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, 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 November 1, 2006
 -------------------------------      -----------------------------------------
 Common Stock, without par value                      2,101,458*

*  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.  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


PART  I  -  FINANCIAL  INFORMATION
----------------------------------


Item 1.   Financial Statements                                              Page
                                                                            ----

     Unaudited Condensed Consolidated Balance Sheets as of December 31, 2005
     and September 30, 2006                                                   3

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

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

     Unaudited Condensed Consolidated Statements of Cash Flows for the
     Nine Months Ended September 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 5.     Other Information                                                25

Item 6.     Exhibits                                                         25

Signatures                                                                   26



                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION
                         ------------------------------

ITEM 1.  FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>

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

                                                              December 31,          September 30,
ASSETS                                                            2005                  2006
                                                             -------------         --------------
                                                                   **                (Unaudited)
<S>                                                          <C>                   <C>
CURRENT ASSETS:
     Cash and cash equivalents                               $     921,742         $      669,458
     Accounts receivable, net of allowance for doubtful
     accounts of $261,031 and $291,114, respectively             3,215,369              3,597,663
     Deferred tax asset                                            160,411                212,384
     Prepaid expenses and other assets                             605,599                458,151
                                                             -------------         --------------
          Total current assets                                   4,903,121              4,937,656

     PROPERTY AND EQUIPMENT, net                                 3,939,452              5,770,464

OTHER NONCURRENT ASSETS:
     Intangible assets, net                                     13,036,652             12,467,207
     Deferred charges and other assets                             154,245                181,860
                                                             -------------         --------------
          Total assets                                       $  22,033,470         $   23,357,187
                                                             =============         ==============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                        $   2,065,076         $    1,665,049
     Accrued expenses                                            1,110,526              1,317,392
     Accrued payroll and related expenses                        1,502,877              2,121,668
     Income taxes payable                                          175,259                207,147
     Current maturities of long-term debt                          145,150                 66,445
                                                             -------------         --------------
          Total current liabilities                              4,998,888              5,377,701

LONG-TERM LIABILITIES:
     Deferred tax liability, net                                   750,346                751,304
     Long-term debt, net of current maturities                   2,887,166              3,111,610
     Other long-term obligations                                   195,723                281,486
                                                             -------------         --------------
          Total liabilities                                      8,832,123              9,522,101

COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS (Note 9)

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  2,314,719 shares issued and
     outstanding, respectively                                   9,628,457              8,971,415
     Deferred equity compensation                                 (648,240)              (405,150)
     Retained earnings                                           4,221,130              5,268,821
                                                             -------------         --------------
          Total shareholders' equity                            13,201,347             13,835,086
                                                             -------------         --------------
          Total liabilities and shareholders' equity         $  22,033,470         $   23,357,187
                                                             =============         ==============

**  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>
<TABLE>
<CAPTION>

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

                                                        Quarters Ended          Nine Months Ended
                                                         September 30,             September 30,
                                                    ----------------------  ------------------------
                                                       2005        2006         2005         2006
                                                    ----------  ----------  -----------  -----------
<S>                                                 <C>         <C>         <C>          <C>
NET REVENUE:                                        $9,264,449  $9,756,186  $28,025,464  $29,988,004

DIRECT EXPENSES:
     Clinical salaries and benefits                  3,321,931   3,540,887   10,298,277   10,811,123
     Dental supplies                                   566,219     597,488    1,698,572    1,750,695
     Laboratory fees                                   588,814     635,446    1,873,120    1,960,704
     Occupancy                                         953,029   1,059,477    2,865,929    3,210,359
     Advertising and marketing                         223,387     176,830      794,984      637,763
     Depreciation and amortization                     420,998     572,788    1,261,990    1,581,250
     General and administrative                      1,074,880   1,126,326    3,047,312    3,456,569
                                                    ----------  ----------  -----------  -----------
                                                     7,149,258   7,709,242   21,840,184   23,408,463
                                                    ----------  ----------  -----------  -----------
     Contribution from dental offices                2,115,191   2,046,944    6,185,280    6,579,541

CORPORATE EXPENSES:
     General and administrative                      1,578,244(1)  948,371(1) 3,385,361(1) 3,170,644(1)
     Depreciation and amortization                      33,595      32,396      102,887       99,038
                                                    ----------  ----------  -----------  -----------
     Operating income                                  503,352   1,066,177    2,697,032    3,309,859

     Interest expense (income), net                    (13,353)     38,875      (41,220)     118,962
                                                    ----------  ----------  -----------  -----------
     Income before income taxes                        516,705   1,027,302    2,738,252    3,190,897
     Income tax expense                                102,315     394,498      990,951    1,232,604
                                                    ----------  ----------  -----------  -----------
     Net income                                     $  414,390  $  632,804  $ 1,747,301  $ 1,958,293
                                                    ==========  ==========  ===========  ===========

     Net income per share of Common Stock - Basic   $     0.17  $     0.27  $      0.74  $      0.84
                                                    ==========  ==========  ===========  ===========
     Net income per share of Common Stock - Diluted $     0.16  $     0.25  $      0.67  $      0.77
                                                    ==========  ==========  ===========  ===========
     Cash dividends per share of Common Stock       $     0.10  $     0.13  $      0.30  $      0.39
                                                    ==========  ==========  ===========  ===========
Weighted average number of shares of
Common Stock and dilutive securities:
     Basic                                           2,406,789   2,311,901    2,364,493    2,337,049
                                                    ==========  ==========  ===========  ===========
     Diluted                                         2,662,240   2,493,941    2,613,331    2,528,388
                                                    ==========  ==========  ===========  ===========

(1)  Corporate expense - general and administrative includes $81,030 of deferred
     equity compensation for a stock award and $585,844 one-time expense related
     to the reimbursement of an employees's income taxes in connection with a
     stock award for the quarter ended September 30, 2005, and $81,030 of
     deferred equity compensation for a stock award and $78,620 of stock-based
     compensation expense pursuant to SFAS 123 (R) for the quarter ended
     September 30, 2006. For the nine months ended September 30, 2005, corporate
     expenses - general and administrative includes $81,030 of deferred equity
     compensation for a stock award and $585,844 one-time expense related to the
     reimbursement of income taxes in connection with a stock award, and for the
     nine months ended September 30, 2006, $243,090 of deferred equity
     compensation related to the stock award and $244,651 of stock-based
     compensation expense pursuant to SFAS 123 (R).

