UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

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

         For the quarterly period ended     September 30, 2001
                                           -------------------------------------

                                                         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 of incorporation        (IRS Employer
                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 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 November 7, 2001
--------------------------------------------------------------------------------
Common Stock, without par value                     1,506,705


<PAGE>




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


PART I - FINANCIAL INFORMATION


Item 1.   Financial Statements                                          Page
                                                                        ----

Condensed  Consolidated  Balance  Sheets as of  December  31,  2000 And
September 30, 2001 (unaudited)                                           3

Unaudited  Condensed  Consolidated  Statements  of  Operations  for the
Quarters And Nine Months Ended September 30, 2000 and 2001               4

Unaudited Condensed Statement of Shareholders' Equity                    5

Unaudited Condensed Consolidated  Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 2001                                 6

Unaudited Notes to Condensed Consolidated Financial Statements           8

Item 2.   Management's Discussion and Analysis of Financial Condition
          And Results of Operations                                      11

Item 3.   Quantitative and Qualitative Disclosures About Market Risk     19


PART II - OTHER INFORMATION


Item 1.   Legal Proceedings                                              20

Item 6.   Exhibits and Reports on Form 8-K                               20

Signatures                                                               21



                                       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,        September 30,
                                     ASSETS                                               2000                2001
                                                                                                           (Unaudited)

CURRENT ASSETS:
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
    Cash and cash equivalents                                                     $     691,417        $     937,506
    Accounts receivable, net of allowance for doubtful accounts
       of $201,047 and $210,718 at December 31, 2000 and
       September 30, 2001, respectively                                               3,871,818            3,434,907
    Current portion of notes receivable-related parties                                 214,112              100,115
    Deferred tax asset                                                                  104,429              104,429
    Prepaid expenses and other current assets                                           426,938              418,206
                                                                                   ------------          -----------
              Total current assets                                                    5,308,714            4,995,163

PROPERTY AND EQUIPMENT, net                                                           6,967,914            5,807,056

OTHER NONCURRENT ASSETS:
    Intangible assets, net                                                           13,693,092           14,083,812
    Deferred charges and other assets                                                   179,156              156,354
    Notes receivable-related parties                                                          -              172,346
    Deferred tax asset, net                                                             184,192              184,192
                                                                                   ------------         ------------
              Total assets                                                          $26,333,068          $25,398,923
                                                                                    ===========          ===========

                       LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                          $  2,897,043         $  3,271,469
    Current maturities of long-term debt                                                154,666            4,968,377
                                                                                   ------------         ------------
              Total current liabilities                                               3,051,709            8,239,846

LONG-TERM LIABILITIES:
    Long-term debt, net of current maturities                                         6,681,623              455,477
    Other long-term obligations                                                         128,820              163,864
                                                                                   ------------         ------------
              Total liabilities                                                       9,862,152            8,859,187
                                                                                   -------------        -------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Preferred Stock, no par value, 10,000,000 shares
       authorized; none outstanding                                                           -                    -
    Common Stock, no par value, 20,000,000 shares
       authorized; 1,506,705 shares issued and
       outstanding                                                                   16,855,661           16,855,661
    Accumulated deficit                                                                (384,745)            (315,925)
                                                                                   ------------         ------------
              Total shareholders' equity                                             16,470,916           16,539,736
                                                                                   ------------         ------------

              Total liabilities and shareholders' equity                            $26,333,068          $25,398,923
                                                                                    ===========          ===========



</TABLE>




              The accompanying notes are an integral part of these
                     condensed consolidated balance sheets.



                                       3
<PAGE>




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

<TABLE>
<CAPTION>

                                                                Quarters Ended                      Nine Months Ended
                                                                September 30,                          September 30,
                                                                -------------                          ------------
                                                        2000                 2001             2000             2001
                                                        ----                 ----             ----             ----
------------------------------------------------------------------------------------------------------------------------------------
<S>           <C>                                      <C>             <C>               <C>
NET REVENUE                                            $ 6,998,659     $ 7,049,075       $22,611,450       $22,282,410
DIRECT EXPENSES:
    Clinical salaries and benefits                       3,021,970       2,807,972         9,110,784         9,157,089
    Dental supplies                                        420,932         423,742         1,432,342         1,337,710
    Laboratory fees                                        597,524         612,912         2,055,588         1,885,495
    Occupancy    824,224                                   852,095       2,439,037         2,494,956
    Advertising and marketing                               86,579          82,785           246,157           263,925
    Depreciation and amortization                          609,404         596,678         1,788,612         1,822,440
    General and administrative                             681,179         748,890         2,220,193         2,317,692
                                                       -----------     -----------       -----------       -----------
                                                         6,241,812       6,125,074        19,292,713        19,279,307
                                                         ---------       ---------         ---------         ---------
Contribution from dental offices                           756,847         924,001         3,318,737         3,003,103

Corporate Expenses:
    General and administrative                             784,693         620,926         2,560,441         2,314,320
    Depreciation and amortization                           83,825          78,681           250,327           243,933
                                                       -----------     -----------       -----------       -----------

Operating income (loss)                                   (111,671)        224,394           507,969           444,850

Interest expense, net                                     (153,954)        (98,669)         (468,823)         (376,030)
                                                       -----------     -----------       -----------       -----------
Income (loss) before income taxes                         (265,625)        125,725            39,146            68,820
Income tax benefit (expense)                                96,690               -           (17,028)                -
                                                       -----------     -----------       -----------       -----------

Net income (loss)                                    $    (168,935)    $   125,725       $    22,118     $      68,820
                                                       =============     ===========     =============   =============

Net income (loss) per share of Common Stock:
    Basic                                            $        (.11)    $       .08       $       .01      $        .05
                                                       =============     ===========     ============    =============
    Diluted                                          $        (.11)    $       .08       $       .01      $        .05
                                                       =============     ===========     ============    =============


Weighted average number of shares of Common Stock and dilutive securities:
    Basic                                                1,522,386       1,506,705         1,529,275         1,506,705
                                                         =========       =========         =========         =========
    Diluted                                              1,522,386       1,533,999         1,530,379         1,514,802
                                                         =========       =========         =========         =========

</TABLE>



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



                                       4
<PAGE>





            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)



