE>


          BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                              INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION
<S>       <C>                                                                                       <C>
Item 1.   Financial Statements                                                                      Page
                                                                                                    ----
          Unaudited Condensed Consolidated Balance Sheets as of December 31, 2005
          and June 30, 2006                                                                           3

          Unaudited Condensed Consolidated Statements of Income for the Quarters and Six
          Months Ended June 30, 2005 and 2006                                                         4

          Unaudited Condensed Consolidated Statements of Shareholders' Equity as of June 30, 2006     5

          Unaudited Condensed Consolidated Statements of Cash Flows for the Quarters and Six
          Months Ended June 30, 2005 and 2006                                                         6

          Unaudited Notes to Condensed Consolidated Financial Statements                              8

Item 2.   Management's Discussion and Analysis of Financial Condition
          And Results of Operations                                                                  14

Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                 23

Item 4.   Controls and Procedures                                                                    23


PART II - OTHER INFORMATION


Item 1.   Legal Proceedings                                                                          24

Item 1A.  Risk Factors                                                                               24

Item 2.   Changes in Securities and Use of Proceeds                                                  24

Item 4.   Submission of Matter to a Vote of Security Holders                                         24

Item 5.   Other Information                                                                          25

Item 6.   Exhibits                                                                                   25

Signatures                                                                                           26
</TABLE>



                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION
                         ------------------------------

ITEM 1.  FINANCIAL STATEMENTS
-----------------------------


         BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                               December 31,     June 30,
ASSETS                                                                                             2005           2006
                                                                                              -------------   -----------
                                                                                                    **        (Unaudited)
<S>                                                                                           <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                                   $     921,742   $   763,302
  Accounts receivable, net of allowance for doubtful
    accounts of $261,031 and $277,664, respectively                                               3,215,369     3,618,859
  Deferred tax asset                                                                                160,411       210,777
  Prepaid expenses and other assets                                                                 605,599       555,712
                                                                                              -------------   -----------
  Total current assets                                                                            4,903,121     5,148,650

  PROPERTY AND EQUIPMENT, net                                                                     3,939,452     5,337,870

OTHER NONCURRENT ASSETS:
  Intangible assets, net                                                                         13,036,652    12,662,055
  Deferred charges and other assets                                                                 154,245       181,860
                                                                                              -------------   -----------
  Total assets                                                                                $  22,033,470   $23,330,435
                                                                                              =============   ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                            $   2,065,076   $ 1,768,524
  Accrued expenses                                                                                1,110,526     1,325,416
  Accrued payroll and related expenses                                                            1,502,877     2,203,286
  Income taxes payable                                                                              175,259       369,037
  Current maturities of long-term debt                                                              145,150        98,672
                                                                                              -------------   -----------
  Total current liabilities                                                                       4,998,888     5,764,935

LONG-TERM LIABILITIES:
  Deferred tax liability, net                                                                       750,346       779,445
  Long-term debt, net of current maturities                                                       2,887,166     3,372,694
  Other long-term obligations                                                                       195,723       291,836
                                                                                              -------------   -----------
  Total liabilities                                                                               8,832,123    10,208,910

COMMITMENTS AND CONTINGENCIES (Note 10)

SHAREHOLDERS' EQUITY:
  Preferred Stock, no par value, 10,000,000 shares
    authorized; none outstanding                                                                          -             -
  Common Stock, no par value, 20,000,000 shares
    authorized; 2,343,675 and  2,310,718 shares issued and
    outstanding, respectively                                                                     9,628,457     8,670,773
  Deferred equity compensation                                                                     (648,240)     (486,180)
  Retained earnings                                                                               4,221,130     4,936,932
                                                                                              -------------   -----------
  Total shareholders' equity                                                                     13,201,347    13,121,525

  Total liabilities and shareholders' equity                                                  $  22,033,470   $23,330,435
                                                                                              =============   ===========
**  Derived from the Company's audited consolidated balance sheet at December 31, 2005.
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>

                                       3
<PAGE>

           BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               Quarters Ended                 Six Months Ended
                                                                                  June 30,                         June 30,
                                                                     -----------------------------------  -------------------------
                                                                           2005              2006             2005         2006
                                                                     ----------------  -----------------  ------------  -----------
<S>                                                                  <C>               <C>                <C>           <C>
NET REVENUE:                                                         $     9,393,284   $      10,091,469  $18,761,015   $20,231,498

DIRECT EXPENSES:
  Clinical salaries and benefits                                           3,490,196           3,581,248    6,976,346     7,270,235
  Dental supplies                                                            599,015             577,569    1,132,353     1,153,206
  Laboratory fees                                                            655,810             683,362    1,284,306     1,325,258
  Occupancy                                                                  952,684           1,094,148    1,912,900     2,150,881
  Advertising and marketing                                                  312,155             251,979      571,597       460,933
  Depreciation and amortization                                              416,620             528,688      840,992     1,008,463
  General and administrative                                                 992,319           1,139,053    1,972,432     2,329,922
                                                                     ----------------  -----------------  -----------   -----------
                                                                           7,418,799           7,856,047   14,690,926    15,698,898

                                                                     ----------------  -----------------  -----------   -----------
  Contribution from dental offices                                         1,974,485           2,235,422    4,070,089     4,532,600
                                                                     ----------------  -----------------  -----------   -----------

CORPORATE EXPENSES:
  General and administrative (includes $81,030 of
     deferred equity compensation expense and $78,286
     related to stock-based compensation expense in the quarter
     ended June 30, 2006 and $162,060 of deferred
     equity compensation expense and $166,031 related to
     stock based-compensation expense in the six months
     ended June 30, 2006)                                                    906,629           1,141,210    1,807,117     2,222,273
  Depreciation and amortization                                               32,618              32,446       69,292        66,642
                                                                     ----------------  -----------------  -----------   -----------
  Operating income                                                         1,035,238           1,061,766    2,193,680     2,243,685
                                                                     ----------------  -----------------  -----------   -----------

  Interest expense (income), net                                             (20,235)             40,467      (27,867)       80,087
                                                                     ----------------  -----------------  -----------   -----------

  Income before income taxes                                               1,055,473           1,021,299    2,221,547     2,163,598
  Income tax expense                                                         422,205             398,133      888,636       838,107
                                                                     ----------------  -----------------  -----------   -----------

  Net income                                                         $       633,268   $         623,166  $ 1,332,911   $ 1,325,491
                                                                     ===============   =================  ===========   ===========

  Net income per share of Common Stock - Basic                       $          0.27   $            0.27  $      0.57   $      0.56
                                                                     ===============   =================  ===========   ===========

  Net income per share of Common Stock - Diluted                     $          0.25   $            0.25  $      0.52   $      0.52
                                                                     ===============   =================  ===========   ===========

  Cash dividends per share of Common Stock                           $          0.10   $            0.13  $      0.20   $      0.26
                                                                     ===============   =================  ===========   ===========

  Weighted average number of shares of
    Common Stock and dilutive securities:
      Basic                                                                2,306,202           2,327,419    2,342,994     2,349,824
                                                                     ===============   =================  ===========   ===========

      Diluted                                                              2,555,696           2,506,790    2,587,816     2,546,337
                                                                     ===============   =================  ===========   ===========

The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>

                                       4

<PAGE>

          BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
         CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                               (UNAUDITED)
<TABLE>
<CAPTION>
                                            Common Stock           Deferred
                                       -----------------------      Equity       Retained   Shareholders'
                                        Shares       Amount      Compensation    Earnings      Equity
                                       ---------   -----------   ------------  -----------   -----------
<S>                                    <C>         <C>           <C>           <C>           <C>
BALANCES, December 31, 2005            2,343,675   $ 9,628,457   $  (648,240)  $ 4,221,130   $13,201,347
  Common Stock options exercised          54,983       182,286             -             -       182,286
  Purchase and retirement of
    Common Stock                         (87,940)   (1,349,298)            -             -    (1,349,298)
  Tax benefit of Common Stock
    options exercised                          -        43,297             -             -        43,297
  Dividends declared on Common Stock           -             -             -      (609,689)     (609,689)
  Stock-based compensation expense             -       166,031             -             -       166,031
  Amortization of deferred equity
    compensation                               -             -       162,060             -       162,060
  Net income                                   -             -             -     1,325,491     1,325,491
                                       ---------   -----------   -----------   -----------   -----------
BALANCES, June 30, 2006                2,310,718   $ 8,670,773   $  (486,180)  $ 4,936,932   $13,121,525
                                       =========   ===========   ===========   ===========   ===========
</TABLE>























  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.




                                       5
<PAGE>
                                                                     Page 1 of 2

         BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                  June 30,
                                                                      -------------------------------
                                                                          2005                2006
                                                                      ------------        -----------
<S>                                                                   <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                          $  1,332,911        $ 1,325,491
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation and amortization                                         910,284          1,075,105
     Stock compensation expense                                                  -            166,031
     Loss on disposition of property                                          (244)                 -
     Provision for doubtful accounts                                       235,330            181,528
     Provision for deferred income taxes                                         -            (21,267)
     Amortization of debt issuance costs                                     1,475                  -
     Amortization of deferred equity compensation                                -            162,060
  Changes in assets and liabilities net of effects
   from acquisitions:
     Accounts receivable                                                (1,098,004)          (585,018)
     Prepaid expenses and other assets                                     262,585             49,887
     Deferred charges and other assets                                           -            (27,615)
     Accounts payable                                                      188,775           (296,552)
     Accrued expenses                                                     (223,755)           149,492
     Accrued payroll and related expenses                                  492,191            700,409
     Income taxes payable                                                  506,336            193,778
     Other long-term obligations                                            (5,465)            96,113
                                                                      ------------        -----------
       Net cash provided by operating activities                         2,602,419          3,169,442
                                                                      ------------        -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                    (383,381)          (973,558)
  Development of new dental centers                                       (100,744)        (1,125,368)
                                                                      ------------        -----------
       Net cash used in investing activities                              (484,125)        (2,098,926)
                                                                      ------------        -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Advances - line of credit                                             10,575,000          9,905,538
  Repayments - line of credit                                          (10,350,000)        (9,386,449)
  Repayment of long-term debt                                              (82,035)           (80,039)
  Proceeds from exercise of Common Stock options                           513,897            182,286
  Purchase and retirement of Common Stock                               (2,197,378)        (1,349,298)
  Tax benefit of Common Stock options exercised                                  -             43,297
  Common Stock cash dividends                                             (327,607)          (544,291)
                                                                      ------------        -----------
       Net cash used in financing activities                            (1,868,123)        (1,228,956)
                                                                      ------------        -----------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                         250,171           (158,440)
CASH AND CASH EQUIVALENTS, beginning of period                             756,181            921,742
                                                                      ------------        -----------
CASH AND CASH EQUIVALENTS, end of period                              $  1,006,352        $   763,302
                                                                      ============        ===========