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

                                       4
<PAGE>

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

                                                            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                       59,983         224,786            -               -           224,786
     Purchase and retirement of
       Common Stock                                      (88,939)     (1,364,964)           -               -        (1,364,964)
     Tax benefit of Common Stock
       options exercised                                       -         238,485            -               -           238,485
     Dividends declared on Common
       Stock                                                   -               -            -        (910,602)         (910,602)
     Stock-based compensation expense                          -         244,651            -               -           244,651
     Amortization of deferred equity compensation              -               -      243,090               -           243,090
     Net income                                                -               -            -       1,958,293         1,958,293
                                                       ---------      ----------    ---------      ----------       -----------
BALANCES, September 30, 2006                           2,314,719      $8,971,415    $(405,150)     $5,268,821       $13,835,086
                                                       =========      ==========    =========      ==========       ===========

</TABLE>












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


                                       5

<PAGE>
<TABLE>
<CAPTION>
                                                                     Page 1 of 2

            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)
                                                                                   Nine Months Ended
                                                                                      September 30,
                                                                      ---------------------------------------
                                                                          2005                       2006
                                                                      ------------               ------------
<S>                                                                   <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                       $  1,747,301               $  1,958,293
     Adjustments to reconcile net income to net
       cash provided by operating activities:
          Depreciation and amortization                                  1,364,877                  1,680,288
          Stock compensation expense                                             -                    244,651
          Loss on disposition of property                                      221
          Provision for doubtful accounts                                  410,143                    562,683
          Provision for (benefit from) deferred income taxes               (48,854)                   (51,015)
          Amortization of debt issuance costs                                1,475
          Amortization of deferred equity compensation                      81,030                    243,090
     Changes in assets and liabilities net of effects
       from acquisitions:
          Accounts receivable                                           (1,326,806)                  (944,976)
          Prepaid expenses and other assets                                345,212                    147,448
          Deferred charges and other assets                                      -                    (27,615)
          Accounts payable                                                  99,151                   (400,027)
          Accrued expenses                                                (604,520)                   141,077
          Accrued payroll and related expenses                             580,416                    618,789
          Income taxes payable                                             179,917                     31,888
          Other long-term obligations                                       24,034                     85,763
                                                                      ------------               ------------
            Net cash provided by operating activities                    2,853,597                  4,290,337
                                                                      ------------               ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
          Capital expenditures                                            (635,091)                (1,129,880)
          Development of new dental centers                               (246,495)                (1,811,974)
                                                                      ------------               ------------
          Net cash used in investing activities                           (881,586)                (2,941,854)
                                                                      ------------               ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
          Advances - line of credit                                     16,162,719                 15,067,330
          Repayments - line of credit                                  (15,388,491)               (14,809,325)
          Repayment of long-term debt                                     (124,196)                  (112,266)
          Proceeds from exercise of Common Stock options                   519,496                    224,786
          Purchase and retirement of Common Stock                       (2,769,518)                (1,364,964)
          Tax benefit of Common Stock options exercised                    333,401                    238,485
          Common Stock cash dividends                                     (563,207)                  (844,813)
                                                                      ------------               ------------
            Net cash used in financing activities                       (1,829,796)                (1,600,767)
                                                                      ------------               ------------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                         142,215                   (252,284)
CASH AND CASH EQUIVALENTS, beginning of period                             756,181                    921,742
                                                                      ------------               ------------
CASH AND CASH EQUIVALENTS, end of period                              $    898,396               $    669,458
                                                                      ============               ============
</TABLE>


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

                                       6
<PAGE>
<TABLE>
<CAPTION>
                                                                     Page 2 of 2

            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)
                                                                                   Nine Months Ended
                                                                                      September 30,
                                                                      ---------------------------------------
                                                                          2005                       2006
                                                                      ------------               ------------
<S>                                                                   <C>                        <C>
SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:
     Cash paid during the year for interest                           $    136,530               $    169,487
                                                                      ============               ============
     Cash paid during the year for income taxes                       $    526,489               $  1,012,000
                                                                      ============               ============



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)
                               SEPTEMBER 30, 2006

(1)     UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The  condensed  consolidated  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 September 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 the quarter and
nine  months  ended  September  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 stock dividend, was distributed on August 8, 2005 to shareholders
of  record  at the close of business on August 1, 2005.  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
dental  offices  ("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  related  to  the  Office  ("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 $194,848 and $187,610 for the quarter ended September 30, 2006
and  2005,  respectively.  Amortization  was  $584,446 and $562,831 for the nine
months  ended  September  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
discounted  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.

The  Company  adopted  SFAS  123(R) using the modified prospective method. Under
this  transition  method,  stock-based  compensation expense for the quarter and
nine  months ended September 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
September  30,  2006  was  approximately $79,000. Total stock-based compensation
expense  included in the Company's statement of income for the nine months ended
September  30,  2006  was approximately $245,000. 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.

                                       8
<PAGE>

 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 September 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 September
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 nine months ended September 30, 2005 would
have  been  reported  as  follows:

<TABLE>
<CAPTION>
                                                                 Quarter Ended       Nine Months Ended
                                                               September 30, 2005    September 30, 2005
                                                              --------------------  --------------------
<S>                                                           <C>                   <C>
Net income, as reported                                       $           414,390   $         1,747,301
Stock-based compensation included in net income                                 -                     -
Fair value of stock-based compensation,  net of income taxes              (24,550)             (182,221)
                                                              -------------------   -------------------
Pro forma net income                                          $           389,840   $         1,565,080
                                                              ===================   ===================