<TABLE>
<CAPTION>

                                                   -------------------------------
                                                                                                               Total
                                                            Common Stock                 Accumulated      Shareholders'
                                                       Shares           Amount             Deficit            Equity
<S>                                                     <C>            <C>                <C>                <C>
BALANCES, December 31, 2000                           1,506,705      $ 16,855,661       $ (384,745)        $ 16,470,916

   Net Income                                                 -                 -           68,820               68,820

BALANCES, September 30, 2001                          1,506,705      $ 16,855,661       $ (315,925)        $ 16,539,736
                                                      =========      ============       ===============    =============

</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>

                                                                                                   Nine Months Ended
                                                                                                     September 30,
                                                                                            2000                 2001

------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                   <C>                 <C>
    Net income                                                                        $     22,118        $     68,820
    Adjustments to reconcile net income  to net
       cash provided by operating activities:
          Depreciation and amortization                                                  2,038,939           2,066,373
          Loss on sale of property                                                               -               3,660
          Provision for doubtful accounts                                                   18,182               9,671
    Changes in assets and liabilities, net of effects from acquisitions:
          Accounts receivable                                                              138,012             427,240
          Prepaid expenses and other current assets                                         91,946              31,534
          Accounts payable and accrued expenses                                           (495,118)            374,426
          Other long-term obligations                                                       32,770              35,044
                                                                                       -----------         -----------
    Net cash provided by operating activities                                            1,846,849           3,016,768
                                                                                       -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Notes receivable - related parties                                                    (116,739)            (58,349)
    Capital expenditures                                                                  (590,605)           (430,889)
    Development of new dental offices                                                     (321,934)                  -
    Acquisition of dental offices                                                         (222,311)           (435,006)
                                                                                       -----------         ------------
    Net cash used in investing activities                                               (1,251,589)           (924,244)
                                                                                       -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net repayments - line of credit                                                       (257,000)         (1,688,000)
    Repayment of long-term debt                                                           (128,139)           (158,435)
    Purchase and retirement of Common Stock                                               (112,793)                  -
                                                                                       -----------         -----------
    Net cash used in financing activities                                                 (497,932)         (1,846,435)
                                                                                       ------------        -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                   97,328             246,089
CASH AND CASH EQUIVALENTS, beginning of period                                             806,954             691,417
                                                                                       -----------         -----------
CASH AND CASH EQUIVALENTS, end of period                                               $   904,282         $   937,506
                                                                                       ===========         ===========

</TABLE>














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



                                       6
<PAGE>


                                                                    Page 2 of 2

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

                                                                                             Nine Months Ended
                                                                                                September 30,
                                                                                         2000                2001


SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:

<S>                                                                                  <C>                   <C>
       Cash paid during the period for interest                                      $       478,674       $    399,800
                                                                                     ===============       ============

       Cash paid during the period for income taxes                                  $            -        $        -
                                                                                     ===============       ============


SUPPLEMENTAL DISCLOSURE OF NONCASH
    INVESTING AND FINANCING ACTIVITIES:

       Notes payable incurred from:
          Acquisition of dental offices                                              $           -         $    434,000
                                                                                     ==============        ============



</TABLE>



























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



                                       7
<PAGE>





            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                               SEPTEMBER 30, 2001

(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 Form 10-K for the year ended December 31, 2000.

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  September  30, 2001 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 the quarter and nine
months ended  September 30, 2001 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.

(2)    EARNINGS PER SHARE

The Company  calculates  earnings  per share in  accordance  with  Statement  of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share".

<TABLE>
<CAPTION>
                                                                   Quarters Ended September 30,
                                                         2000                                     2001
                                                                       Per Share                              Per Share
                                             (Loss)        Shares       Amount       Income       Shares        Amount

Basic EPS:
------------------------------------------------------------------------------------------------------------------------------------
   Net income (loss) available to
<S>                                       <C>            <C>        <C>            <C>           <C>         <C>
     shares of Common Stock               $ (168,935)    1,522,386  $ (.11)        $  125,725    1,506,705   $ .08

   Effect of dilutive shares of Common
   Stock from stock options
   and warrants                                 -             -          -               -          27,294      -

Diluted EPS:
                                           ---------    ----------   -----         -----------   ----------  -----
   Net income (loss) available to
      shares of Common Stock              $ (168,935)    1,522,386  $ (.11)        $  125,725    1,533,999   $ .08
                                          ============   =========  =======        ==========    =========   =====
</TABLE>

The difference in weighted average shares outstanding between basic earnings per
share and diluted  earnings per share for the three month period ended September
30, 2001 relates to the effect of 27,294 of dilutive shares of Common Stock from
stock  options and  warrants  which are included in total shares for the diluted
calculation.  All options and  warrants to purchase  shares of Common Stock were
excluded from the computation of diluted  earnings per share for the three month
period ended September 30, 2000 since they were anti-dilutive as a result of the
Company's net loss for the period.  The number of options and warrants  excluded
from the earnings per share calculation  because they are  anti-dilutive,  using
the treasury stock method were 1,370 for the three month period ended  September
30, 2000.

                                       8
<PAGE>






<TABLE>
<CAPTION>

                                                                   Nine Months Ended September 30,
                                                              2000                               2001
                                                                     Per Share                              Per Share
                                             Income        Shares     Amount       Income       Shares        Amount

Basic EPS:
------------------------------------------------------------------------------------------------------------------------------------
   Net income available to
<S>                                         <C>          <C>         <C>            <C>          <C>         <C>
     shares of Common Stock                 $ 22,118     1,529,275   $ .01          $  68,820    1,506,705   $ .05

   Effect of dilutive shares of Common
    Stock from stock options
    and warrants                                -            1,104       -               -           8,097       -

Diluted EPS:
                                           ---------    ----------   -----         -----------   ----------   -----
   Net income available to
      shares of Common Stock                $ 22,118     1,530,379   $ .01          $  68,820    1,514,802   $ .05
                                            =========    =========   =====          =========    =========   =====
</TABLE>

The difference in weighted average shares outstanding between basic earnings per
share and diluted  earnings per share for the nine month periods ended September
30,  2000 and 2001  relates to the effect of 1,104 and 8,097,  respectively,  of
dilutive  shares of Common  Stock  from stock  options  and  warrants  which are
included in total shares for the diluted calculation.