  The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
                                       6
<PAGE>
                                                                     Page 2 of 2

         BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                  June 30,
                                                                      -------------------------------
                                                                          2005                2006
                                                                      ------------        -----------
<S>                                                                   <C>                 <C>
  SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:

    Cash paid during the year for interest                           $      57,338       $    136,913
                                                                      ============        ===========
    Cash paid during the year for income taxes                       $     382,300       $    472,300
                                                                      ============        ===========


























  The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>



                                       7
<PAGE>
      BIRNER  DENTAL  MANAGEMENT  SERVICES,  INC.  AND  SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

(1)     UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The  financial  statements  included  herein have been prepared by Birner Dental
Management  Services, Inc. (the "Company") pursuant to the rules and regulations
of  the  Securities  and  Exchange Commission.  Certain information and footnote
disclosures  normally  included  in  financial statements prepared in accordance
with  accounting  principles  generally  accepted in the United States have been
condensed  or  omitted  pursuant  to  such  rules  and regulations, although the
Company  believes  that the disclosures included herein are adequate to make the
information  presented not misleading. A description of the Company's accounting
policies and other financial information is included in the audited consolidated
financial statements as filed with the Securities and Exchange Commission in the
Company's  Annual  Report on  Form 10-K  for  the  year ended December 31, 2005.

In  the opinion of management, the accompanying unaudited condensed consolidated
financial  statements  contain  all  adjustments necessary to present fairly the
financial  position  of  the  Company  as  of  June  30, 2006 and the results of
operations  and  cash flows for the periods presented.  All such adjustments are
of  a  normal  recurring  nature.  The results of operations for quarter and six
months  ended  June  30, 2006 are not necessarily indicative of the results that
may  be achieved for a full fiscal year and cannot be used to indicate financial
performance  for  the  entire  year.

On July 13, 2005, the Company announced that its Board of Directors had declared
a  2-for-1  stock split of its common stock.  The 2-for-1 stock split, which was
effected  as  a  dividend,  was distributed on August 8, 2005 to shareholders of
record  at  the  close of business on August 1, 2005.  The stock split increased
the  number of shares outstanding on August 8, 2005 from 1,210,295 to 2,420,590.
All  shares and earnings per share calculations for all periods in this document
have  been  restated  to  reflect  the  effect  of  the  stock  split.

(2)          SIGNIFICANT ACCOUNTING POLICIES

Intangible Assets

The  Company's dental practice acquisitions involve the purchase of tangible and
intangible  assets  and  the  assumption  of certain liabilities of the acquired
Offices.  As  part  of  the purchase price allocation, the Company allocates the
purchase  price  to the tangible and identifiable intangible assets acquired and
liabilities assumed, based on estimated fair market values. Costs of acquisition
in  excess  of  the  net  estimated  fair  value of tangible assets acquired and
liabilities  assumed  are  allocated to the Management Agreement. The Management
Agreement  represents  the  Company's  right  to  manage  the Offices during the
40-year term of the agreement. The assigned value of the Management Agreement is
amortized  using  the  straight-line  method  over  a  period  of  25  years.
Amortization  was  $194,849 and $187,610 for the quarter ended June 30, 2006 and
2005,  respectively.  Amortization  was $389,597 and $375,220 for the six months
ended  June  30,  2006  and  2005,  respectively.

The  Management  Agreements  cannot  be  terminated  by the related professional
corporation  without  cause,  consisting  primarily  of  bankruptcy  or material
default  by  the  Company.

In  the  event  that facts and circumstances indicate that the carrying value of
long-lived  and  intangible  assets  may  be  impaired,  an  evaluation  of
recoverability would be performed. If an evaluation were required, the estimated
future  undiscounted  cash  flows associated with the asset would be compared to
the  asset's  carrying  amount  to  determine if a write-down to market value or
undiscounted  cash  flow  value  would  be  required.

Stock Options

On  January  1,  2006,  the  Company  adopted  Statement of Financial Accounting
Standards  ("SFAS")  No.  123(R),  "Share-Based Payment."  This standard revises
SFAS  123,  "Accounting  for Stock-Based Compensation" and supersedes Accounting
Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees."
Under  SFAS  123(R),  the  Company  is  required to measure the cost of employee
services received in exchange for stock options and similar  awards based on the
grant  date  fair  value  of  the  award  and  recognize this cost in the income
statement  over  the  period  during  which  an  employee is required to provide
service  in  exchange  for  the  award.

                                       8
<PAGE>

The  Company  adopted  SFAS  123(R) using the modified prospective method. Under
this transition method, stock-based compensation expense for the quarter and six
months  ended  June  30,  2006  includes:  (i)  compensation  expense  for  all
stock-based  compensation  awards  granted  prior  to,  but not yet vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the  original  provision  of  SFAS  123;  and  (ii) compensation expense for all
stock-based  compensation awards granted subsequent to January 1, 2006, based on
the  grant  date  fair  value estimated in accordance with the provision of SFAS
123(R).  The  Company  recognizes  compensation expense on a straight line basis
over  the  requisite service period of the award. Total stock-based compensation
expense included in the Company's statement of income for the quarter ended June
30,  2006  was  approximately  $78,000.  Total  stock-based compensation expense
included  in the Company's statement of income for the six months ended June 30,
2006  was  approximately  $166,000.  Total  stock-based compensation expense was
recorded  as  a  component  of  corporate general and administrative expense. In
accordance  with  the  modified  prospective method, financial results for prior
periods  have  not  been  restated.
 The  Black-Scholes  option-pricing  model  was used to estimate the option fair
values.  The option-pricing model requires a number of assumptions, of which the
most  significant  are expected stock price volatility, the expected pre-vesting
forfeiture rate, expected dividend rate and the expected option term (the amount
of time from the grant date until the options are exercised or expire). Expected
volatility  was  calculated  based  upon actual historical stock price movements
over  the  most recent periods ending June 30, 2006 equal to the expected option
term. Expected pre-vesting forfeitures were estimated based on actual historical
pre-vesting  forfeitures  over  the most recent periods ending June 30, 2006 for
the  expected  option  term.  The  expected option term was calculated using the
"simplified"  method  permitted  by  Staff  Accounting  Bulletin  107.

Prior  to  January  1,  2006,  the Company accounted for stock options using the
intrinsic  value  method  wherein  compensation  expense  is recognized on stock
options  granted only for the excess of the market price of the Company's Common
Stock  over  the  option exercise price on the date of grant. All options of the
Company  are  granted  at  amounts equal to or higher than the fair value of the
Common  Stock,  so  no  compensation  expense  is  recorded.


If  the  Company  had  accounted  for  its  stock-based  compensation  plans  in
accordance  with SFAS No. 123, the Company's net income and net income per share
of  Common  Stock  for the quarter and six months ended June 30, 2005 would have
been  reported  as  follows:
<TABLE>
<CAPTION>
                                                                Quarter Ended   Six Months Ended
                                                                June 30, 2005     June 30, 2005
<S>                                                             <C>             <C>
                                                                --------------  -----------------
Net income, as reported                                         $      633,268  $       1,332,911
Stock-based compensation included in net income                              -                  -
Fair value of stock-based compensation,  net of income taxes           136,527             67,798
                                                                --------------  -----------------
Pro forma net income                                            $      769,795  $       1,400,709
                                                                ==============  =================

Net income per share of Common Stock - Basic:
  As reported                                                   $         0.27  $            0.57
  Stock-based compensation included in net income                            -                  -
  Fair value of stock-based compensation, net of income taxes             0.06               0.03
                                                                --------------  -----------------
  Pro forma                                                     $         0.33  $            0.60
                                                                ==============  =================
Net income per share of Common Stock -  Diluted:
  As reported                                                   $         0.25  $            0.52
  Stock-based compensation included in net income                            -                  -
  Fair value of stock-based compensation, net of income taxes             0.05               0.02
                                                                --------------  -----------------
  Pro forma                                                     $         0.30  $            0.54
                                                                ==============  =================

</TABLE>

Pro-forma  compensation  expense  under  SFAS  123,  among  other  computational
differences,  does  not  consider  potential pre-vesting forfeitures. Because of
these  differences, the pro-forma stock compensation expense presented above for
the prior quarterly and six month periods ended June 30, 2005 under SFAS 123 and
the  stock  compensation expense recognized during the current quarterly and six
month periods ended June 30, 2006 under SFAS 123(R) are not directly comparable.
In  accordance  with  the modified prospective transition method of SFAS 123(R),
the  prior  comparative  quarterly and six month results have not been restated.

                                       9
<PAGE>
(3)          EARNINGS PER SHARE

The  Company  calculates  earnings  per  share  in accordance with SFAS No. 128,
"Earnings  Per  Share."

<TABLE>
<CAPTION>
                                                                         Quarters Ended June 30,
                                               ------------------------------------------------------------------------
                                                               2005                                   2006
                                               -------------------------------------  ---------------------------------
                                                                         Per Share                            Per Share
                                                 Income       Shares       Amount        Income      Shares     Amount
                                               ----------   ---------  -------------  ----------   ---------  ---------
<S>                                            <C>          <C>        <C>            <C>          <C>        <C>
Basic EPS:
Net income available to
shares of Common Stock                         $  633,268   2,306,202  $        0.27  $  623,166   2,327,419  $    0.27

Effect of dilutive shares of
Common Stock from stock options and warrants            -    249,494           (0.02)          -     179,371      (0.02)
                                               ----------   ---------  -------------  ----------   ---------  ---------
Diluted EPS:
Net income available to shares of
Common Stock                                   $  633,268   2,555,696  $        0.25  $  623,166   2,506,790  $    0.25
                                               ==========   =========  =============  ==========   =========  =========
</TABLE>



The difference in weighted average shares outstanding between basic earnings per
share and diluted earnings per share for the quarters ended June 30, 2006 and
2005 relates to the effect of 179,371 and 249,494 shares, respectively, of
dilutive shares of Common Stock from stock options, which are included in total
shares for the diluted calculation. For the quarter ended June 30 , 2006,
options to purchase 168,200 shares of the Company's Common Stock were not
included in the computation of dilutive income per share because their effect
was anti-dilutive.
<TABLE>
<CAPTION>
                                                                         Quarters Ended June 30,
                                               ------------------------------------------------------------------------
                                                               2005                                   2006
                                               -------------------------------------  ---------------------------------
                                                                         Per Share                            Per Share
                                                 Income       Shares       Amount        Income      Shares     Amount
                                               ----------   ---------  -------------  ----------   ---------  ---------
<S>                                            <C>          <C>        <C>            <C>          <C>        <C>
Basic EPS:
Net income available to shares of
Common Stock                                   $1,332,911   2,342,994  $        0.57  $1,325,491   2,349,824  $    0.56

Effect of dilutive shares of Common Stock
from stock options and warrants                         -     244,822          (0.05)          -     196,513      (0.04)
                                               ----------   ---------  -------------  ----------   ---------  ---------
Diluted EPS:
Net income available to shares of
Common Stock                                   $1,332,911   2,587,816  $        0.52  $1,325,491   2,546,337  $    0.52
                                               ==========   =========  =============  ==========   =========  =========
</TABLE>



The difference in weighted average shares outstanding between basic earnings per
share and diluted earnings per share for the six months ended June 30, 2006 and
2005 relates to the effect of 196,513 and 244,822 shares, respectively, of
dilutive shares of Common Stock from stock options, which are included in total
shares for the diluted calculation. For the six months ended June 30 , 2006,
options to purchase 167,122 shares of the Company's Common Stock were not
included in the computation of dilutive income per share because their effect
was anti-dilutive.