Net income per share of Common Stock - Basic:
  As reported                                                 $              0.17   $              0.74
  Stock-based compensation included in net income                                 -                     -
  Fair value of stock-based compensation, net of income taxes               (0.01)                (0.08)
                                                              -------------------   -------------------
  Pro forma                                                   $              0.16   $              0.66
                                                              ===================   ===================
Net income per share of Common Stock -  Diluted:
  As reported                                                 $              0.16   $              0.67
  Stock-based compensation included in net income                                 -                     -
  Fair value of stock-based compensation, net of income taxes               (0.01)                (0.07)
                                                              -------------------   -------------------
  Pro forma                                                   $              0.15   $              0.60
                                                              ===================   ===================
</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 nine month periods ended September 30, 2005 under SFAS
123  and  the stock compensation expense recognized during the current quarterly
and  nine  month  periods  ended  September  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 nine 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 September 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      $    414,390  2,406,789    $  0.17    $632,804   2,311,901     $  0.27

Effect of dilutive shares
of Common Stock from stock
options and warrants                      -    255,451      (0.01)          -     182,040       (0.02)
                               ------------  ---------    -------    --------   ---------     -------
Diluted EPS:
Net income available to
shares of Common Stock         $    414,390  2,662,240    $  0.16    $632,804   2,493,941     $  0.25
                               ============  =========    =======    ========   =========     =======

</TABLE>



The difference in weighted average shares outstanding between basic earnings per
share and diluted earnings per share for the quarters ended September 30, 2006
and 2005 relates to the effect of 182,040 and 255,451 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 September 30 , 2006,
options to purchase 69,200 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>



                                                    Nine Months Ended September 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         $  1,747,301  2,364,493    $  0.74   $1,958,293  2,337,049     $  0.84

Effect of dilutive shares
of Common Stock from stock
options and warrants                      -    248,838      (0.07)           -    191,339       (0.07)
                               ------------  ---------    -------    ---------  ---------     -------
Diluted EPS:
Net income available to
shares of Common Stock         $  1,747,301  2,613,331    $  0.67   $1,958,293  2,528,388     $  0.77
                               ============  =========    =======   ==========  =========     =======
</TABLE>


The difference in weighted average shares outstanding between basic earnings per
share and diluted earnings per share for the nine months ended September 30,
2006 and 2005 relates to the effect of 191,339 and 248,838 shares, respectively,
of dilutive shares of Common Stock from stock options, which are included in
total shares for the diluted calculation. For the nine months ended September 30
, 2006, options to purchase 158,200 shares of the Company's Common Stock were
not included in the computation of dilutive income per share because their
effect was anti-dilutive.



                                       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 September 30, 2006, there were 60,800
shares  available  for  issuance  under the 2005 Plan. The exercise price of the
stock options issued under the 2005 Plan is equal to the market price, or market
price  plus 10% for shareholders who own greater than 10% of the Company, at the
date  of  grant.  These  stock  options  expire  seven  years, or five years for
shareholders who own greater than 10% 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 to be
granted  to  any eligible individual, the life of any award, and any other terms
and  conditions  of  the awards 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 September 30,
2006,  there were 303,733 vested options outstanding and 87,666 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 are an owner of the P.C.s. The Dental Center Plan expired by its
terms  on  October  30, 2005. As of September 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:

                                      Quarters Ended         Nine Months Ended
                                       September 30,           September 30,
                                     ------------------      ------------------
Valuation Assumptions (1)            2005         2006       2005         2006
                                     -----        -----      -----        -----
Expected life (2)                      4.5          5.8        3.4          5.5
Risk-free interest rate (3)          4.37%        4.87%      3.68%        4.87%
Expected volatility (4)                50%          65%        35%          61%
Expected dividend yield              2.25%        2.98%      2.72%        3.03%
`

_____________________________
(1) Beginning on the date of adoption of SFAS 123(R), on January 1, 2006,
    forfeitures are estimated based on historical experience.
(2) The expected life, in years, 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 option
(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 September 30, 2006, and changes during the
nine months then ended, is presented below:

<TABLE>
<CAPTION>
                                                                                            Weighted-Average     Aggregate
                                                                                               Remaining         Intrinsic
                                       Number of      Weighted-Average       Range of         Contractual          Value
                                        Options        Exercise 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                                27,200            $15.83         $14.81 - $19.75
  Exercised                              59,983            $ 3.75         $ 1.00 - $13.00
  Forfeited                              38,000            $14.92         $12.50 - $17.61
                                        -------            ------         ---------------
Outstanding at September 30, 2006       584,599            $11.06         $ 4.80 - $19.75         3.7             $6,467
                                        =======            ======         ===============         ===             ======
Exercisable at September 30, 2006       318,733            $ 7.01         $ 4.80 - $17.81         2.1             $2,235
                                        =======            ======         ===============         ===             ======

</TABLE>


The  weighted  average  grant  date  fair value of options granted was $7.24 per
option  and $2.60 per option during the nine months ended September 30, 2006 and
2005, respectively.  Net cash proceeds from the exercise of stock options during
the  nine  months  ended September 30, 2006 and 2005 were $224,786 and $519,496,
respectively.  The  associated  income  tax benefit from stock options exercised
during  the  nine  months  ended  September  30,  2006 and 2005 was $238,485 and
$333,401,  respectively.  As  of the date of exercise, the total intrinsic value
of  options  exercised  during the nine months ended September 30, 2006 and 2005
was  $  868,298  and $1.3 million, respectively. As of September 30, 2006, there
was  $1.3  million  of  total  unrecognized  compensation  expense  related  to
non-vested  stock  options,  which  is expected to be recognized over a weighted
average  period  of  1.55  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
September 30, 2006, there was approximately $405,000 of unrecognized
compensation expense related to the restricted stock grant. The expense is
expected to be recognized over a period of 1.25 years.

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

<TABLE>
<CAPTION>

                                                 Nine Months Ended
                                                 September 30, 2006
                                     -----------------------------------------------
                                         Number of               Weighted-Average
                                     Restricted Shares         Grant-Date Fair Value
                                     -----------------         ---------------------
<S>                                       <C>                         <C>
Non-vested at December 31, 2005            60,000                   $     13.51
Granted                                         -                             -
Vested                                    (20,000)                        13.51
Forfeited                                       -                             -
                                          -------                   -----------
Non-vested at September 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  September 30, 2006, the Company had $3.1 million outstanding and $3.9
million  available  for  borrowing  under the Credit Facility. This consisted of
$1.3 million outstanding under the Base Rate option and $1.8 million outstanding
under  the  LIBOR  rate  option.  The  Credit  Facility  requires the Company to
maintain  certain  financial  ratios on an ongoing basis. At September 30, 2006,
the  Company  was  in full compliance with all of its covenants under the Credit
Facility.