(3)      LINE OF CREDIT
         --------------

Under the Company's  bank line of credit (the "Credit  Facility") (as amended on
September  29,  2000),  the Company  may borrow up to $10.0  million for working
capital  needs,   acquisitions  and  capital   expenditures   including  capital
expenditures  for de novo  Offices.  Advances bear interest at the lender's base
rate (prime plus a rate margin  ranging from .25% to 1.50% based on the ratio of
consolidated   senior  debt  to  consolidated   Earnings  Before  Income  Taxes,
Depreciation  and  Amortization  ("EBITDA") or at an adjusted  London  Interbank
Offered  Rate  ("LIBOR")  (LIBOR plus a rate margin  ranging from 1.50% to 2.75%
based on the ratio of consolidated  senior debt to consolidated  EBITDA), at the
Company's  option.  The Company is also obligated to pay an annual  facility fee
ranging  from .25% to .50%  (based on the ratio of  consolidated  senior debt to
consolidated  EBITDA) on the average  unused amount of the line of credit during
the previous full calendar  quarter.  Borrowings are limited to an  availability
formula based on the Company's adjusted EBITDA. As amended,  the loan matures on
April 30, 2002.  At  September  30,  2001,  the Company  could borrow up to $8.0
million  (based  on  the  availability  formula),  of  which  $4.8  million  was
outstanding under the Credit Facility.  The Credit Facility is secured by a lien
on the Company's accounts receivable and its Management  Agreements.  The Credit
Facility  prohibits  the  payment  of  dividends  and  other   distributions  to
shareholders;  restricts or prohibits the Company from  incurring  indebtedness,
incurring liens, disposing of assets; making investments or making acquisitions,
and  requires  the Company to maintain  certain  financial  ratios on an ongoing
basis. As a result of the Company's Credit Facility  maturing on April 30, 2002,
the entire  amount  outstanding  under the  Company's  Credit  Facility has been
classified as a short-term  liability.  As a result of this classification,  the
Company was not in compliance with the Credit Facility's  current ratio covenant
of  at  least  1.25  to  1.0  at  September  30,  2001.   The  sole  reason  for
non-compliance  was due to the  classification of the entire amount  outstanding
under the Credit Facility as a short-term liability. The Company's lender waived
this covenant for the quarter ended September 30, 2001. The Company has signed a
commitment letter for a new Credit Facility with its current lender.  Management
believes  the new Credit  Facility  will  consist of a term loan and a revolving
line of credit and is expected to close in the fourth quarter of 2001.


                                       9
<PAGE>



(4)    SHAREHOLDERS' EQUITY

The Company received notice from NASDAQ that the Company did not comply with the
requirements  for continued  listing on the NASDAQ  National  Market System.  In
order to satisfy NASDAQ's  listing  requirements for the NASDAQ SmallCap Market,
effective February 26, 2001, the Company's Shareholders approved a reverse stock
split of between  one-for-three  and  one-for-five  and the  Company's  Board of
Directors  set the ratio at one-for  four.  The  SmallCap  Market's  maintenance
standards,  among other things,  require the Company to have 1) at least 500,000
shares of Common Stock held by  non-affiliates;  2) an aggregate  market  public
float of at least $1,000,000; 3) at least 300 shareholders who own 100 shares of
common  Stock or more;  and 4) a minimum  bid price of at least $1.00 per share.
All shares,  share prices and earnings per share  calculations for prior periods
have been restated to reflect this reverse stock split.

 (5)   RECENT ACCOUNTING PRONOUNCEMENTS

In September 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting  for Derivative  Instruments  and Hedging  Activities"  that
establishes  accounting  and  reporting  standards for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging  activities.  It requires that an entity  recognize all  derivatives  as
either assets or liabilities on the balance sheet and measure those  instruments
at fair value.  In  September  1999,  the FASB issued SFAS 137  "Accounting  for
Derivative  Instruments and Hedging  Activities - Deferral of the Effective Date
of FASB  Statement  No. 133 - an Amendment of FASB  Statement No 133".  SFAS 137
delays the effective date of SFAS 133 to financial  quarters and financial years
beginning  after June 15,  2000.  In June 2000,  SFAS No.  138  "Accounting  for
Certain Derivative  Instruments and Certain Hedging Activities - an Amendment of
FASB  Statement  No. 133" was  issued.  SFAS 138  addresses a limited  number of
issues causing difficulties in the implementation of SFAS 133 and is required to
be  adopted  concurrent  with  SFAS  133.  As the  Company  holds no  derivative
instruments  and does not engage in hedging  activities the adoption of SFAS 133
and SFAS 138 did not have a material impact to the Company.

In July 2001 the FASB issued SFAS No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets," which replace Accounting  Principle
Board Opinion Nos. 16, "Business  Combinations,"  and 17,  "Intangible  Assets,"
respectively.  SFAS No. 141 requires  that the purchase  method of accounting be
used for all business  combinations  initiated after June 30, 2001, and that the
use of the pooling-of-interests  method be prohibited.  SFAS No. 142 changes the
accounting    for    goodwill    from    an    amortization    method    to   an
impairment-only-method. Amortization of goodwill, including goodwill recorded in
past business combinations,  will cease upon adoption of SFAS No. 142, which the
Company will be required to adopt on January 1, 2002.  After  December 31, 2001,
goodwill can only be written down upon impairment discovered during annual tests
for fair value, or discovered during tests taken when certain  triggering events
occur.  Prior  to the  adoption  of SFAS  No.  142,  impairment  was  recognized
according to the undiscounted  cash flow test per SFAS No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
Of." The  Company  does not expect the  adoption  of SFAS No. 141 and No. 142 to
have a  material  impact on the  Company's  financial  condition  or  results of
operations.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets"  which  addresses  financial   accounting  and
reporting for the impairment or disposal of long-lived  assets.  SFAS No. 144 is
effective for fiscal years  beginning after December 15, 2001. The provisions of
this statement are generally to be applied  prospectively.  Management  believes
the  adoption of SFAS No. 144 will not have a material  impact on the  Company's
financial statements.

(6)      INCOME TAXES
         -------------

The Company accounts for income taxes through recognition of deferred tax assets
and liabilities for the expected future income tax consequences of events, which
have been  included  in the  financial  statements  or tax  returns.  Under this
method,  deferred  tax  assets  and  liabilities  are  determined  based  on the
difference  between  the  financial  statement  and  tax  basis  of  assets  and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences  are  expected to reverse.  At December  31,  2000,  the Company had
available tax net operating loss  carryforwards of  approximately  $1.3 million,
which expire beginning in 2012.