                                       10
<PAGE>
(4)     STOCK-BASED  COMPENSATION  PLANS

At  the  Company's  June  2005  annual meeting of shareholders, the shareholders
approved  the  2005  Equity Incentive Plan ("2005 Plan"), which reserved 300,000
shares  of  Common  Stock  for issuance. The 2005 Plan provides for the grant of
incentive  stock  options,  restricted  stock,  restricted stock units and stock
grants  to  employees  (including  officers  and  employee-directors)  and
non-statutory  stock  options  to  employees,  directors  and  consultants.  The
objectives  of  this  plan  include attracting and retaining the best personnel,
providing  for additional performance incentives by providing employees with the
opportunity  to  acquire  Common  Stock.  As of June 30, 2006, there were 67,800
shares available for issuance under the 2005 Plan. The option price of the stock
options issued under the 2005 Plan is equal to the market price, or market price
plus  10%  for shareholders with 10% or more control of the Company, at the date
of grant. These stock options expire seven years, or five years for shareholders
with  10%  or  more  control of the Company, from the date of the grant and vest
annually  over  a service period ranging from three to five years. The 2005 Plan
is  administered  by  a  committee  of  two  or  more outside directors from the
Company's  Board  of  Directors  (the "Committee"). The Committee determines the
eligible  individuals to whom awards under the 2005 Plan may be granted, as well
as  the  time  or  times  at  which awards will be granted, the number of shares
subject  to  awards  to  be  granted to any eligible individual, the life of any
award,  and  any  other  terms  and conditions of the grant in addition to those
contained  in  the  2005  Plan.

The  Employee Stock Option Plan (the ''Employee Plan'') was adopted by the Board
of  Directors  effective  as of October 30, 1995, and as amended on September 4,
1997,  February  28,  2002,  and June 8, 2004, reserved 479,250 shares of Common
Stock  for issuance. The Employee Plan provided for the grant of incentive stock
options  to  employees  (including  officers  and  employee-directors)  and
non-statutory  stock  options  to  employees,  directors  and  consultants.  The
Employee  Plan  expired  by  its terms on October 30, 2005. As of June 30, 2006,
there  were  308,733  vested  options  outstanding  and 105,666 unvested options
outstanding  under  the  Employee  Plan.

The  Dental  Center  Stock Option Plan ("Dental Center Plan") was adopted by the
Board of Directors effective as of October 30, 1995, and as amended on September
4, 1997, reserved 160,475 shares of Common Stock for issuance. The Dental Center
Plan  provided  for  the  grant  of  non-statutory stock options to professional
corporations  that  operate the Offices ("P.C.s") that are parties to Management
Agreements with the Company, and to dentists or dental hygienists who are either
employed  by  or  an  owner  of the P.C.s. The Dental Center Plan expired by its
terms on October 30, 2005. As of June 30, 2006, there were 14,000 vested options
outstanding  and  no  unvested options outstanding under the Dental Center Plan.

The  Company  uses the Black-Scholes pricing model to estimate the fair value of
each  option  granted  with  the  following  weighted  average  assumptions:

<TABLE>
<CAPTION>
                                      Quarters Ended            Six Months Ended
                                         June 30,                      June 30,
                             ----------------------------------  ----------------------
Valuation Assumptions (1)         2005              2006            2005        2006
---------------------------  ---------------  -----------------  ----------  ----------
<S>                            <C>              <C>              <C>         <C>

Expected life (2)              3.8 years         4.5 years       3.4 years   4.7 years
Risk-free interest rate (3)        3.79%             5.01%           2.33%       4.88%
Expected volatility (4)              25%               49%             37%         49%
Expected dividend yield            2.04%             3.37%           1.88%       3.18%
</TABLE>
_____________________________
(1)  Beginning on the date of adoption of SFAS 123(R), on January 1, 2006,
     forfeitures are estimated based on historical experience. Prior to the of
     adoption of SFAS 123(R), forfeitures were recorded as they occurred.
(2)  The expected life of stock options is estimated using the simplified-method
     calculation.
(3)  The risk-free interest rate is based on U.S. Treasury bills whose term is
     consistent with the expected life of the stock options.
(4)  The expected volatility is estimated based on historical and current stock
     price data for the Company.








                                       11
<PAGE>
A  summary  of  option  activity as of June 30, 2006, and changes during the six
months  then  ended,  is  presented  below:
<TABLE>
<CAPTION>
                                                                                      Weighted-
                                                        Weighted-                      Average     Aggregate
                                                         Average                      Remaining    Intrinsic
                                          Number        Exercise       Range of      Contractual     Value
                                        of Options       Price      Exercise Prices  Term (years)  (thousands)
                                        ----------      --------    ---------------  ------------  -----------
<S>                                       <C>            <C>        <C>                  <C>         <C>
Outstanding at December 31, 2005          655,382        $10.42     $ 1.00 - $19.37
  Granted                                   7,200        $16.45     $15.41 - $17.75
  Exercised                                54,983        $ 3.31     $ 1.00 - $ 9.66
  Forfeited                                13,000        $14.47     $12.50 - $17.61
                                          -------        ------     ---------------
Outstanding at June 30, 2006              594,599        $11.06     $ 4.80 - $19.37      3.7         $3,102
                                          =======        ======     ===============      ===         ======
Exercisable at June 30, 2006              316,733        $ 6.99     $ 4.80 - $13.00      2.3         $2,697
                                          =======        ======     ===============      ===         ======
</TABLE>



The  weighted  average  grant  date  fair value of options granted was $6.12 per
option  and $2.54 per option during the six months ended June 30, 2006 and 2005,
respectively.  Net  cash  proceeds from the exercise of stock options during the
six  months  ended  June  30,  2006  and  2005  were  $182,286  and  $513,896,
respectively.  The  associated  income  tax benefit from stock options exercised
during  the  six  months  ended June 30, 2006 and 2005 was $43,297 and $269,459,
respectively.  As  of the date of exercise, the total intrinsic value of options
exercised  during  the  six months ended June 30, 2006 and 2005 was $818,948 and
$1.3  million,  respectively.  As  of June 30, 2006, there was $1.262 million of
total  unrecognized  compensation  expense  related to non-vested stock options,
which is expected to be recognized over a weighted average period of 1.64 years.


(5)     RESTRICTED  STOCK  GRANT

On July 1, 2005, the Company granted 60,000 shares of restricted Common Stock to
the Company's Chairman and Chief Executive Officer (the "Employee"). In
connection with the grant of restricted stock, the Company agreed to reimburse
the Employee an amount equal to the tax liability associated with the grant.
Such reimbursement was made by the Company and totaled approximately $586,000
which was recognized as an expense during the third quarter of 2005. As of June
30, 2006, there was approximately $486,000 of unrecognized compensation expense
related to the restricted stock grant. The expense is expected to be recognized
over a period of 1.50 years.

A summary of the vesting status of the shares of restricted stock as of June 30,
2006,  and  the  changes  during  the six months then ended, is presented below:

<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                        June 30, 2006
                                       --------------------------------------------------
                                          Number of               Weighted-Average Grant-
                                       Restricted Shares              Date Fair Value
                                       -----------------          -----------------------
<S>                                        <C>                           <C>
Non-vested at December 31, 2006            60,000                        $    13.51
  Granted                                       -                                 -
  Vested                                  (20,000)                            13.51
  Forfeited                                     -                                 -
                                          -------                        ----------
Non-vested at June 30, 2006                40,000                        $    13.51
                                          =======                        ==========
</TABLE>








                                       12

<PAGE>
(6)          DIVIDENDS

On  March 9, 2004, the Company announced a quarterly cash dividend of $.0375 per
share.  On February 10, 2005, the Company announced an increase in the amount of
the  quarterly  dividend  to  $.10  per  share. On January 10, 2006, the Company
announced an increase in the amount of the quarterly dividend to $.13 per share.
The  payment  of  dividends  in  the  future is subject to the discretion of the
Company's  Board  of Directors, and various factors may prevent the Company from
paying dividends. Such factors include the Board of Directors' assessment of the
Company's  financial position, capital requirements and liquidity, the existence
of  a  stock  repurchase  program,  loan  agreement  restrictions,  results  of
operations  and such other factors the Company's Board of Directors may consider
relevant.

(7)      LINE OF CREDIT

On  April  25,  2006,  the  Company  amended  its  bank  line of credit ("Credit
Facility").  The  amended  Credit  Facility  allows  the Company to borrow, on a
revolving  basis,  an  aggregate principal amount not to exceed $7.0 million (an
increase  from  $5.0  million) at either, or a combination of, the lender's Base
Rate or at LIBOR plus a LIBOR rate margin, at the Company's option. The lender's
Base  Rate  computes  interest at the higher of the lender's "prime rate" or the
Federal  Funds  Rate  plus  one-half  percent (0.5%).  The LIBOR option computes
interest  at  the LIBOR rate as of the date such LIBOR Rate loan was made plus a
LIBOR  rate  margin  of  1.50%.  A  commitment fee of 0.25% on the average daily
unused  amount  of the revolving loan commitment during the preceding quarter is
also  assessed.  The  Company  may prepay any Base Rate loan at any time and any
LIBOR  rate  loan  upon  not  less than three business days prior written notice
given  to  the  lender,  but  the  Company  is  responsible for any loss or cost
incurred  by the lender in liquidating or employing deposits required to fund or
maintain  the  LIBOR  rate  loan. The amended Credit Facility expires on May 31,
2008.  At  June  30,  2006,  the  Company  had $3.4 million outstanding and $3.6
million  available  for  borrowing  under the Credit Facility. This consisted of
$873,000  outstanding  under  the  Base Rate option and $2.5 million outstanding
under  the  LIBOR  rate  option.  The  Credit  Facility  requires the Company to
maintain  certain  financial  ratios  on an ongoing basis. At June 30, 2006, the
Company  was  in  full  compliance  with  all  of its covenants under the Credit
Facility.