 (8)     CAPITAL  EXPENDITURES

The Company's retained earnings as of September 30, 2006 were approximately $5.3
million,  and  the  Company  had  a  working  capital  deficit  on  that date of
approximately $440,000. During the quarter ended September 30, 2006, the Company
had  capital  expenditures of approximately $843,000 and purchased approximately
$16,000  of  Common  Stock  while  decreasing  total  bank debt by approximately
$261,000.

(9)     DUTCH  AUCTION  TENDER  OFFER  AND  TERM  LOAN

On October 5, 2006, the Company accepted for payment, at a purchase price of
$21.75 per share, 212,396 shares of its Common Stock that were properly tendered
and not withdrawn pursuant to the Company's "dutch auction" tender offer
("Tender Offer"). The 212,396 shares purchased were comprised of the 175,000
shares the Company offered to purchase and 37,396 shares that were purchased
pursuant to the Company's right to purchase up to an additional 2% of the
outstanding shares as of August 31, 2006, without extending the Tender Offer in
accordance with applicable securities laws. These shares represented
approximately 9.2% of the shares outstanding as of September 30, 2006. The
Tender Offer was funded from a $4.6 million term loan ("Term Loan"). Under the
Term Loan, $2.3 million is  borrowed at a fixed interest rate of 7.05% and the
remaining $2.3 million is borrowed at a floating interest rate of Libor plus
1.5%. The principal amount borrowed will be paid quarterly in 60 equal payments
of approximately $230,000 plus interest beginning December 31, 2006. The term
loan matures on September 30, 2011.





                                       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 nine
months  ended  September  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 60 Offices in Colorado,
New  Mexico  and Arizona staffed by 80 general dentists and 30 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 September 30, 2006, Revenue increased $991,000, or
7.5%,  to  $14.3  million  compared  to $13.3 million for the three months ended
September  30, 2005.  For the three months ended September 30, 2006, net revenue
increased  $492,000,  or  5.3%, to $9.8 million compared to $9.3 million for the
three  months  ended  September  30,  2005.

For  the  three  months  ended September 30, 2006, net income increased 52.7% to
$633,000, or $.25 per share compared to $414,000, or $.16 per share for the same
period  of  2005.  Net  income  for  the  three months ended September 30, 2006,
includes  a  before-tax  expense  of $78,620  pursuant to SFAS 123 (R) versus no
such expense in the third quarter of 2005. Net income for the three months ended
September  30,  2005, includes a one-time before-tax expense of $586,000 for the
reimbursement  of  income  taxes  related  to  a  stock  award.

For the nine months ended September 30, 2006, Revenue increased $3.4 million, or
8.6%,  to  $43.4  million  compared  to  $40.0 million for the nine months ended
September  30,  2005.  For the nine months ended September 30, 2006, net revenue
increased  $2.0 million, or 7.0%, to $30.0 million compared to $28.0 million for
the  nine  months  ended  September  30,  2005.

For the nine months ended September 30, 2006, net income increased 12.1% to $2.0
million,  or $.77 per share compared to $1.7 million,  or $.67 per share for the
same  period  of  2005. Net income for the nine months ended September 30, 2006,
includes a before-tax expense of $244,651  pursuant to SFAS 123 (R) and $243,000
of  deferred  equity  compensation  for  a stock award compared to, for the nine
months  ended  September 30, 2005, a one-time before-tax expense of $586,000 for
the  reimbursement  of  income  taxes  related  to a  stock award and $81,000 of
deferred  equity  compensation  for  a  stock  award.

In  August  2006  the  Company  opened  two de novo Offices. One in the Phoenix,
Arizona  market  and  one  in  the  Albuquerque,  New  Mexico  market.

The  Company continues to generate strong cash flow from operations.  During the
first nine months of 2006, the Company purchased $1.4 million of its outstanding
Common  Stock,  incurred  $2.9 million in capital expenditures, paid $845,000 in
dividends,  and  repaid  $112,000  of long term debt while increasing borrowings
under  its  bank  line  of  credit  ("Credit  Facility")  by  $258,000.

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 U.S.
generally accepted accounting principles ("GAAP") 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                  Nine Months Ended
                                                       September 30,                     September 30,
                                           -------------------------------------  ----------------------------
                                                 2005               2006              2005           2006
                                           ----------------  -------------------  -------------  -------------
<S>                                        <C>               <C>                  <C>            <C>
Total dental group practice revenue        $    13,292,104   $       14,282,765   $ 39,987,027   $ 43,429,434
Less - amounts retained by dental Offices       (4,027,655)          (4,526,579)   (11,961,563)   (13,441,430)
                                           ---------------   ------------------   ------------   ------------
Net revenue                                $     9,264,449   $        9,756,186   $ 28,025,464   $ 29,988,004
                                           ===============   ==================   ============   ============
</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.

<TABLE>
<CAPTION>

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

                                                   Quarters Ended                     Nine Months Ended
                                                    September 30,                        September 30,
                                             ----------------------------           ------------------------
                                              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              35.9 %               36.3 %            36.7 %           36.1 %
  Dental supplies                              6.1 %                6.1 %             6.1 %            5.8 %
  Laboratory fees                              6.4 %                6.5 %             6.7 %            6.5 %
  Occupancy                                   10.3 %               10.9 %            10.2 %           10.7 %
  Advertising and marketing                    2.4 %                1.8 %             2.8 %            2.1 %
  Depreciation and amortization                4.5 %                5.9 %             4.5 %            5.3 %
  General and administrative                  11.6 %               11.5 %            10.9 %           11.5 %
                                             -------              -------           -------          -------
                                              77.2 %               79.0 %            77.9 %           78.1 %

                                             -------              -------           -------          -------
  Contribution from dental offices            22.8 %               21.0 %            22.1 %           21.9 %