The Company is aware of the risk that the  recorded  deferred tax assets may not
be realizable. However, management believes that it will obtain the full benefit
of the  deferred  tax  assets on the basis of its  evaluation  of the  Company's
anticipated profitability. The Company believes that sufficient book and taxable
income will be  generated  to realize  the benefit of these tax assets.  For the
quarter and nine month  periods ended  September  30, 2001,  the Company did not
record an income tax provision or benefit.


                                       10
<PAGE>



(7)      ACQUISITIONS

On April 30, 2001 the Company  acquired  the  remaining  50% interest in Perfect
Teeth/Alice  P.C. for a total  purchase  price of  approximately  $869,000.  The
consideration consisted of $435,000 in cash and $434,000 in notes payable with a
term of 60 months and an interest rate of 8.0%. The Company recorded an increase
to intangible  assets for the total purchase price of the remaining 50% interest
in this Office.


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

Forward-Looking Statements

The statements  contained in this Form 10-Q ("Quarterly  Report") of the Company
which are not  historical in nature are  forward-looking  statements  within the
meaning  of  the  Private  Securities  Litigation  Reform  Act  of  1995.  These
forward-looking  statements  include  statements in this Item 2.,  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
in Part II, Item 1., "Legal  Proceedings",  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, cash outlays for income taxes and outcome of
pending legal proceedings.

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 the  "Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations - Risk  Factors"  section of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (as filed
with the Securities  Exchange  Commission on March 29, 2001), the  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations  -Year
2001" of this Quarterly 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,  which have affected the results of
operations  and  financial  condition  of the Company for the  quarters and nine
months ended  September 30, 2000 and 2001.  This  information  should be read in
conjunction with the Company's Condensed  Consolidated  Financial Statements and
related Notes thereto included elsewhere in this Quarterly Report.


Overview


The  Company was formed in May 1995,  and as of  September  30, 2001  managed 54
Offices in Colorado,  New Mexico and Arizona staffed by 72 general  dentists and
11  specialists.  The  Company  has  acquired  42  Offices  (six of  which  were
consolidated into existing  Offices) and opened 18 internally  developed Offices
("de novo  Offices").  Of the 42 acquired  Offices,  only three (the first three
practices,  which were acquired from the Company's President,  Mark Birner, DDS)
were acquired from  affiliates  of the Company.  The Company  derives all of its
revenue 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.


                                       11
<PAGE>




The Company  was formed  with the  intention  of  becoming  the  leading  dental
practice management company in Colorado. The Company's growth and success in the
Colorado  market led to its expansion into the New Mexico and Arizona markets as
well as to its  evaluation of  additional  markets.  During 2000,  the Company's
growth  strategy  shifted from an  acquisition  and  development  approach to an
approach which is focused on greater  utilization of existing  physical capacity
through  recruiting  more dentists and support staff.  The following  table sets
forth the increase in the number of Offices  affiliated  with and managed by the
Company from 1997 through  September  30, 2001,  including the number of de novo
Offices and acquired Offices in each such period.
<TABLE>
<CAPTION>


                                            1997            1998            1999           2000         2001 (1)
                                            ----            ----            ----           ----         -------
<S>                                          <C>              <C>             <C>            <C>            <C>
Offices at beginning of the period           18               34              49             54             56
De novo Offices                               1                5               5              2              0
Acquired Offices                             15               10               1              0              0
Consolidation of Offices                      0                0              (1)             0             (2)
Offices at end of the period                 34               49              54             56             54
</TABLE>

====================================================
(1)      From January 1, 2001 through September 30, 2001.


The combined purchase amounts for the 31 practices acquired through 1997, the 10
practices  acquired  in 1998,  and the  practice  acquired  in 1999  were  $10.1
million, $6.0 million, and $760,000 respectively. The average initial investment
by the  Company  in  each  of its 18 de  novo  Offices  has  been  approximately
$206,000,  which  includes the cost of  equipment,  leasehold  improvements  and
working  capital  associated  with the Offices.  The five de novo offices opened
prior to January 1997 and the 11 de novo Offices opened between January 1997 and
December 1999 began generating  positive  contribution  from dental offices,  on
average,  within six months of  opening.  Of the two de novo  Offices  opened in
2000, one began generating positive contribution from dental offices within four
months of opening.  The Company's remaining de novo Office,  which has been open
for twelve months, has not generated  positive  contribution from dental offices
as of the date of this Quarterly Report.

At September 30, 2001, the Company's total assets of approximately $25.4 million
included  approximately $14.1 million of identifiable  intangible assets related
to  Management  Agreements.  At that date,  the Company had total  shareholders'
equity of approximately  $16.5 million.  The Company reviews the recorded amount
of  intangible  assets and other  fixed  assets for  impairment  for each Office
whenever events or changes in circumstances  indicate the carrying amount of the
assets may not be recoverable. If this review indicates that the carrying amount
of the assets may not be  recoverable  as determined  based on the  undiscounted
cash flows of each Office, whether acquired or developed,  the carrying value of
the asset is reduced to fair  value.  Among the factors  that the  Company  will
continually  evaluate are  unfavorable  changes in each Office,  relative market
share and local market  competitive  environment,  current period and forecasted
operating results, cash flow levels of Offices and the impact on the net revenue
earned by the  Company,  and the  legal and  regulatory  factors  governing  the
practice of dentistry.


Components of Revenue and Expenses


Total dental group practice  revenue  ("Revenue")  represents the revenue of the
Offices  reported at estimated  realizable  amounts,  received from  third-party
payors and patients  for dental  services  rendered at the Offices.  Net revenue
represents Revenue less amounts retained by the Offices. The amounts retained by
the Offices  represent  amounts paid as salary,  benefits and other  payments 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,  development and professional
services to the Offices.


                                       12
<PAGE>




Under the Management Agreements,  the Company manages the business and marketing
aspects of the Offices,  including (i)  providing  capital,  (ii)  designing and
implementing marketing programs, (iii) negotiating for the purchase of supplies,
(iv) staffing,  (v)  recruiting,  (vi) training of non-dental  personnel,  (vii)
billing and  collecting  patient  fees,  (viii)  arranging for certain legal and
accounting services,  and (ix) negotiating with managed care organizations.  The
P.C. is  responsible  for, among other things (i) hiring 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.  Because  the
Company  consolidates the financial  statements of the P.C.'s with its financial
statements, these loans are eliminated in consolidation.