 (8)     CAPITAL  COMMITMENTS

At  June  30, 2006, the Company had budgeted capital commitments for the next 12
months  of  approximately  $550,000,  which  includes  the funding of two dental
practices developed internally ("de novo Offices"). The Company anticipates that
these  capital  expenditures  will  be funded by cash on hand, cash generated by
operations,  or  borrowings  under  the Company's Credit Facility. The Company's
retained  earnings  as of June 30, 2006 were approximately $4.9 million, and the
Company  had  a  working capital deficit on that date of approximately $616,000.
During  the quarter ended June 30, 2006, the Company had capital expenditures of
approximately  $901,000 and purchased approximately $1.3 million of Common Stock
while  increasing  total  bank  debt  by  $1.2  million.















                                       13

<PAGE>

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

FORWARD-LOOKING  STATEMENTS

The  statements  contained  in this report that are not historical in nature are
forward-looking  statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform  Act  of  1995.  All  statements,  other  than  statements of
historical  facts,  included  in  this report that address activities, events or
developments  that we expect, believe, intend or anticipate will or may occur in
the  future,  are  forward-looking  statements.  When used in this document, the
words  "estimate," "believe," anticipate," "project" and similar expressions are
intended to identify forward-looking statements.  Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with  accuracy  and  some  of  which  might  not  even  be  anticipated.  These
forward-looking  statements  include  statements  in  this Item 2, "Management's
Discussion  and  Analysis  of  Financial  Condition  and Results of Operations,"
regarding  intent, belief or current expectations of the Company or its officers
with  respect  to  the development or acquisition of additional dental practices
("Offices")  and  the  successful integration of such Offices into the Company's
network, recruitment of additional dentists, funding of the Company's expansion,
capital  expenditures,  payment  or nonpayment of dividends and cash outlays for
income  taxes  and  other  purposes.

Such  forward-looking  statements  involve  certain risks and uncertainties that
could  cause actual results to differ materially from anticipated results. These
risks  and  uncertainties  include  regulatory  constraints,  changes in laws or
regulations  concerning  the practice of dentistry or dental practice management
companies,  the  availability  of  suitable  new  markets and suitable locations
within  such  markets, changes in the Company's operating or expansion strategy,
the  general  economy of the United States and the specific markets in which the
Company's  Offices  are  located  or  are  proposed to be located, trends in the
health  care,  dental  care  and  managed  care  industries, as well as the risk
factors  set  forth in Item 1A. "Risk Factors" in the Company's Annual Report on
Form  10-K  for  the fiscal year ended December 31, 2005, this report, and other
factors as may be identified from time to time in the Company's filings with the
Securities  and  Exchange  Commission  or  in  the  Company's  press  releases.

GENERAL

The  following  discussion  relates to factors that have affected the results of
operations  and  financial  condition  of  the  Company for the quarters and six
months  ended  June  30,  2005  and  2006.  This  information  should be read in
conjunction  with  the Company's condensed consolidated financial statements and
related  notes  thereto  included  elsewhere  in  this  report.

OVERVIEW

The Company was formed in May 1995 and currently manages 59 Offices in Colorado,
New  Mexico  and Arizona staffed by 77 general dentists and 29 specialists.  The
Company  derives  all  of  its  Revenue  (as  defined below) from its Management
Agreements  with professional corporations ("P.C.s"), which conduct the practice
at  each  Office.  In addition, the Company assumes a number of responsibilities
when  it  acquires  a  new  practice or develops a de novo Office, which are set
forth  in  a  Management  Agreement,  as  described  below.

The  Company  was  formed with the intention of becoming the leading provider of
business  services  to  dental  practices  in Colorado. The Company's growth and
success  in  the  Colorado  market  led to its expansion into the New Mexico and
Arizona  markets.  The  Company's  growth  strategy  is  to  focus  on  greater
utilization  of  existing physical capacity through recruiting more dentists and
support  staff  and  through  development  of  de  novo  Offices  and  selective
acquisitions.

CRITICAL  ACCOUNTING  POLICIES

The Company's critical accounting policies are set forth in its Annual Report on
Form  10-K  for the year ended December 31, 2005.  There have been no changes to
these  policies  since  the  filing  of  that  report.

COMPONENTS  OF  REVENUE  AND  EXPENSES

Total  dental  group  practice revenue ("Revenue") represents the revenue of the
Offices  reported  at  estimated realizable amounts, received from dental plans,
other  third-party  payors  and  patients  for  dental  services rendered at the
Offices.  The  Company's  Revenue  is  derived  principally from fee-for-service
revenue  and  managed  dental  care revenue. Fee-for-service revenue consists of
revenue  received  from  indemnity  dental  plans,  preferred provider plans and
direct  payments by patients not covered by any third-party payment arrangement.
Managed  dental care revenue consists of revenue received from capitated managed
dental  care  plans,  including  capitation  payments  and  patient co-payments.
Capitated  managed  dental  care  contracts  are  between  dental  benefits
organizations  and  the  P.C.s.


                                       14
<PAGE>

Net revenue represents Revenue less amounts retained by the Offices. The amounts
retained  by  the  Offices  represent  amounts  paid as compensation to employed
dentists  and  hygienists. The Company's net revenue is dependent on the Revenue
of  the Offices. Direct expenses consist of the expenses incurred by the Company
in  connection  with  managing  the Offices, including salaries and benefits for
personnel other than dentists and hygienists, dental supplies, dental laboratory
fees,  occupancy costs, advertising and marketing, depreciation and amortization
and  general  and  administrative  (including office supplies, equipment leases,
management  information  systems  and  other expenses related to dental practice
operations).  The  Company  also incurs personnel and administrative expenses in
connection  with  maintaining  a  corporate  function  that provides management,
administrative, marketing, advertising, development and professional services to
the  Offices.

Under  each  of  the Management Agreements, the Company manages the business and
marketing  aspects  of  the  Offices,  including  (i)  providing  capital,  (ii)
designing and implementing marketing and advertising programs, (iii) negotiating
for  the  purchase  of supplies, (iv) staffing, (v) recruiting, (vi) training of
non-dental  personnel,  (vii)  billing  and  collecting  certain fees for dental
services  provided  by  the  Offices,  (viii)  arranging  for  certain legal and
accounting  services,  and  (ix)  negotiating with third party payors. Under the
Management  Agreements,  the  P.C.  is  responsible  for, among other things (i)
supervision of all dentists and dental hygienists, (ii) complying with all laws,
rules  and  regulations  relating  to  dentists and dental hygienists, and (iii)
maintaining  proper  patient records.  The Company has made, and intends to make
in  the future, loans to P.C.s in Colorado, New Mexico and Arizona to fund their
acquisition of dental assets from third parties in order to comply with the laws
of  such  states.

Under  the  typical  Management Agreement used by the Company, the P.C. pays the
Company  a management fee equal to the Adjusted Gross Center Revenue of the P.C.
less  compensation  paid  to  the dentists and dental hygienists employed at the
Office  of  the P.C.  Adjusted Gross Center Revenue is comprised of all fees and
charges  booked  each  month  by  or on behalf of the P.C. as a result of dental
services  provided  to  patients  at  the  Office,  less  any  adjustments  for
uncollectible accounts, professional courtesies and other activities that do not
generate a collectible fee.  The Company's costs include all direct and indirect
costs,  overhead  and expenses relating to the Company's provision of management
services  at each Office under the Management Agreement, including (i) salaries,
benefits  and other direct costs of employees who work at the Office (other than
dentist  and  hygienist salaries), (ii) direct costs of all Company employees or
consultants  who  provide  services  to  or in connection with the Office, (iii)
utilities,  janitorial,  laboratory,  supplies,  advertising  and other expenses
incurred  by  the  Company  in carrying out its obligations under the Management
Agreement,  (iv)  depreciation expense associated with the P.C.'s assets and the
assets  of  the  Company  used at the Office, and the amortization of intangible
asset  value  relating  to  the  Office,  (v)  interest  expense on indebtedness
incurred  by  the Company to finance any of its obligations under the Management
Agreement,  (vi)  general and malpractice insurance expenses, lease expenses and
dentist  recruitment  expenses, (vii) personal property and other taxes assessed
against the Company's or the P.C.'s assets used in connection with the operation
of  the Office, (viii) out-of-pocket expenses of the Company's personnel related
to  mergers  or acquisitions involving the P.C., (ix) corporate overhead charges
or any other expenses of the Company, including the P.C.'s pro rata share of the
expenses  of  the  accounting and computer services provided by the Company, and
(x) a collection reserve in the amount of 5.0% of Adjusted Gross Center Revenue.
As  a  result,  substantially  all costs associated with the provision of dental
services at the Offices are borne by the Company, except for the compensation of
the  dentists  and hygienists who work at the Offices of the P.C.s. This enables
the  Company  to  manage  the  profitability  of  the  Offices.  Each Management
Agreement  is  for  a  term  of  40  years.  Further,  each Management Agreement
generally  may  be  terminated  by  the  P.C.  only  for cause, which includes a
material default by or bankruptcy of the Company. Upon expiration or termination
of a Management Agreement by either party, the P.C. must satisfy all obligations
it  has  to  the  Company.