CORPORATE EXPENSES:
  General and administrative                  17.0 % (1)            9.7 % (1)        12.1 % (1)       10.6 % (1)
  Depreciation and amortization                0.4 %                0.3 %             0.4 %            0.3 %
                                             -------              -------           -------          -------
  Operating income                             5.4 %               10.9 %             9.6 %           11.0 %

  Interest expense (income), net             ( 0.1)%                0.4 %           ( 0.1)%            0.4 %
                                             -------              -------           -------          -------
  Income before income taxes                   5.6 %               10.5 %             9.8 %           10.6 %
  Income tax expense                           1.1 %                4.0 %             3.5 %            4.1 %
                                             -------              -------           -------          -------
  Net income                                   4.5 %                6.5 %             6.2 %            6.5 %
                                             =======              =======           =======          =======


(1)  Corporate expense - general and administrative includes $81,030 of deferred
     equity compensation for a stock award and $585,844 one-time expense related
     to the reimbursement of an employee's income taxes in connection with a
     stock award for the quarter ended September 30, 2005, and $81,030 of
     deferred equity compensation for a stock award and $78,620 of stock-based
     compensation expense pursuant to SFAS 123 (R) for the quarter ended
     September 30, 2006. For the nine months ended September 30, 2005, corporate
     expenses - general and administrative includes $81,030 of deferred equity
     compensation for a stock award and $585,844 one-time expense related to the
     reimbursement of income taxes in connection with a stock award, and for the
     nine months ended September 30, 2006, $243,090 of deferred equity
     compensation related to the stock award and $244,651 of stock-based
     compensation expense pursuant to SFAS 123 (R).
</TABLE>




                                       17

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

Net  revenue.  For  the  three  months  ended  September  30,  2006, net revenue
increased  $492,000,  or  5.3%, to $9.8 million compared to $9.3 million for the
three  months  ended  September  30,  2005.  This  increase  is  attributable to
increases at existing offices as well as additional net revenue generated by the
five  de  novo  Offices  opened  since  September  30,  2005.

Clinical  salaries  and benefits. For the three months ended September 30, 2006,
clinical  salaries  and  benefits  increased  $219,000, or 6.6%, to $3.5 million
compared  to  $3.3  million  for the three months ended September 30, 2005. This
increase was primarily due to additional employees at the de novo Offices opened
since September 30, 2005, as well as annual wage increases that became effective
February 1, 2006. As a percentage of net revenue, clinical salaries and benefits
increased  to  36.3%  for the three months ended September 30, 2006  compared to
35.9%  for  the  three  months  ended  September  30,  2005.

Dental  supplies. For the three months ended September 30, 2006, dental supplies
increased  to $597,000 compared to $566,000 for the three months ended September
30, 2005, an increase of $31,000 or 5.5%. As a percentage of net revenue, dental
supplies remained constant at 6.1% for the three months ended September 30, 2006
and  2005.

Laboratory  fees. For the three months ended September 30, 2006, laboratory fees
increased  to $635,000 compared to $589,000 for the three months ended September
30,  2005,  an  increase  of  $47,000  or  7.9%. As a percentage of net revenue,
laboratory  fees increased to 6.5% for the three months ended September 30, 2006
compared  to  6.4%  for  the  three  months  ended  September  30,  2005.

Occupancy.  For  the  three  months  ended September 30, 2006, occupancy expense
increased  to  $1.1  million  compared  to  $953,000  for the three months ended
September  30,  2005,  an  increase  of  $106,000  or  11.2%.  This increase was
primarily  due  to the opening of five de novo Offices since September 30, 2005,
the  expansion  of  one  existing office 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 10.9% for the three months ended September 30,
2006  compared  to  10.3%  for  the  three  months  ended  September  30,  2005.
Advertising  and  marketing.  For  the  three  months  ended September 30, 2006,
advertising and marketing expense decreased to $177,000 compared to $223,000 for
the  three months ended September 30, 2005, a decrease of $47,000 or 20.8%. This
decrease  is  attributable  to  a  shift  in  the Company's 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 1.8% for the
three  months  ended  September  30,  2006 compared to 2.4% for the three months
ended  September  30,  2005.

Depreciation  and amortization-Offices. For the three months ended September 30,
2006,  depreciation  and  amortization  expenses  attributable  to  the  Offices
increased  to $573,000 compared to $421,000 for the three months ended September
30,  2005,  an  increase  of  $152,000  or  36.1%. The increase in the Company's
depreciable  asset  base  is  a  result of tenant improvements and new equipment
purchases  for  five  de  novo  Offices  opened  since  September  30, 2005, the
expansion  of  three  existing  Offices  and  increased  capital  purchases  for
specialty  services.  As  a  percentage  of  net  revenue,  depreciation  and
amortization  increased  to  5.9%  for the three months ended September 30, 2006
compared  to  4.5%  for  the  three  months  ended  September  30,  2005.

General  and  administrative-Offices.  For  the three months ended September 30,
2006  and  2005, general and administrative expenses attributable to the Offices
remained  constant  at $1.1 million. As a percentage of net revenue, general and
administrative  expenses decreased to 11.5% for the three months ended September
30,  2006  compared  to  11.6%  for  the  three months ended September 30, 2005.
Contribution  from dental Offices.   As a result of the above, contribution from
dental  Offices decreased $68,000, or 3.2%, to $2.0 million for the three months
ended  September  30,  2006  compared to $2.1 million for the three months ended
September  30,  2005.  As  a percentage of net revenue, contribution from dental
offices  decreased  to  21.0%  for  the  three  months  ended September 30, 2006
compared  to  22.8%  for  the  three  months  ended  September  30,  2005.

Corporate  expenses  -  general  and  administrative. For the three months ended
September 30, 2006, corporate expenses - general and administrative decreased to
$948,000 compared to $1.6 million for the three months ended September 30, 2005,
a  decrease  of  $630,000  or 39.9%. This decrease is primarily related to a one
time  expense  of approximately $586,000 in the third quarter of 2005 associated
with  the  reimbursement  of personal income taxes to the Company's Chairman and
Chief Executive Officer related to a 60,000 share restricted stock award on July
1,  2005  and  a  decrease  of approximately $66,000 in executive bonuses in the
third  quarter of 2006, partially offset by an increase of approximately $79,000
in  the third quarter of 2006 in stock-based compensation expense related to the
adoption of SFAS 123(R), "Share-Based Payment" on January 1, 2006. The remainder
of  the  difference was primarily due to increases in occupancy, contract labor,
and  travel  expenses.  As  a  percentage  of  net revenue, corporate expenses -
general  and  administrative  decreased  to  9.7%  for  the  three  months ended
September  30,  2006  compared to 17.0% for the three months ended September 30,
2005.