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.  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, (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, other than
the  compensation  and benefits of the dentists and  hygienists  who work at the
Office.  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.

The Company's Revenue is derived  principally from  fee-for-service  revenue and
revenue  from  capitated  managed  dental  care plans.  Fee-for-service  revenue
consists  of P.C.  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 P.C.  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.  Under the Management  Agreements,
the Company  negotiates and administers  these 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 and benefits 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.

The Company seeks to increase its  fee-for-service  business by  increasing  the
patient volume of existing Offices through  effective  marketing and advertising
programs.  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

                                       13
<PAGE>



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  contractual  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

The improvement from a loss in the third quarter of 2000 to profitability in the
third quarter of 2001 is the direct result of cost reductions implemented during
2001.  During 2001, the Company has  consolidated  two offices with other nearby
facilities and will continue to evaluate the viability of consolidating  certain
offices  as  leases  expire.  These  consolidations  allow  for  more  efficient
utilization   of  the   facilities   and  reduce  overall  costs  and  personnel
requirements.  As a result of the shift in focus from expansion of the Company's
business  through  acquisitions  and the  development  of de novo Offices to the
greater  utilization of existing  physical  capacity  through the recruitment of
additional dentists and staff, the period-to-period  comparisons set forth below
may not be representative of future operating results.

For the three months ended  September  30, 2001,  Revenue  increased  $25,000 to
$9,948,000  as compared to $9,923,000  for the three months ended  September 30,
2000.  Revenue at the 53 Offices in existence during both full periods decreased
to $9,894,000 in 2001 from $9,923,000 in 2000, a decrease of 0.2%. This decrease
was offset by an  increase in  revenues  of $54,000  attributable  to the Office
opened in the fourth quarter of 2000.

For the nine months ended  September  30,  2001,  Revenue  decreased  $62,000 to
$31,586,000 as compared to $31,648,000  for the nine months ended  September 30,
2000.  Revenue at the 52 Offices in existence during both full periods decreased
to  $31,000,000  in 2001 from  $31,373,000  in 2000,  a  decrease  of 1.2%.  The
decrease in Revenue at the  Offices in  existence  for both full  periods is the
direct result of having fewer dentists in the Company's  network during the 2001
period compared to the 2000 period. The decline in the number of dentists is due
to slow recruitment and normal attrition.  This decrease was partially offset by
an increase in revenues of $311,000  attributable  to two offices  opened during
the first and fourth quarters of 2000.

The following  table sets forth the  percentages  of net revenue  represented by
certain items reflected in the Company's  Condensed  Consolidated  Statements of
Operations.  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 Quarterly Report.
<TABLE>
<CAPTION>

                                               Quarters Ended September 30,    Nine Months Ended September 30,
                                               -----------------------------   -------------------------------
                                                    2000            2001            2000              2001
                                                    ----            ----            ----              ----
                     1996

<S>                                                 <C>            <C>             <C>                <C>
NET REVENUE                                         100.0 %        100.0 %         100.0 %            100.0 %
DIRECT EXPENSES:
   Clinical salaries and benefits                    43.2 %         39.8 %          40.3 %             41.1 %
   Dental supplies                                    6.0 %          6.0 %           6.3 %              6.0 %
   Laboratory fees                                    8.6 %          8.7 %           9.1 %              8.4 %
   Occupancy                                         11.8 %         12.1 %          10.8 %             11.2 %
   Advertising and marketing                          1.2 %          1.2 %           1.1 %              1.2 %
   Depreciation and amortization                      8.7 %          8.5 %           7.9 %              8.2 %
   General and administrative                         9.7 %         10.6 %           9.8 %             10.4 %
                                                    -------       --------         -------           --------
                                                     89.2 %         86.9 %          85.3 %             86.5 %
                                                     ------       --------          ------            -------

Contribution from dental offices                     10.8 %         13.1 %          14.7 %             13.5 %

Corporate Expenses:
   General and administrative                        11.2 %          8.8 %          11.3 %             10.4 %
   Depreciation and amortization                      1.2 %          1.1 %           1.1 %              1.1 %
                                                    -------       --------          -------           --------
Operating income  (loss)                             (1.6)%          3.2%            2.3 %              2.0 %
Interest expense, net                                (2.2)%         (1.4)%          (2.1)%             (1.7)%
                                                     ------        -------          ------             ------
Income (loss) before income taxes                    (3.8)%          1.8%            0.2 %              0.3%
Income tax benefit (expense)                          1.4 %         (0.0)%          (0.1)%             (0.0)%
                                                    -------        -------          -------            -------
Net income (loss)                                    (2.4)%          1.8%            0.1 %              0.3%
                                                    ========       =======          =======             =====


</TABLE>

                                       14
<PAGE>


Three Months Ended  September 30, 2001 Compared to Three Months Ended  September
30, 2000:

Net revenue. For the three months ended September 30, 2001 net revenue increased
$50,000  to  $7,049,000  compared  to  $6,999,000  for the  three  months  ended
September 30, 2000.  Net revenue at the 53 Offices  managed by the Company which
were in existence for both third quarter periods increased to $7,016,000 for the
third  quarter of 2001  compared to  $6,999,000  for the third  quarter of 2000.
Additionally,  an increase in net  revenue of $33,000  was  attributable  to the
Office that was opened during October of 2000.

Clinical  salaries and benefits.  For the three months ended  September 30, 2001
clinical  salaries and benefits  decreased to $2,808,000  compared to $3,022,000
for the three months ended September 30, 2000, a decrease of 7.1%. This decrease
was  primarily  due to attrition of support  staff at the Offices which were not
replaced.  As a  percentage  of net  revenue,  clinical  salaries  and  benefits
decreased  to 39.8% for the three months ended  September  30, 2001  compared to
43.2% for the three months ended September 30, 2000.

Dental  supplies.  For the three months ended September 30, 2001 dental supplies
increased to $424,000  compared to $421,000 for the three months ended September
30, 2000, an increase of 0.7%. As a percentage of net revenue,  dental  supplies
remained  constant  at 6.0% for the three  months  ended  September  30, 2001 as
compared the three months ended September 30, 2000.