Under  the  Management  Agreements,  the  Company negotiates and administers the
capitated  managed  dental  care  contracts  on  behalf  of  the P.C.s.  Under a
capitated  managed  dental  care  contract,  the  dental group practice provides
dental  services to the members of the dental benefits organization and receives
a  fixed  monthly capitation payment for each plan member covered for a specific
schedule  of  services  regardless  of  the  quantity or cost of services to the
participating dental group practice obligated to provide them.  This arrangement
shifts  the  risk  of utilization of these services to the dental group practice
providing the dental services.  Because the Company assumes responsibility under
the  Management  Agreements  for  all  aspects  of  the  operation of the dental
practices (other than the practice of dentistry) and thus bears all costs of the
P.C.s  associated  with  the  provision of dental services at the Offices (other
than  compensation  of dentists and hygienists), the risk of over-utilization of
dental  services  at  the  Offices  under capitated managed dental care plans is
effectively  shifted  to  the  Company.  In  addition,  dental  group  practices
participating in a capitated managed dental care plan often receive supplemental
payments  for  more  complicated  or  elective  procedures.  In  contrast, under
traditional  indemnity  insurance  arrangements,  the  insurance  company  pays
whatever  reasonable  charges  are  billed  by the dental group practice for the
dental  services  provided.  Under  a  preferred provider plan, the dental group
practice  is paid for dental services provided based on a fee schedule that is a
discount  to  the  usual  and  customary  fees paid under an indemnity insurance
agreement.


                                       15
<PAGE>

The  Company  seeks  to  increase its fee-for-service business by increasing the
patient  volume  at existing Offices through effective marketing and advertising
programs  and  by  opening de novo Offices. The Company seeks to supplement this
fee-for-service  business  with  revenue  from  contracts with capitated managed
dental care plans.  Although the Company's fee-for-service business generally is
more  profitable  than  its  capitated  managed  dental care business, capitated
managed dental care business serves to increase facility utilization and dentist
productivity.  The  relative  percentage  of  the Company's Revenue derived from
fee-for-service business and capitated managed dental care contracts varies from
market  to market depending on the availability of capitated managed dental care
contracts  in  any  particular  market  and  the  Company's ability to negotiate
favorable contract terms.  In addition, the profitability of managed dental care
Revenue  varies  from  market  to  market  depending  on the level of capitation
payments  and  co-payments in proportion to the level of benefits required to be
provided.

RESULTS  OF  OPERATIONS

For  the  three  months  ended June 30, 2006, Revenue increased $1.2 million, or
9.2%, to $14.6 million compared to $13.3 million for the three months ended June
30,  2005.  For  the  three  months  ended  June 30, 2006, net revenue increased
$698,000,  or  7.4%,  to  $10.1  million  compared to $9.4 million for the three
months  ended  June  30,  2005.

Net  income  decreased  1.6%  to  $623,000, or $.25 per share (net of $98,000 of
after-tax  stock-based compensation expense versus no such expense in the second
quarter  of 2005) compared to $633,000, or $.25 per share for the same period of
2005.

For the six months ended June 30, 2006, Revenue increased $2.5 million, or 9.2%,
to  $29.1  million  compared  to $26.7 million for the six months ended June 30,
2005.  For  the  six  months  ended  June  30,  2006, net revenue increased $1.5
million,  or 7.8%, to $20.2 million compared to $18.8 million for the six months
ended  June  30,  2005.

Net income decreased 0.6% to $1.3 million, or $.52 per share (net of $202,000 of
after-tax  stock-based  compensation  expense  versus no such expense in the six
months ended June 30, 2005) compared to $1.3 million,  or $.52 per share for the
same  period  of  2005.

The  Company  anticipates  opening  two  additional  de novo Offices, one in the
Phoenix,  Arizona  market  and  one in the Albuquerque, New Mexico market. These
Offices  are  projected to open in the third quarter of 2006. The Company opened
one  de  novo  Office  in  the  Denver,  Colorado  market  in  June  2006.

The  Company continues to generate strong cash flow from operations.  During the
first  six months of 2006, the Company purchased $1.3 million of its outstanding
Common  Stock,  incurred  $2.1 million in capital expenditures, paid $544,000 in
dividends,  and  repaid  $80,000  of  long term debt while increasing borrowings
under  its  bank  line  of  credit  ("Credit  Facility")  by  $519,000.

Revenue  is  total  dental  group  practice  revenue  generated at the Company's
Offices from professional services provided to its patients. Amounts retained by
dental  Offices  represents  compensation expense to the dentists and hygienists
and  is  subtracted  from  total  dental group practice revenue to arrive at net
revenue.  The  Company reports net revenue in its financial statements to comply
with  Emerging  Issues  Task  Force  Issue  No. 97-2, Application of SFAS No. 94
(Consolidation  of  All  Majority  Owned  Subsidiaries)  and  APB Opinion No. 16
(Business  Combinations)  to  Physician Practice Management Entities and Certain
Other  Entities  With  Contractual  Management  Arrangements.  Revenue  is not a
generally  accepted accounting principles measure. The Company discloses Revenue
because  it  is  a  critical  component  for  management's  evaluation of Office
performance. However, investors should not consider this measure in isolation or
as  a  substitute  for  net revenue, operating income, cash flows from operating
activities  or  any  other  measure  for  determining  the  Company's  operating
performance  that is calculated in accordance with generally accepted accounting
principles.  The  following  table  reconciles  Revenue  to  net  revenue.
<TABLE>
<CAPTION>
                                                    Quarters Ended                   Six Months Ended
                                                        March 31,                         March 31,
                                           ------------------------------------  --------------------------
                                                 2005               2006             2005          2006
                                           ----------------  ------------------  ------------  ------------
<S>                                        <C>               <C>                 <C>           <C>

Total dental group practice revenue        $    13,344,516   $      14,566,435   $26,694,923   $29,146,349
Less - amounts retained by dental Offices       (3,951,232)         (4,474,966)   (7,933,908)   (8,914,851)
                                           ----------------  ------------------  ------------  ------------

Net revenue                                $     9,393,284   $      10,091,469   $18,761,015   $20,231,498
                                           ===============   =================   ===========   ===========
</TABLE>






                                       16
<PAGE>
The  following  table  sets  forth the percentages of net revenue represented by
certain  items  reflected  in the Company's condensed consolidated statements of
income. The information contained in the table represents the historical results
of  the Company. The information that follows should be read in conjunction with
the  Company's  condensed  consolidated  financial  statements and related notes
thereto  contained  elsewhere  in  this  report.


            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                    Quarters Ended                   Six Months Ended
                                                        March 31,                         March 31,
                                           ------------------------------------  --------------------------
                                                 2005               2006             2005          2006
                                           ----------------  ------------------  ------------  ------------
<S>                                             <C>                <C>              <C>           <C>

NET REVENUE:                                    100.0 %            100.0 %          100.0 %       100.0 %

DIRECT EXPENSES:
  Clinical salaries and benefits                 37.2 %             35.5 %           37.2 %        35.9 %
  Dental supplies                                 6.4 %              5.7 %            6.0 %         5.7 %
  Laboratory fees                                 7.0 %              6.8 %            6.9 %         6.6 %
  Occupancy                                      10.1 %             10.8 %           10.2 %        10.6 %
  Advertising and marketing                       3.3 %              2.5 %            3.0 %         2.3 %
  Depreciation and amortization                   4.4 %              5.2 %            4.5 %         5.0 %
  General and administrative                     10.6 %             11.3 %           10.5 %        11.5 %
                                                -------            -------          -------       -------
                                                 79.0 %             77.8 %           78.3 %        77.6 %
                                                -------            -------          -------       -------
  Contribution from dental offices               21.0 %             22.2 %           21.7 %        22.4 %

CORPORATE EXPENSES:
  General and administrative (includes
     $81,030 of deferred equity compensation
     expense and $78,286 related to
     stock-based compensation expense in
     the quarter ended June 30, 2006 and
     $162,060 of deferred equity compensation
     expense and $166,031 related to
     stock based-compensation expense in the
     six months ended June 30, 2006)              9.6 %             11.3 %            9.6 %        11.0 %
  Depreciation and amortization                   0.4 %              0.3 %            0.4 %         0.3 %
                                                -------            -------          -------       -------
  Operating income                               11.0 %             10.5 %           11.7 %        11.1 %

  Interest expense (income), net                 (0.2)%              0.4 %           (0.1)%         0.4 %
                                                -------            -------          -------       -------
  Income before income taxes                     11.2 %             10.1 %           11.8 %        10.7 %
  Income tax expense                              4.5 %              3.9 %            4.7 %         4.1 %
                                                -------            -------          -------       -------
  Net income                                      6.7 %              6.2 %            7.1 %         6.6 %
                                                =======            =======          =======       =======

</TABLE>




                                       17
<PAGE>
THREE  MONTHS ENDED JUNE 30, 2006  COMPARED TO THREE MONTHS ENDED JUNE 30, 2005:

Net  revenue.  For  the  three months ended June 30, 2006, net revenue increased
$698,000,  or  7.4%,  to  $10.1  million  compared to $9.4 million for the three
months  ended  June  30,  2005.  This increase is attributable to an increase of
$580,000  at  the  56 Offices in existence during both periods and $118,000 from
the  addition  of  three  de  novo  Offices  opened  since  June  30,  2005.

Clinical  salaries  and  benefits.  For  the  three  months ended June 30, 2006,
clinical  salaries  and  benefits  increased  $91,000,  or 2.6%, to $3.6 million
compared to $3.5 million for the three months ended June 30, 2005. This increase
was primarily due to additional employees at the recently opened de novo Offices
as  well  as  annual wage increases that became effective February 1, 2006. As a
percentage of net revenue, clinical salaries and benefits decreased to 35.5% for
the  three  months  ended  June 30, 2006  compared to 37.2% for the three months
ended  June  30,  2005.

Dental  supplies.  For  the  three  months  ended June 30, 2006, dental supplies
decreased  to  $578,000 compared to $599,000 for the three months ended June 30,
2005,  a  decrease  of  $21,000  or 3.6%. As a percentage of net revenue, dental
supplies  decreased to 5.7% for the three months ended June 30, 2006 compared to
6.4%  for  the  three  months  ended  June  30,  2005.

Laboratory  fees.  For  the  three  months  ended June 30, 2006, laboratory fees
increased  to  $683,000 compared to $656,000 for the three months ended June 30,
2005, an increase of $28,000 or 4.2%. As a percentage of net revenue, laboratory
fees decreased to 6.8% for the three months ended June 30, 2006 compared to 7.0%
for  the  three  months  ended  June  30,  2005.

Occupancy. For the three months ended June 30, 2006, occupancy expense increased
to  $1.1  million compared to $953,000 for the three months ended June 30, 2005,
an increase of $141,000 or 14.8%. This increase was primarily due to the opening
of three de novo Offices since June 2005 and increased rental payments resulting
from  the  renewal  of  Office  leases at current market rates for Offices whose
leases  expired  subsequent  to the 2005 period. As a percentage of net revenue,
occupancy  expense  increased  to 10.8% for the three months ended June 30, 2006
compared  to  10.1%  for  the  three  months  ended  June  30,  2005.