                                       18
<PAGE>

Corporate  expenses  - depreciation and amortization. For the three months ended
September 30, 2006, corporate expenses - depreciation and amortization decreased
$2,000,  or  3.6%,  to  $32,000  compared  to $34,000 for the three months ended
September  30,  2005.  As  a  percentage  of  net  revenue, corporate expenses -
depreciation  and  amortization  decreased  to  0.3%  for the three months ended
September  30,  2006  from  0.4%  for the three months ended September 30, 2005.
Operating income.   As a result of the revenue and expenses discussed above, the
Company's  operating income increased by $563,000, or 111.8% to $1.1 million for
the  three  months  ended  September 30, 2006 compared to $503,000 for the three
months  ended  September  30,  2005.  As  a percentage of net revenue, operating
income increased to 10.9% for the three months ended September 30, 2006 compared
to  5.4%  for  the  three  months  ended  September  30,  2005.

Interest  expense/(income),  net. For the three months ended September 30, 2006,
interest expense increased to $39,000 compared to ($13,000) for the three months
ended  September  30,  2005,  an  increase of $52,000. 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  September  30, 2006 compared to (0.1)% for the three months ended
September  30,  2005.

Net  income.   As  a  result of the above, the Company's net income was $633,000
for the three months ended September 30, 2006 compared to net income of $414,000
for the three months ended September 30, 2005, an increase of $218,000 or 52.7%.
Net  income  for the three months ended September 30, 2006 was net of income tax
expense  of  $394,000  while net income for the three months ended September 30,
2005  was net of income tax expense of $102,000. As a percentage of net revenue,
net  income  increased  to  6.5%  for  the three months ended September 30, 2006
compared  to  4.5%  for  the  three  months  ended  September  30,  2005.

NINE  MONTHS  ENDED  SEPTEMBER 30, 2006  COMPARED TO NINE MONTHS ENDED SEPTEMBER
30,  2005:

Net revenue. For the nine months ended September 30, 2006, net revenue increased
$2.0  million,  or 7.0%, to $30.0 million compared to $28.0 million for the nine
months  ended September 30, 2005.  This increase is attributable to increases at
existing offices as well as additional net revenue generated by the five de novo
Offices  opened  since  September  30,  2005.

Clinical  salaries  and  benefits. For the nine months ended September 30, 2006,
clinical  salaries  and  benefits  increased $513,000, or 5.0%, to $10.8 million
compared  to  $10.3  million  for the nine months ended September 30, 2005. This
increase was primarily due to additional employees at the de novo Offices opened
since September 30, 2005, as well as annual wage increases that became effective
February 1, 2006. As a percentage of net revenue, clinical salaries and benefits
decreased  to  36.1%  for  the nine months ended September 30, 2006  compared to
36.8%  for  the  nine  months  ended  September  30,  2005.

Dental  supplies.  For the nine months ended September 30, 2006, dental supplies
increased  to  $1.8  million  compared to $1.7 million for the nine months ended
September  30,  2005,  an  increase  of  $52,000 or 3.1%. As a percentage of net
revenue,  dental  supplies decreased to 5.8% for the nine months ended September
30,  2006  compared  to  6.1%  for  the  nine  months  ended September 30, 2005.
Laboratory  fees.  For the nine months ended September 30, 2006, laboratory fees
increased $88,000 or 4.7%, to $2.0 million compared to $1.9 million for the nine
months ended September 30, 2005. As a percentage of net revenue, laboratory fees
decreased  to 6.5% for the nine months ended September 30, 2006 compared to 6.7%
for  the  nine  months  ended  September  30,  2005.

Occupancy.  For  the  nine  months  ended  September 30, 2006, occupancy expense
increased  to  $3.2  million  compared to $2.9 million for the nine months ended
September  30,  2005,  an  increase  of  $344,000  or  12.0%.  This increase was
primarily  due  to  the opening of five de novo Offices since September 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 10.7% for the nine
months  ended  September  30,  2006  compared to 10.2% for the nine months ended
September  30,  2005.

Advertising  and  marketing.  For  the  nine  months  ended  September 30, 2006,
advertising  and  marketing  expenses decreased to $638,000 compared to $795,000
for  the  nine months ended September 30, 2005, a decrease of $157,000 or 19.8%.
This  decrease  is attributable to a shift in the Company's 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 2.1% for the
nine  months ended September 30, 2006 compared to 2.8% for the nine months ended
September  30,  2005.

                                       19
<PAGE>


Depreciation  and  amortization-Offices. For the nine months ended September 30,
2006,  depreciation  and  amortization  expenses  attributable  to  the  Offices
increased  to  $1.6  million  compared to $1.3 million for the nine months ended
September  30,  2005,  an  increase  of  $319,000  or 25.3%. The increase in the
Company's  depreciable  asset  base  is  a result of tenant improvements and new
equipment  purchases  for  five de novo Offices opened since September 30, 2005,
the  expansion  of  three  existing  Offices and increased capital purchases for
specialty  services.  As  a  percentage  of  net  revenue,  depreciation  and
amortization  increased  to  5.3%  for  the nine months ended September 30, 2006
compared  to  4.5%  for  the  nine  months  ended  September  30,  2005.

General  and  administrative-Offices.  For  the  nine months ended September 30,
2006,  general and administrative expenses attributable to the Offices increased
to $3.5 million compared to $3.0 million for the nine months ended September 30,
2005,  an  increase  of  $409,000  or  13.4%.  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 recruiting fees. As a percentage of net revenue,
general and administrative expenses increased to 11.5% for the nine months ended
September  30,  2006  compared  to 10.9% for the nine months ended September 30,
2005.