Laboratory  fees. For the three months ended  September 30, 2001 laboratory fees
increased to $613,000  compared to $598,000 for the three months ended September
30, 2000, an increase of 2.6%. As a percentage of net revenue,  laboratory  fees
increased to 8.7% for the three months ended September 30, 2001 compared to 8.6%
for the three months September 30, 2000.

Occupancy.  For the three  months ended  September  30, 2001  occupancy  expense
increased to $852,000  compared to $824,000 for the three months ended September
30, 2000,  an increase of 3.4%.  This  increase was  primarily  due to increased
rental  payments  resulting  from the renewal of Office leases at current market
rates for Offices  whose leases  expired  subsequent  to the 2000  period.  As a
percentage of net revenue,  occupancy  expense  increased to 12.1% for the three
months  ended  September  30, 2001  compared to 11.8% for the three months ended
September 30, 2000.

Advertising  and  marketing.  For the three  months  ended  September  30,  2001
advertising and marketing decreased to $83,000 compared to $87,000 for the three
months ended  September  30, 2000,  a decrease of 4.4%.  As a percentage  of net
revenue,  advertising  and  marketing  remained  constant  at 1.2% for the three
months ended September 30, 2001 compared to the three months ended September 30,
2000.

Depreciation  and  amortization.  For the three months ended  September 30, 2001
depreciation and  amortization,  which consists of depreciation and amortization
expense incurred at the Offices,  decreased to $597,000 compared to $609,000 for
the three months ended  September 30, 2000, a decrease of 2.1%. This decrease is
related to the decrease in the Company's depreciable and amortizable asset base.
The decrease in the asset base is directly  related to the Company's  efforts to
control costs, including capital expenditures and existing assets becoming fully
depreciated.  As a percentage  of net  revenue,  depreciation  and  amortization
decreased to 8.5% for the three months ended September 30, 2001 compared to 8.7%
for the three months ended September 30, 2000.

General  and  administrative.  For the three  months  ended  September  30, 2001
general and administrative,  which is attributable to the Offices,  increased to
$749,000  compared to $681,000 for the three months ended September 30, 2000, an
increase of approximately 9.9%. This increase was primarily due to non-recurring
credits taken against  certain  general and  administrative  expenses during the
three months ended  September 30, 2000. As a percentage of net revenue,  general
and  administrative  expenses  increased  to 10.6%  for the three  months  ended
September 30, 2001 compared to 9.7% during the three months ended  September 30,
2000.

Contribution  from dental offices.  As a result of the above,  contribution from
dental  offices  increased to $924,000 for the three months ended  September 30,
2001  compared to $757,000  for the three months ended  September  30, 2000,  an
increase of 22.1%.  As a  percentage  of net revenue,  contribution  from dental
offices  increased  to 13.1% for the  three  months  ended  September  30,  2001
compared to 10.8% for the three months ended September 30, 2000.


                                       15
<PAGE>




Corporate  expenses - general and  administrative.  For the three  months  ended
September 30, 2001 corporate expenses - general and administrative  decreased to
$621,000  compared to $785,000 for the three months ended  September 30, 2000, a
decrease of 20.9%.  This decrease is attributable to a management  initiative in
the second quarter of 2001 to lower  corporate  expenses  through a reduction in
personnel  and other cost  cutting  measures.  As a  percentage  of net revenue,
corporate expense - general and  administrative  decreased to 8.8% for the three
months ended  September 30, 2001 compared to 11.2% during the three months ended
September 30, 2000.

Corporate  expenses - depreciation and amortization.  For the three months ended
September 30, 2001 corporate expenses - depreciation and amortization  decreased
to $79,000 as compared to $84,000 for the three months ended September 30, 2000.
As  a  percentage  of  net  revenue,   corporate  expenses  -  depreciation  and
amortization  decreased to 1.1% for the three months  ended  September  30, 2001
compared to 1.2% for three months ended September 30, 2000.

Operating  income  (loss).  As a  result  of the  above,  the  Company  produced
operating  income of $224,000  for the three  months  ended  September  30, 2001
compared to an operating loss of $(112,000) for the three months ended September
30, 2000, an increase of $336,000.

Interest  expense,  net. For the three months ended  September 30, 2001 interest
expense  decreased  to $99,000  compared to $154,000  for the three months ended
September 30, 2000, a decrease of 35.9%.  This  decrease in interest  expense is
attributable  to a lower  average  interest  rate  as  well  as a lower  average
outstanding  debt  balance.  As a percentage  of net revenue,  interest  expense
decreased to 1.4% for the three months ended September 30, 2001 compared to 2.2%
for the three months ended September 30, 2000.

Net  income  (loss).  As a result of the  above,  the  Company's  net income was
$126,000 for the three months ended  September  30, 2001 compared to net loss of
$(169,000) for the three months ended September 30, 2000.


Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000:

Net revenue.  For the nine months ended September 30, 2001 net revenue decreased
$329,000 to  $22,282,000  compared  to  $22,611,000  for the nine  months  ended
September 30, 2000.  Net revenue at the 52 Offices  managed by the Company which
were in existence for both nine month periods  decreased to $21,925,000  for the
first nine months of 2001 compared to  $22,421,000  for the first nine months of
2000.  This  decrease  was  partially  offset by an  increase  in net revenue of
$167,000 attributable to the two offices that were opened during 2000.

Clinical  salaries and  benefits.  For the nine months ended  September 30, 2001
clinical  salaries and benefits  increased to $9,157,000  compared to $9,111,000
for the nine  months  ended  September  30,  2000,  an  increase  of 0.5%.  As a
percentage of net revenue, clinical salaries and benefits increased to 41.1% for
the nine months ended  September  30, 2001 compared to 40.3% for the nine months
ended September 30, 2000.

Dental  supplies.  For the nine months ended  September 30, 2001 dental supplies
decreased  to $1.3  million  compared to $1.4  million for the nine months ended
September 30, 2000, a decrease of 6.6%. This decrease was primarily due to lower
production  during  this period and fewer de novo office  starts  which  require
additional  expenses to establish a start-up  inventory.  As a percentage of net
revenue,  dental supplies  decreased to 6.0% for the nine months ended September
30, 2001 compared to 6.3% for the nine months ended September 30, 2000.