Advertising and marketing. For the three months ended June 30, 2006, advertising
and  marketing  decreased  to $252,000 compared to $312,000 for the three months
ended  June  30,  2005,  a  decrease  of  $60,000  or  19.3%.  This  decrease is
attributable  to  a  shift  in  the  television  and  print advertising from the
relatively  expensive  Denver,  Colorado  market in 2005 to the Albuquerque, New
Mexico  and  Colorado  Springs, Colorado markets in 2006. As a percentage of net
revenue,  advertising and marketing decreased to 2.5% for the three months ended
June  30,  2006  compared  to  3.3%  for  the  three months ended June 30, 2005.
Depreciation and amortization-Offices. For the three months ended June 30, 2006,
depreciation  and amortization expenses attributable to the Offices increased to
$529,000  compared  to  $417,000  for  the  three months ended June 30, 2005, an
increase  of  $112,000 or 26.9%. The increase in the Company's depreciable asset
base  is  a result of purchasing tenant improvements and new equipment for three
new  de  novo  Offices,  the  expansion  of three existing Offices and increased
capital  purchases  for  specialty  services.  As  a  percentage of net revenue,
depreciation  and amortization increased to 5.2% for the three months ended June
30,  2006  compared  to  4.4%  for  the  three  months  ended  June  30,  2005.

General  and  administrative-Offices.  For the three months ended June 30, 2006,
general  and  administrative  expenses  attributable to the Offices increased to
$1.1  million  compared to $992,000 for the three months ended June 30, 2005, an
increase  of  $147,000  or  14.8%.  This  increase in general and administrative
expenses  is  primarily  attributable  to  higher  write  offs  of uncollectible
accounts  receivable and increased costs for travel, legal fees, office supplies
and  increased  gross  receipts  tax  based on higher revenues in the New Mexico
Offices.  As  a  percentage  of net revenue, general and administrative expenses
increased  to  11.3%  for the three months ended June 30, 2006 compared to 10.6%
for  the  three  months  ended  June  30,  2005.

Contribution  from dental Offices.   As a result of the above, contribution from
dental  Offices  increased  $261,000,  or  13.2%,  to $2.2 million for the three
months  ended  June 30, 2006 compared to $2.0 million for the three months ended
June  30, 2005. As a percentage of net revenue, contribution from dental offices
increased  to  22.2%  for the three months ended June 30, 2006 compared to 21.0%
for  the  three  months  ended  June  30,  2005.

Corporate expenses - general and administrative. For the three months ended June
30,  2006,  corporate  expenses  -  general and administrative increased to $1.1
million  compared  to  $907,000  for  the  three  months ended June 30, 2005, an
increase  of $235,000 or 25.9%. This increase is primarily related to $81,000 of
amortization as a result of 60,000 shares of restricted stock granted on July 1,
2005.  The  Company  recognized  approximately  $81,000  of  deferred  equity
compensation  expense,  before  taxes,  in each quarter since the grant date and
will continue to recognize approximately $81,000 per quarter through the quarter
ending  December 31, 2007. The adoption of SFAS 123(R), "Share-Based Payment" on
January  1,  2006  increased  corporate expenses - general and administrative by
$78,000. The remainder of the increase was primarily due to an increase in legal
fees.  As  a  percentage  of  net  revenue,  corporate  expenses  -  general and
administrative  increased  to  11.3%  for  the  three months ended June 30, 2006
compared  to  9.6%  for  the  three  months  ended  June  30,  2005.


                                       18
<PAGE>

Corporate  expenses  - depreciation and amortization. For the three months ended
June  30,  2006  and  2005,  corporate  expenses - depreciation and amortization
remained constant at $32,000. As a percentage of net revenue, corporate expenses
-  depreciation  and  amortization  decreased to 0.3% for the three months ended
June  30,  2006  from  0.4%  for  the  three  months  ended  June  30,  2005.

Operating  income.   As  a  result of the matters discussed above, the Company's
operating  income  increased  by  $27,000, or 2.6% to $1.1 million for the three
months  ended  June 30, 2006 compared to $1.0 million for the three months ended
June  30,  2005.  As  a percentage of net revenue, operating income decreased to
10.5%  for  the three months ended June 30, 2006 compared to 11.0% for the three
months  ended  June  30,  2005.

Interest  expense/(income),  net.  For  the  three  months  ended June 30, 2006,
interest expense increased to $40,000 compared to ($20,000) for the three months
ended  June  30, 2005, an increase of $61,000. This increase in interest expense
is  attributable to higher interest expense on the Company's Credit Facility due
to  increased  rates and increased balances on the credit line and lower charges
for  late  payments  on  customer  accounts  receivable.  As a percentage of net
revenue,  interest expense/(income), net, increased to 0.4% for the three months
ended June 30, 2006 compared to (0.2)% for the three months ended June 30, 2005.
Net  income.   As  a  result  of  the  above, the Company reported net income of
$623,000  for  the  three  months  ended June 30, 2006 compared to net income of
$633,000  for  the  three  months  ended June 30, 2005, a decrease of $10,000 or
1.6%.  Net income for the three months ended June 30, 2006 was net of income tax
expense  of  $398,000  while net income for the three months ended June 30, 2005
was  net  of income tax expense of $422,000. As a percentage of net revenue, net
income  decreased  to  6.2% for the three months ended June 30, 2006 compared to
6.7%  for  the  three  months  ended  June  30,  2005.

SIX  MONTHS  ENDED  JUNE  30,  2006  COMPARED TO SIX MONTHS ENDED JUNE 30, 2005:

Net  revenue. For the six months ended June 30, 2006, net revenue increased $1.5
million,  or 7.8%, to $20.2 million compared to $18.8 million for the six months
ended  June  30,  2005.  This  increase  is  attributable to an increase of $1.3
million at the 56 Offices in existence during both periods and $210,000 from the
addition  of  three  de  novo  Offices  opened  since  June  30,  2005.

Clinical salaries and benefits. For the six months ended June 30, 2006, clinical
salaries  and  benefits increased $294,000, or 4.2%, to $7.3 million compared to
$7.0 million for the six months ended June 30, 2005. This increase was primarily
due  to  additional  employees at the recently opened de novo Offices as well as
annual wage increases that became effective February 1, 2006. As a percentage of
net  revenue,  clinical  salaries  and  benefits  decreased to 35.9% for the six
months  ended June 30, 2006  compared to 37.2% for the six months ended June 30,
2005.

Dental  supplies.  For  the  six  months  ended  June  30, 2006, dental supplies
increased to $1.2 million compared to $1.1 million for the six months ended June
30, 2005, an increase of $21,000 or 1.8%. As a percentage of net revenue, dental
supplies  decreased  to  5.7% for the six months ended June 30, 2006 compared to
6.0%  for  the  six  months  ended  June  30,  2005.

Laboratory  fees.  For  the  six months ended June 30, 2006 and 2005, laboratory
fees  remained  constant  at  $1.3  million.  As  a  percentage  of net revenue,
laboratory  fees  decreased  to  6.6%  for  the  six  months ended June 30, 2006
compared  to  6.9%  for  the  six  months  ended  June  30,  2005.

Occupancy.  For  the six months ended June 30, 2006, occupancy expense increased
to $2.2 million compared to $1.9 million for the six months ended June 30, 2005,
an  increase  of  $238,000  or  12.4%.  This  increase  was primarily due to the
opening  of  three de novo Offices since June 2005 and increased rental payments
resulting  from the renewal of Office leases at current market rates for Offices
whose  leases  expired  subsequent  to  the  2005 period. As a percentage of net
revenue,  occupancy expense increased to 10.6% for the six months ended June 30,
2006  compared  to  10.2%  for  the  six  months  ended  June  30,  2005.

Advertising  and  marketing. For the six months ended June 30, 2006, advertising
and  marketing  decreased  to  $461,000  compared to $572,000 for the six months
ended  June  30,  2005,  a  decrease  of  $111,000  or  19.4%.  This decrease is
attributable  to  a  shift  in  the  television  and  print advertising from the
relatively  expensive  Denver,  Colorado  market in 2005 to the Albuquerque, New
Mexico  and  Colorado  Springs, Colorado markets in 2006. As a percentage of net
revenue,  advertising  and  marketing decreased to 2.3% for the six months ended
June  30,  2006  compared  to  3.0%  for  the  six  months  ended June 30, 2005.

                                       19
<PAGE>

Depreciation  and  amortization-Offices. For the six months ended June 30, 2006,
depreciation  and amortization expenses attributable to the Offices increased to
$1.0  million  compared  to  $841,000 for the six months ended June 30, 2005, an
increase  of  $167,000 or 19.9%. The increase in the Company's depreciable asset
base  is  a result of purchasing tenant improvements and new equipment for three
new  de  novo  Offices,  the  expansion  of three existing Offices and increased
capital  purchases  for  specialty  services.  As  a  percentage of net revenue,
depreciation  and  amortization  increased to 5.0% for the six months ended June
30,  2006  compared  to  4.5%  for  the  six  months  ended  June  30,  2005.

General  and  administrative-Offices.  For  the  six months ended June 30, 2006,
general  and  administrative  expenses  attributable to the Offices increased to
$2.3 million compared to $2.0 million for the six months ended June 30, 2005, an
increase  of  $357,000  or  18.1%.  This  increase in general and administrative
expenses  is  primarily  attributable  to  higher  write  offs  of uncollectible
accounts receivables and increased costs for travel, legal fees, office supplies
and  increased  gross  receipts  tax  based on higher revenues in the New Mexico
Offices.  As  a  percentage  of net revenue, general and administrative expenses
increased  to 11.5% for the six months ended June 30, 2006 compared to 10.5% for
the  six  months  ended  June  30,  2005.

Contribution  from dental Offices.   As a result of the above, contribution from
dental  Offices increased $463,000, or 11.4%, to $4.5 million for the six months
ended  June  30, 2006 compared to $4.1 million for the six months ended June 30,
2005. As a percentage of net revenue, contribution from dental Offices increased
to  22.4%  for  the six months ended June 30, 2006 compared to 21.7% for the six
months  ended  June  30,  2005.

Corporate  expenses  - general and administrative. For the six months ended June
30,  2006,  corporate  expenses  -  general and administrative increased to $2.2
million  compared  to  $1.8  million  for the six months ended June 30, 2005, an
increase of $415,000 or 23.0%. This increase is primarily related to $162,000 of
amortization as a result of 60,000 shares of restricted stock granted on July 1,
2005.  The  Company  recognized  approximately  $81,000  of  deferred  equity
compensation  expense,  before  taxes,  in each quarter since the grant date and
will continue to recognize approximately $81,000 per quarter through the quarter
ending December 31, 2007. The adoption the adoption of SFAS 123(R), "Share-Based
Payment"  on  January  1,  2006  increased  corporate  expenses  -  general  and
administrative  by  $166,000. The remainder of the increase was primarily due to
an  increase in legal fees. As a percentage of net revenue, corporate expenses -
general  and administrative increased to 11.0% for the six months ended June 30,
2006  compared  to  9.6%  for  the  six  months  ended  June  30,  2005.