Contribution  from dental Offices.   As a result of the above, contribution from
dental  Offices increased $394,000, or 6.4%, to $6.6 million for the nine months
ended  September  30,  2006  compared  to $6.2 million for the nine months ended
September  30,  2005.  As  a percentage of net revenue, contribution from dental
Offices decreased to 21.9% for the nine months ended September 30, 2006 compared
to  22.1%  for  the  nine  months  ended  September  30,  2005.

Corporate  expenses  -  general  and  administrative.  For the nine months ended
September 30, 2006, corporate expenses - general and administrative decreased to
$3.2  million  compared  to $3.4 million for the nine months ended September 30,
2005,  a  decrease  of $215,000 or 6.3%. This decrease is primarily related to a
one  time  expense  of approximately $586,000 in the 2005 period associated with
the  reimbursement  of personal income taxes to the Company's Chairman and Chief
Executive  Officer  related  to a 60,000 share restricted stock award on July 1,
2005  and  decrease  of  approximately  $67,000 in executive bonuses in the 2006
period, partially offset by an increase of approximately $245,000 in stock-based
compensation  expense  related  to  the  adoption  of  SFAS 123(R), "Share-Based
Payment"  on  January 1, 2006. The remainder of the difference was primarily due
to  increases  in  computer  maintenance, legal fees, office supplies and travel
expenses.  As  a  percentage  of  net  revenue, corporate expenses - general and
administrative  decreased  to 10.6% for the nine months ended September 30, 2006
compared  to  12.1%  for  the  nine  months  ended  September  30,  2005.

Corporate  expenses  -  depreciation and amortization. For the nine months ended
September 30, 2006, corporate expenses - depreciation and amortization decreased
by  $4,000  to  $99,000 compared to $103,000 for the nine months ended September
30,  2005. As a percentage of net revenue, corporate expenses - depreciation and
amortization  decreased  to  0.3%  for  the nine months ended September 30, 2006
compared  to  0.4%  for  the  nine  months  ended  September  30,  2005.

Operating income.   As a result of the revenue and expenses discussed above, the
Company's  operating  income  increased to $3.3 million compared to $2.7 million
for  the nine months ended September 30, 2005, an increase of $613,000 or 22.7%.
As a percentage of net revenue, operating income increased to 11.0% for the nine
months  ended  September  30,  2006  compared  to 9.6% for the nine months ended
September  30,  2005.

Interest  expense/(income),  net.  For the nine months ended September 30, 2006,
interest expense increased to $119,000 compared to ($41,000) for the nine months
ended  September  30,  2005,  an increase of $160,000. 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  nine months ended September 30, 2006 compared to (0.1)% for the nine months
ended  September  30,  2005.

Net  income.   As  a  result  of  the  above,  the Company's net income was $2.0
million  compared  to $1.7 million for the nine months ended September 30, 2005,
an  increase  of  $211,000  or  12.08%.  Net  income  for  the nine months ended
September  30,  2006  was  net  of  income tax expense of $1.2 million while net
income  for  the  nine  months  ended  September  30, 2005 was net of income tax
expense  of  $991,000.  As  a percentage of net revenue, net income increased to
6.5%  for the nine months ended September 30, 2006 compared to 6.2% for the nine
months  ended  September  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 September 30, 2006,
the  Company  had  a  working  capital  deficit  of  approximately  $440,000.

Net  cash  provided  by  operating activities was approximately $4.3 million and
$2.9  million  for  the  nine  months  ended  September  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 and accrued expenses of
approximately  $360,000,  a  decrease  in  prepaid  expenses and other assets of
approximately  $147,000,  an  increase  in  other  long-term  obligations  of
approximately  $86,000  and an increase in income taxes payable of approximately
$32,000, offset by an increase in accounts receivable of approximately $945,000.
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  and  accrued  expenses of approximately
$75,000,  a  decrease  in  prepaid  expenses  and  other assets of approximately
$345,000  and,  an  increase  in income taxes payable of approximately $180,000,
offset  by  an  increase  in  accounts receivable of approximately $1.3 million.

Net  cash  used  in  investing  activities  was  approximately  $2.9 million and
$882,000  for  the  nine months ended September 30, 2006 and 2005, respectively.
For the nine months ended September 30, 2006, the Company invested approximately
$1.1  million  in  the  purchase  of  additional  property  and  equipment  and
approximately  $1.8 million in the development of de novo Offices.  For the nine
months  ended September 30, 2005, the Company invested approximately $635,000 in
the  purchase  of  additional  property  and  equipment  and  $246,000  in  the
development  of  de  novo  Offices.

Net  cash  used  in financing activities was approximately $1.6 million, for the
nine  months ended September 30, 2006 and $1.8 million for the nine months ended
September  30,  2005.  During the nine months ended September 30, 2006, net cash
used in financing activities was comprised of approximately $1.4 million used in
the  purchase  and  retirement  of  Common Stock, approximately $845,000 for the
payment  of  dividends  and  approximately  $112,000  used  in  the repayment of
long-term  debt,  partially  offset  by approximately $258,000 advanced from the
Company's  Credit Facility, approximately $225,000 in proceeds from the exercise
of  Common  Stock  options  and  $238,000 in tax benefit of Common Stock options
exercised.  During  the  nine  months ended September 30, 2005, net cash used in
financing  activities  was  comprised  of approximately $2.8 million used in the
purchase  and  retirement  of  Common  Stock,  approximately  $124,000  for  the
repayment  of  long-term  debt  and  approximately  $563,000  for the payment of
dividends,  partially  offset  by  approximately  $519,000  in proceeds from the
exercise  of  Common  Stock  options,  $333,000  in  tax benefit of Common Stock
options  exercised,  and  $774,000  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 September 30, 2006, the
Company  had  $3.1  million outstanding and $3.9 million available for borrowing
under  the Credit Facility. This consisted of $1.3 million outstanding under the
Base  Rate option and $1.8 million outstanding under the LIBOR rate option.  The
Credit  Facility requires the Company to maintain certain financial ratios on an
ongoing  basis.  At  September 30, 2006, the Company was in full compliance with
all  of  its  covenants  under  the  Credit  Facility.

The Company's retained earnings as of September 30, 2006 were approximately $5.3
million. The Company expects increased costs over the next 12 to 18 months as it
prepares  to  comply  with  Sarbanes-Oxley  Act  Section  404.