Laboratory  fees. For the nine months ended  September 30, 2001  laboratory fees
decreased  to $1.9  million  compared to $2.1  million for the nine months ended
September  30, 2000, a decrease of 8.3%.  This decrease was primarily due to the
Company's efforts to consolidate the use of dental laboratories so that improved
pricing could be obtained based upon the Company's  laboratory case volume. As a
percentage of net revenue, laboratory fees decreased to 8.4% for the nine months
ended  September  30, 2001  compared to 9.1% for the nine months  September  30,
2000.

Occupancy.  For the nine  months  ended  September  30, 2001  occupancy  expense
increased  to $2.5  million  compared to $2.4  million for the nine months ended
September 30, 2000. This increase was primarily due to increased rental payments
resulting  from the renewal of Office leases at current market rates for Offices
whose  leases  expired  subsequent  to the 2000 period.  As a percentage  of net
revenue,  occupancy  expense  increased  to  11.2%  for the  nine  months  ended
September  30, 2001  compared to 10.8% for the nine months ended  September  30,
2000.



                                       16
<PAGE>





Advertising  and  marketing.  For the  nine  months  ended  September  30,  2001
advertising  and  marketing  increased to $264,000  compared to $246,000 for the
nine months ended  September  30, 2000,  an increase of 7.2%. As a percentage of
net revenue,  advertising  and  marketing  increased to 1.2% for the nine months
ended  September 30, 2001  compared to 1.1% for the nine months ended  September
30, 2000.

Depreciation  and  amortization.  For the nine months ended  September  30, 2001
depreciation and  amortization,  which consists of depreciation and amortization
expense incurred at the Offices,  remained  constant at $1.8 million compared to
the nine months  ended  September  30,  2000.  As a  percentage  of net revenue,
depreciation  and  amortization  increased  to 8.2%  for the nine  months  ended
September  30, 2001  compared to 7.9% for the nine months  ended  September  30,
2000.

General and administrative. For the nine months ended September 30, 2001 general
and  administrative,  which is  attributable  to the Offices,  increased to $2.3
million  compared to $2.2 million for the nine months ended  September 30, 2000,
an increase of 4.4%. As a percentage of net revenue,  general and administrative
expenses  increased  to 10.4%  for the nine  months  ended  September  30,  2001
compared to 9.8% during the nine months ended September 30, 2000.

Contribution  from dental offices.  As a result of the above,  contribution from
dental offices decreased to $3.0 million for the nine months ended September 30,
2001  compared to $3.3 million for the nine months ended  September  30, 2000, a
decrease of 9.5%.  As a  percentage  of net  revenue,  contribution  from dental
offices decreased to 13.5% for the nine months ended September 30, 2001 compared
to 14.7% for the nine months ended September 30, 2000.

Corporate  expenses - general  and  administrative.  For the nine  months  ended
September 30, 2001 corporate expenses - general and administrative  decreased to
$2.3 million  compared to $2.6 million for the nine months ended  September  30,
2000,  a  decrease  of 9.6%.  This  decrease  is  attributable  to a  management
initiative in the second quarter of 2001 to lower corporate  expenses  through a
reduction in personnel and other cost cutting  measures.  As a percentage of net
revenue,  corporate expense - general and administrative  decreased to 10.4% for
the nine  months  ended  September  30, 2001  compared to 11.3%  during the nine
months ended September 30, 2000.

Corporate  expenses - depreciation and  amortization.  For the nine months ended
September 30, 2001 corporate expenses - depreciation and amortization  decreased
to 244,000 compared to $250,000 for the nine months ended September 30, 2000. As
a percentage of net revenue,  corporate expenses - depreciation and amortization
remained  constant at 1.1% for the nine months ended September 30, 2001 compared
to the nine months ended September 30, 2000.

Operating  income.  As a result of the above,  the  Company  produced  operating
income of $445,000  for the nine months  ended  September  30, 2001  compared to
operating  income of $508,000  for the nine months ended  September  30, 2000, a
decrease of 12.4%.

Interest  expense,  net. For the nine months ended  September  30, 2001 interest
expense  decreased  to $376,000  compared to $469,000  for the nine months ended
September 30, 2000, a decrease of 19.8%.  This  decrease in interest  expense is
attributable  to a lower  average  interest  rate  as  well  as a lower  average
outstanding  debt  balance.  As a percentage  of net revenue,  interest  expense
decreased to 1.7% for the nine months ended  September 30, 2001 compared to 2.1%
for the nine months ended September 30, 2000.

Net income.  As a result of the above,  the Company's net income was $69,000 for
the nine months ended  September  30, 2001 compared to net income of $22,000 for
the nine months ended September 30, 2000.

Liquidity and Capital Resources

Since its  inception,  the Company has financed its growth through a combination
of private sales of convertible  subordinated  debentures and Common Stock, cash
provided by  operating  activities,  its Credit  Facility,  seller notes and its
initial public offering of Common Stock.

                                       17
<PAGE>




Net cash provided by operating  activities  was  approximately  $1.8 million and
$3.0  million  for  the  nine  months  ended   September   30,  2000  and  2001,
respectively. During the 2001 period, excluding net income and after adding back
non-cash items,  the Company's cash provided by operating  activities  consisted
primarily of a decrease in accounts receivable of approximately $427,000, and an
increase in accounts payable and accrued expenses of approximately $374,000. Net
cash  provided by operating  activities  during the 2000 period,  excluding  net
income and after adding back non-cash items,  consisted  primarily of a decrease
in  accounts  receivable  of  approximately  $138,000  offset by a  decrease  in
accounts payable and accrued expenses of approximately $495,000.

Net cash  used in  investing  activities  was  approximately  $1.3  million  and
$924,000 for the nine months ended  September  30, 2000 and 2001,  respectively.
For the nine  months  ended  September  30,  2001,  approximately  $435,000  was
invested in the purchase of the remaining 50% interest in an existing Office and
additional  property and equipment  purchases totaling  approximately  $431,000.
During the nine month period ended  September 30, 2000,  approximately  $222,000
was utilized for  acquisitions  and  approximately  $913,000 was invested in the
purchase of additional property and equipment including  approximately  $322,000
for the development of de novo Offices.

Net cash  used in  financing  activities  was  approximately  $498,000  and $1.8
million for the nine months  ended  September  30, 2000 and 2001,  respectively.
During the nine months  ended  September  30,  2001,  net cash used in financing
activities was comprised of approximately $1.7 million used to reduce the amount
outstanding on the Company's bank line of credit and approximately  $158,000 for
the  repayment of long-term  debt.  During the nine months ended  September  30,
2000,  net cash used in financing  activities  was  comprised  of  approximately
$257,000 used to reduce the amount  outstanding  on the  Company's  bank line of
credit,   approximately  $128,000  for  the  repayment  of  long-term  debt  and
approximately $113,000 to acquire and retire common stock of the Company.