Corporate  expenses  -  depreciation  and amortization. For the six months ended
June  30,  2006, corporate expenses - depreciation and amortization decreased by
$3,000 to $67,000 compared to $69,000 for the six months ended June 30, 2005. As
a  percentage of net revenue, corporate expenses - depreciation and amortization
decreased  to  0.3%  for the six months ended June 30, 2006 compared to 0.4% for
the  six  months  ended  June  30,  2005.

Operating  income.   As  a  result of the matters discussed above, the Company's
operating income remained constant at $2.2 million for the six months ended June
30, 2006 and 2005. As a percentage of net revenue, operating income decreased to
11.1%  for  the three months ended June 30, 2006 compared to 11.7% for the three
months  ended  June  30,  2005.

Interest expense/(income), net. For the six months ended June 30, 2006, interest
expense increased to $80,000 compared to ($28,000) for the six months ended June
30,  2005,  an  increase  of  $108,000.  This  increase  in  interest expense is
attributable  to higher interest expense on the Company's Credit Facility due to
increased  interest  rates  and  increased balances on the credit line and lower
charges  for  late  payments on customer accounts receivable. As a percentage of
net  revenue,  interest  expense/(income),  net,  increased  to 0.4% for the six
months  ended June 30, 2006 compared to (0.1)% for the six months ended June 30,
2005.

Net  income.   As  a  result of the above, the Company's reported net income for
the  six  months ended June 30, 2006 and 2005 remained constant at $1.3 million.
Net  income for the six months ended June 30, 2006 was net of income tax expense
of  $838,000  while net income for the six months ended June 30, 2005 was net of
income  tax  expense  of  $889,000.  As  a percentage of net revenue, net income
decreased  to  6.6%  for the six months ended June 30, 2006 compared to 7.1% for
the  six  months  ended  June  30,  2005.


                                       20
<PAGE>

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company  finances  its  operations and growth through a combination of cash
provided  by  operating  activities, the Credit Facility and, from time to time,
seller  notes  issued in dental practice acquisitions.  As of June 30, 2006, the
Company  had  a  working  capital  deficit  of  approximately  $616,000.

Net  cash  provided  by  operating activities was approximately $3.2 million and
$2.6  million  for  the  six  months ended June 30, 2006 and 2005, respectively.
During  the  2006  period,  excluding  net income and after adding back non-cash
items,  the  Company's cash provided by operating activities consisted primarily
of  an  increase  in accounts payable, accrued expenses and accrued payroll  and
related  expenses of approximately $553,000, an increase in income taxes payable
of  approximately  $194,000,  an  increase  in  other  long-term  obligations of
approximately  $96,000  and  a  decrease in prepaid expenses and other assets of
approximately $50,000, partially offset by an increase in accounts receivable of
approximately  $585,000  (primarily  due  to  higher Revenue) and an increase in
deferred  charges  and  other  assets  of approximately $28,000. During the 2005
period, excluding net income and after adding back non-cash items, the Company's
cash  provided  by  operating  activities  consisted primarily of an increase in
accounts  payable, accrued expenses and accrued payroll  and related expenses of
approximately  $457,000,  an  increase  in income taxes payable of approximately
$506,000  and  a  decrease in prepaid expenses and other assets of approximately
$263,000,  partially  offset  by  an  increase  in  accounts  receivable  of
approximately  $1.1  million.

Net  cash  used  in  investing  activities  was  approximately  $2.1 million and
$484,000  for the six months ended June 30, 2006 and 2005, respectively. For the
six  months  ended June 30, 2006, the Company invested approximately $974,000 in
the purchase of additional property and equipment and approximately $1.1 million
in  the development of de novo Offices.  For the six months ended June 30, 2005,
the  Company  invested  approximately  $383,000  in  the  purchase of additional
property  and  equipment  and  $101,000  in  the development of de novo Offices.

Net  cash  used  in financing activities was approximately $1.2 million, for the
six  months  ended  June 30, 2006 and $1.9 million for the six months ended June
30,  2005. During the six months ended June 30, 2006, net cash used in financing
activities  was comprised of approximately $1.3 million used in the purchase and
retirement  of Common Stock, approximately $544,000 for the payment of dividends
and  approximately  $80,000  used in the repayment of long-term debt,  partially
offset  by  approximately  $519,000 advanced from the Company's Credit Facility,
approximately $182,000 in proceeds from the exercise of Common Stock options and
$43,000  in tax benefit of Common Stock options exercised. During the six months
ended  June  30,  2005,  net  cash used in financing activities was comprised of
approximately  $2.2 million used in the purchase and retirement of Common Stock,
approximately  $327,000  for  the payment of dividends and approximately $82,000
for  the repayment of long-term debt, partially offset by approximately $514,000
in proceeds from the exercise of Common Stock options and $225,000 advanced from
the  Credit  Facility.

On  April  25, 2006, the Company amended the Credit Facility. The amended Credit
Facility  allows  the  Company  to  borrow,  on  a revolving basis, an aggregate
principal  amount  not to exceed $7.0 million (an increase from $5.0 million) at
either,  or  a  combination  of, the lender's Base Rate or at LIBOR plus a LIBOR
rate  margin, at the Company's option.  The lender's Base Rate computes interest
at  the  higher  of  the  lender's  "prime  rate" or the Federal Funds Rate plus
one-half  percent  (0.5%).  The LIBOR option computes interest at the LIBOR rate
as  of the date such LIBOR rate loan was made plus a LIBOR rate margin of 1.50%.
A  commitment  fee  of 0.25% on the average daily unused amount of the Revolving
Loan  commitment during the preceding quarter is also assessed.  The Company may
prepay any Base Rate loan at any time and any LIBOR rate loan upon not less than
three  business  days  prior written notice given to the lender, but the Company
will  be  responsible for any loss or cost incurred by the lender in liquidating
or  employing  deposits  required  to fund or maintain the LIBOR rate loan.  The
amended  Credit Facility expires on May 31, 2008.  At June 30, 2006, the Company
had  $3.4 million outstanding and $3.6 million available for borrowing under the
Credit  Facility.  This  consisted  of  $873,000 outstanding under the Base Rate
option  and  $2.5  million  outstanding under the LIBOR rate option.  The Credit
Facility requires the Company to maintain certain financial ratios on an ongoing
basis.  At  June  30,  2006,  the Company was in full compliance with all of its
covenants  under  the  Credit  Facility.

At  June  30, 2006, the Company had budgeted capital commitments for the next 12
months  of  approximately  $550,000,  which  includes  the funding of two dental
practices  developed  internally  ("de  novo  Offices").  The Company's retained
earnings  as  of  June  30,  2006  were  approximately $4.9 million. The Company
expects  increased  costs over the next 12 to 18 months as it prepares to comply
with  Sarbanes-Oxley  Act  Section  404.

                                       21
<PAGE>

The  Company's  earnings  before interest, taxes, depreciation, amortization and
non  cash  expense  associated with stock-based compensation ("Adjusted EBITDA")
increased  $543,000,  or 17.5% to $3.6 million for the six months ended June 30,
2006  compared  to  $3.1 million for the corresponding six month period in 2005.
Although  Adjusted  EBITDA  is  not  a  generally accepted accounting principles
("GAAP")  measure  of performance or liquidity, the Company believes that it may
be  useful  to  an  investor  in  evaluating its performance. However, investors
should not consider these measures in isolation or as a substitute for operating
income,  cash  flows  from  operating  activities  or  any  other  measure  for
determining  the Company's operating performance or liquidity that is calculated
in  accordance with GAAP. In addition, because Adjusted EBITDA is not calculated
in  accordance  with  GAAP,  it  may  not necessarily be comparable to similarly
titled measures employed by other companies. A reconciliation of Adjusted EBITDA
can  be  made  by  adding  depreciation  and  amortization  expense  -  offices,
depreciation  and  amortization  expense  -  corporate,  amortization  of equity
compensation,  stock-based  compensation  related  to  SFAS  123(R),  interest
expense/(income),  net  and  income  tax  expense  to net income as in the table
below.

<TABLE>
<CAPTION>
                                                            Quarters Ended June 30,           Six Months Ended June 30
                                                        ---------------------------------  -------------------------------
                                                             2005             2006             2005             2006
                                                        ---------------   ---------------  --------------   --------------
<S>                                                     <C>               <C>              <C>              <C>
RECONCILLIATION OF ADJUSTED EBITDA:
 Net income                                             $       633,268   $       623,166  $    1,332,911   $    1,325,491
 Depreciation and amortization - Offices                        416,620           528,688         840,992        1,008,463
 Depreciation and amortization - Corporate                       32,618            32,446          69,292           66,642
 Amortization of deferred equity compensation expense                 -            81,030               -          162,060
 Stock-based compensation expense relate to SFAS 123 (R)              -            78,286               -          166,031
 Interest expense/(income), net                                 (20,235)           40,467         (27,867)          80,087
 Income tax expense                                             422,205           398,133         888,636          838,107
                                                        ---------------   ---------------  --------------   --------------
Adjusted EBITDA                                         $     1,484,476   $     1,782,216  $    3,103,964   $    3,646,881
                                                        ---------------   ---------------  --------------   --------------
</TABLE>



As  of  June  30,  2006,  the  Company  had  the  following  known  contractual
obligations:
<TABLE>
<CAPTION>
                                                                      Payments due by Period
                                                            ------------------------------------------
                                                            Less than                        More than
                                                   Total     1 year    1-3 years  3-5 years   5 years
                                                ----------  ---------  ---------  ---------  ---------
<S>                                             <C>         <C>        <C>        <C>         <C>
Long-term debt obligations                       3,471,366     98,672  3,372,694          -         -
Operating lease obligations                      8,522,788  2,818,658  3,870,453  1,698,451   135,227
Other long-term liabilities reflected on
the balance sheet under GAAP                             -     63,062    164,305    125,224     2,309
                                                ----------  ---------  ---------  ---------   -------
Total                                           12,349,054  2,980,392  7,407,452  1,823,675   137,536
                                                ==========  =========  =========  =========   =======

</TABLE>


The  Company from time to time may purchase its Common Stock on the open market.
The  shares purchased and the purchase price per share for transactions prior to
August  1,  2005  have  been adjusted to reflect the 2-for-1 stock split. During
2003,  the Company, in 84 separate transactions, purchased 592,390 shares of its
Common  Stock  for  total  consideration of approximately $3.9 million at prices
ranging  from  $4.77  to  $7.10  per  share.  During 2004, the Company, in seven
separate  transactions,  purchased  108,000 shares of its Common Stock for total
consideration  of  approximately  $778,000 at prices ranging from $6.33 to $9.25
per  share.  During  2005,  the  Company, in 40 separate transactions, purchased
311,961 shares of its Common Stock for total consideration of approximately $4.3
million  at  prices ranging from $9.00 to $19.31 per share. In January 2005, the
Company  purchased  40,000  shares  of  its  Common  Stock  through  a  private
transaction  that was approved by the Board of Directors. On March 17, 2005, the
Board  of  Directors  authorized  the Company to increase by $500,000 the amount
available  to make open market purchases of its Common Stock. In April 2005, the
Company  purchased  127,364  of  Common  Stock in a private transaction that was
previously  approved by the Board of Directors. On September 12, 2005, the Board
of  Directors  authorized  the  Company  to  increase by $1.0 million the amount
available  to  make  open  market purchases of its Common Stock. On November 28,
2005, the Board of Directors authorized the Company to increase by an additional
$1.5  million  the  amount available to make open market purchases of its Common
Stock.  During  the  six months ended June 30, 2006, the Company, in 44 separate
transactions,  purchased  33,690  shares  of  its  Common  Stock  for  total
consideration  of approximately $522,000 at prices ranging from $15.00 to $18.10
per  share.  In  April  2006,  the Company purchased 54,250 shares of its Common
Stock through a private transaction that was approved by the Board of Directors.
As  of June 30, 2006, approximately $615,000 of the previously authorized amount
was  available  for  open market purchases. There is no expiration date on these
plans.  Such purchases may be made from time to time as the Company's management
deems  appropriate.

The  Company  believes  that cash generated from operations and borrowings under
its  Credit  Facility will be sufficient to fund its anticipated working capital
needs,  capital  expenditures  and  dividend  payments  for at least the next 12
months.  In  order  to meet its long-term liquidity needs, the Company may issue
additional  equity  and debt securities, subject to market and other conditions.
There  can  be  no assurance that such additional financing will be available on
terms  acceptable  to  the Company. The failure to obtain the funds necessary to
finance  its  future  cash  requirements  could  adversely  affect the Company's
ability  to  pursue  its  strategy and could negatively affect its operations in
future  periods.

                                       22
<PAGE>


ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

Market  risk represents the risk of loss that may impact the financial position,
results  of  operations  or  cash flows of the Company due to adverse changes in
financial  and  commodity  market  prices  and  rates. The Company is exposed to
market  risk  in  the area of changes in interest rates. Historically, and as of
June  30,  2006,  the  Company has not used derivative instruments or engaged in
hedging  activities.

Interest  Rate  Risk.  The  interest  payable on the Credit Facility is variable
based upon the lender's Base Rate and the LIBOR rate and, therefore, is affected
by  changes in market interest rates. At June 30, 2006, the Company had $873,000
outstanding  with  an interest rate of 8.00% under the Base Rate option and $2.5
million  outstanding with an interest rate of 6.64% under the LIBOR rate option.
The  Company  does  not  believe  that  reasonably possible near-term changes in
interest  rates will result in a material effect on future earnings, fair values
or  cash flows of the Company. The Company estimates that a 1.0% increase in the
Company's  interest  rate  would have resulted in additional interest expense of
approximately  $14,000  for  the  six  months  ended  June  30,  2006.

ITEM  4.  CONTROLS  AND  PROCEDURES

The  effectiveness  of  the  Company's  or any system of disclosure controls and
procedures is subject to certain limitations, including the exercise of judgment
in  designing,  implementing  and  evaluating  the  controls and procedures, the
assumptions  used  in  identifying  the  likelihood  of  future  events, and the
inability  to  eliminate  misconduct  completely.  As  a result, there can be no
assurance  that the Company's disclosure controls and procedures will detect all
errors  or  fraud.  By  their  nature, the Company's or any system of disclosure
controls  and  procedures  can  provide  only  reasonable  assurance  regarding
management's  control  objectives.

Under  the  supervision  and with the participation of the Company's management,
including  the  Chief Executive Officer and Chief Financial Officer, the Company
evaluated the design and operation of its disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
or  the  "Exchange  Act") as of June 30, 2006.  On the basis of this review, the
Company's  management, including the Chief Executive Officer and Chief Financial
Officer,  concluded  that  the  Company's disclosure controls and procedures are
designed,  and  are effective, to give reasonable assurance that the information
required  to  be  disclosed  by  the  Company in reports that it files under the
Exchange  Act  is  recorded,  processed, summarized and reported within the time
periods  specified  in  the  rules  and  forms  of  the  Securities and Exchange
Commission  and  to  ensure  that  information  required  to be disclosed in the
reports  filed  or  submitted  under  the  Exchange  Act  is  accumulated  and
communicated  to our management, including the Chief Executive Officer and Chief
Financial  Officer, in a manner  that allows timely decisions regarding required
disclosure.  There  were  no  changes  in  the  Company's internal controls over
financial  reporting that occurred in the second quarter of 2006 that materially
affected,  or  were reasonably likely to materially affect, its internal control
over  financial  reporting.














                                       23
<PAGE>

                           PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

From  time  to  time  the  Company  is  subject  to litigation incidental to its
business.  The Company is not presently a party to any material litigation. Such
claims,  if  successful,  could  result  in  damage  awards  exceeding,  perhaps
substantially,  applicable  insurance  coverage.

ITEM 1A.  RISK FACTORS

There have been no material changes in our risk factors from those disclosed  in
our  Annual  Report  on  Form  10-K  for  the  year  ended  December  31,  2005.

ITEM  2.  CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS

The following chart provides information regarding Common Stock purchases by the
Company  during  the  period  April  1,  2006  through  June  30,  2006.

                      ISSUER PURCHASES OF EQUITY SECURITIES
<TABLE>
<CAPTION>
                                                                                       Approximate
                                                                      Total Number     Dollar Value
                                                                        Of Shares       Of Shares
                                                                      Purchased as     That May Yet
                                                                    Part of Publicly   Be Purchased
                                      Total Number                      Announced       Under the
                                       Of Shares    Average Price       Plans or         Plans or
Period                                 Purchased    Paid per Share      Programs         Programs
------------------------------------  ------------  --------------  -----------------  ------------
<S>                                      <C>        <C>                  <C>            <C>
April 1, 2006 through April 30, 2006     60,756     $        15.17        6,506         $1,022,478
May 1, 2006 through May 31, 2006         16,864     $        15.58       16,864         $  759,745
June 1, 2006 through June 30, 2006        9,173     $        15.76        9,173         $  615,282
                                         ------                          ------
Total                                    86,793     $        15.31       32,543
                                         ======     ==============       ======
</TABLE>



The  purchase  of  54,250  shares  in  April  2006  was  made  through a private
transaction  that  was  approved by the Board of Directors. This purchase, which
was negotiated on behalf of the Company by its independent Board members, was at
$15.00  per share and was Common Stock owned by three of the Company's executive
officers. All purchases, other than the 54,250 shares described above, were made
on the open market and were pursuant to publicly announced plans approved by the
Board  of  Directors.  As  of  June  30,  2006, there was approximately $615,000
available  for  the  purchase  of  the  Company's  Common  Stock  under publicly
announced  plans  that have been approved by the Board of Directors. There is no
expiration  date  on these plans.  Such purchases may be made from time to time,
as  the  Company's  management  deems  appropriate.

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

(a)  The Company's Annual Meeting of Shareholders was held on June 1, 2006.
(b)  The following directors were elected at the meeting to serve three-year
     terms as Class III directors:

                              For          Withheld Authority     Abstain
                           ---------       ------------------     -------
Frederick W.J. Birner      2,109,262            50,586               0
Mark A. Birner, D.D.S.     2,111,262            48,586               0





                                       24
<PAGE>

CONTINUING DIRECTORS

After the meeting, the following directors continued to serve their three-year
terms as Class I directors, which terms will expire at the Company's annual
meeting in 2007:

Thomas D. Wolf

Paul E. Valuck, D.D.S.

After the meeting, the following director continued to serve his three-year term
as a Class II director, which term will expire at the Company's annual meeting
in 2008:

Brooks G. O'Neil

The matter mentioned above is described in detail in the Company's definitive
proxy statement dated April 28, 2006 for the Annual Meeting of Shareholders held
on June 1, 2006.

ITEM  5.  OTHER  INFORMATION

On July 13, 2005, the Company announced that its Board of Directors had declared
a  2-for-1  stock split of its common stock.  The 2-for-1 stock split, which was
effected  as a stock dividend, was distributed on August 8, 2005 to shareholders
of record at the close of business on August 1, 2005.  The stock split increased
the  number of shares outstanding on August 8, 2005 from 1,210,295 to 2,420,590.
All  shares  and  earnings per share calculations for all periods in this report
are  restated  to  reflect  the  effect  of  the  stock  split.

On August 1, 2006, the Company consolidated two of its Phoenix, Arizona Offices,
Perfect  Teeth/Shea  and  Perfect  Teeth/Bell  Road,  into  one  office.  The
consolidated  Office  is  located  at  the  Perfect  Teeth/Bell  Road  location.

ITEM  6.   EXHIBITS

EXHIBIT
NUMBER      DESCRIPTION OF DOCUMENT
------      -----------------------


31.1        Rule  13a-14(a)  Certification  of  the  Chief  Executive  Officer.

31.2        Rule  13a-14(a)  Certification  of  the  Chief  Financial  Officer.

32.1        Section  1350  Certifications  of  the  Chief Executive Officer
            and the Chief  Financial  Officer.













                                       25
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.




                    BIRNER DENTAL MANAGEMENT SERVICES, INC.



Date:  August 14, 2006        By:   /s/ Frederic W.J. Birner
                                    ------------------------
                            Name:   Frederic W.J. Birner
                           Title:   Chairman of the Board and Chief Executive
Officer
                         (Principal Executive Officer)


Date:  August 14, 2006        By:   /s/ Dennis N. Genty
                                    -------------------
                            Name:   Dennis N. Genty
                           Title:   Chief Financial Officer, Secretary, and
                                    Treasurer
                                    (Principal Financial and Accounting Officer)


























                                       26