Under the Company's  Credit  Facility (as amended on September  29,  2000),  the
Company may borrow up to $10.0 million for working  capital needs,  acquisitions
and capital  expenditures  including  capital  expenditures for de novo Offices.
Advances  bear  interest  at the  lender's  base rate  (prime plus a rate margin
ranging  from .25% to 1.50%  based on the ratio of  consolidated  senior debt to
consolidated  Earnings  Before  Income  Taxes,   Depreciation  and  Amortization
("EBITDA") or at an adjusted London Interbank Offered Rate ("LIBOR") (LIBOR plus
a rate margin  ranging  from 1.50% to 2.75%  based on the ratio of  consolidated
senior debt to consolidated  EBITDA),  at the Company's  option.  The Company is
also obligated to pay an annual facility fee ranging from .25% to .50% (based on
the ratio of  consolidated  senior debt to  consolidated  EBITDA) on the average
unused amount of the line of credit  during the previous full calendar  quarter.
Borrowings  are  limited  to an  availability  formula  based  on the  Company's
adjusted  EBITDA.  As amended,  the loan matures on April 30, 2002. At September
30, 2001, the Company could borrow up to $8.0 million (based on the availability
formula),  of which $4.8 million was outstanding under the Credit Facility.  The
Credit  Facility is secured by a lien on the Company's  accounts  receivable and
its  Management  Agreements.  The  Credit  Facility  prohibits  the  payment  of
dividends and other  distributions to  shareholders;  restricts or prohibits the
Company  from  incurring  indebtedness,  incurring  liens,  disposing of assets;
making investments or making acquisitions,  and requires the Company to maintain
certain  financial  ratios on an  ongoing  basis.  As a result of the  Company's
Credit Facility maturing on April 30, 2002, the entire amount  outstanding under
the Company's Credit Facility has been classified a short-term  liability.  As a
result of this classification, the Company was not in compliance with the Credit
Facility's current ratio covenant of at least 1.25 to 1.0 at September 30, 2001.
The sole reason for  non-compliance  was due to the classification of the entire
amount  outstanding  under the Credit  Facility as a short-term  liability.  The
Company's  lender waived this covenant for the quarter ended September 30, 2001.
The Company has signed a commitment  letter for a new Credit  Facility  with its
current  lender.  Management  believes the new Credit Facility will consist of a
term loan and a revolving  line of credit and is expected to close in the fourth
quarter of 2001.

At September 30, 2001, the Company had outstanding indebtedness of approximately
$627,000  represented  by notes  issued  in  connection  with  various  practice
acquisitions, all of which bear interest at rates varying from 8.0% to 9.0%. The
Company's material commitments for capital expenditures total approximately $1.1
million  which  includes the  acquisition  of the  remaining 50% interest in two
existing Offices expected to occur during the first and second quarters of 2002.
The Company  anticipates that these capital  expenditures  will be provided from
cash on hand,  cash generated by operations,  or borrowings  under the Company's
Credit Facility.  The Company's accumulated deficit as of September 30, 2001 was
approximately  $316,000  and the Company had a working  capital  deficit on that
date of approximately $3.2 million which was the result of the classification of
the amount outstanding under the Credit Facility as a short-term liability. When
excluding the effect of this  classification,  the Company's working capital was
approximately $1.5 million.


                                       18
<PAGE>




The Company  believes that cash generated from  operations and borrowings  under
its current Credit Facility or under a new or renewed credit  facility,  will be
sufficient to fund its anticipated working capital needs,  capital  expenditures
and future  acquisitions for at least the next 12 months. The Company has signed
a  commitment  letter  for a new Credit  Facility  with its  current  lender and
expects to close on this  agreement in the fourth  quarter of 2001. In addition,
in order to meet its long-term  liquidity needs the Company may issue additional
equity and debt  securities,  subject to market and other  conditions.  However,
there can be no assurance  that such  additional  financing will be available on
terms  acceptable  to the Company.  The failure to raise the funds  necessary to
finance  its future  cash  requirements  or to renew its Credit  Facility  could
adversely  affect  the  Company's  ability  to  pursue  its  strategy  and could
negatively affect its operations in future periods.

On September 5, 2000, the Company's Board of Directors  unanimously approved the
purchase of shares of the Company's Common Stock on the open market, total value
not to exceed $150,000.  During 2000, the Company, in 18 separate  transactions,
purchased approximately 26,300 shares of Common Stock for total consideration of
approximately  $113,000  at prices  ranging  from $3.80 to $6.68 per  share.  At
September 30, 2001  approximately  $37,000 remains available under this Board of
Directors approved program.


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 United States interest rates. Historically
and as of September 30, 2001, the Company has not used derivative instruments or
engaged in hedging activities.


Interest  Rate Risk.  The interest  payable on the Company's  line-of-credit  is
variable  based upon the prime  rate or LIBOR (at the  Company's  option),  and,
therefore,  affected by changes in market interest rates. At September 30, 2001,
$4.7 million was  outstanding  under the LIBOR  option with an interest  rate of
5.8125%  (LIBOR plus 2.25%) and  $94,000  was  outstanding  under the prime rate
option with an interest rate of 7.0%. As a result,  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.
Based on calculations performed by the Company, a 1.0% increase in the Company's
interest  rate would  result in  additional  interest  expense of  approximately
$47,000 for the nine months ended September 30, 2001.

                                       19
<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 6.   EXHIBITS AND REPORTS ON FORM 8-K


(a)   Exhibits
       None
(b)   Reports on Form 8-K
       None



<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.
                         a Colorado corporation


Date:  November 9, 2001  By:    /s/ Frederic W.J. Birner
                            -------------------------------------------------
                         Name: Frederic W.J. Birner
                         Title: Chairman of the Board, Chief Executive Officer
                         and Director
                         (Principal Executive Officer)


Date:  November 9, 2001  By:     /s/ Dennis N. Genty
                            -------------------------------------------------
                         Name:    Dennis N. Genty
                         Title:   Chief Financial Officer, Secretary,
                         Treasurer and Director
                         (Principal Financial and Accounting Officer)