On October 5, 2006, the Company accepted for payment, at a purchase price of
$21.75 per share, 212,396 shares of its Common Stock that were properly tendered
and not withdrawn in the Tender Offer. The 212,396 shares purchased were
comprised of the 175,000 shares the Company offered to purchase and 37,396
shares that were purchased pursuant to the Company's right to purchase up to an
additional 2% of the outstanding shares as of August 31, 2006, without extending
the tender offer in accordance with applicable securities laws. These shares
represented approximately 9.2% of the shares outstanding as of September 30,
2006.

                                       21
<PAGE>

On October 5, 2006, the Company entered into a $4.6 million Term Loan to finance
the Tender Offer. Under the Term Loan, $2.3 million is borrowed at a fixed
interest rate of 7.05% and the remaining $2.3 million is borrowed at a floating
interest rate of Libor plus 1.5%. The principal amount borrowed will be paid
quarterly in 60 equal payments of approximately $230,000 plus interest beginning
December 31, 2006. The term loan expires September 30, 2011.

The  Company's  earnings  before interest, taxes, depreciation, amortization and
non  cash  expense  associated with stock-based compensation ("Adjusted EBITDA")
increased $749,000, or 15.8% to $5.5 million for the nine months ended September
30,  2006  compared  to  $4.7 million for the corresponding nine month period in
2005.  Adjusted EBITDA for the  three months and nine months ended September 30,
2005  includes  an add-back of a one-time cash expense equal to $586,000 related
to  the reimbursement of income taxes for an award of restricted stock. Although
Adjusted  EBITDA  is not a GAAP measure of performance or liquidity, the Company
believes  that  it  may  be  useful  to  an investor in evaluating the Company's
ability  to  meet  future debt service, capital expenditures and working capital
requirements. 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 to net income 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                Nine Months
                                                           Ended September 30,        Ended September 30,
                                                       ---------------------------  -----------------------
                                                           2005           2006         2005         2006
                                                       ------------   ------------  -----------  ----------
<S>                                                    <C>            <C>           <C>          <C>
RECONCILIATION OF ADJUSTED EBITDA:
Net income                                             $    414,390   $    632,804  $1,747,301   $1,958,293
Depreciation and amortization - Offices                     420,998        572,788   1,261,990    1,581,250
Depreciation and amortization - Corporate                    33,595         32,396     102,887       99,038
Amortization of deferred equity compensation expense         81,030         81,030      81,030      243,090
Stock-based compensation expense related to                       -         78,620           -      244,651
SFAS 123 (R)
Interest expense/(income), net                              (13,353)        38,875     (41,220)     118,962
Income tax expense                                          102,315        394,498     990,951    1,232,604
                                                       ------------   ------------  -----------  ----------
Adjusted EBITDA                                           1,038,975      1,831,011   4,142,939    5,477,888
                                                       ------------   ------------  -----------  ----------
Reimbursement of income taxes related
to restricted stock grant                                   585,844              -     585,844            -
                                                       ------------   ------------  -----------  ----------
Adjusted EBITDA before reimbursement of
income taxes related to restricted stock grant         $  1,624,819   $  1,831,011  $4,728,783   $5,477,888
                                                       ============   ============  ==========   ==========
</TABLE>


As  of  September  30,  2006,  the  Company  had the following known contractual
obligations:

<TABLE>
<CAPTION>
                                                                           Payments due by Period
                                                         ------------------------------------------------------------
                                            Total        Less than 1 year     1-3 years   3-5 years  More than 5 years
                                          ----------     ----------------     ---------   ---------  -----------------
<S>                                      <C>               <C>               <C>         <C>             <C>
Long-term debt obligations               $ 3,178,055       $   66,445        $3,111,610  $        -      $     -
Operating lease obligations                8,249,105        2,720,211         3,841,901   1,592,334       94,659
Other long-term liabilities reflected on
  the balance sheet under GAAP               345,060           63,573           169,775     110,163        1,549
                                         -----------       ----------        ----------  ----------      -------
Total                                    $11,772,220       $2,850,229        $7,123,286  $1,702,497      $96,208
                                         ===========       ==========        ==========  ==========      =======
</TABLE>



                                       22
<PAGE>

The  Company from time to time may purchase its Common Stock on the open market.
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  shares  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  nine  months  ended  September 30, 2006, the Company, in 49
separate  transactions,  purchased  88,939  shares of its Common Stock for total
consideration  of  approximately  $1.4  million 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  September 30, 2006, approximately $600,000 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.

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
September  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 September 30, 2006, the Company had $1.3
million  outstanding  with  an interest rate of 8.25% under the Base Rate option
and $1.8 million outstanding with an interest rate of 6.87% 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 $22,000 for the nine months ended September 30, 2006.

ITEM  4.  CONTROLS  AND  PROCEDURES

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 September 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  July  1,  2006  through  September  30,  2006.

                      ISSUER PURCHASES OF EQUITY SECURITIES


<TABLE>
<CAPTION>
                                                                                           Total Number       Approximate Dollar
                                                                                            Of Shares         Value Of Shares
                                                                                           Purchased as        That May Yet Be
                                                       Total Number      Average Price   Part of Publicly      Purchased Under
                                                         Of Shares         Paid per       Announced Plans       the Plans or
               Period                                    Purchased          Share           or Programs           Programs
--------------------------------------------           ------------      -------------   ----------------     ------------------
<S>                                                         <C>             <C>                  <C>             <C>

July 1, 2006 through July 30, 2006                          999             $16.00               999             $599,618
August 1, 2006 through August 31, 2006                        -                  -                 -             $599,618
September 1, 2006 through September 30, 2006                  -                  -                 -             $599,618
                                                            ---             ------               ---
Total                                                       999             $16.00               999

</TABLE>


All  purchases  were  made  on  the  open  market  and were pursuant to publicly
announced  plans  approved  by the Board of Directors. As of September 30, 2006,
there  was  approximately  $599,618  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.


                                       24
<PAGE>
------
ITEM  5.  OTHER  INFORMATION

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
------        -----------------------


3.1  Amended and Restated Articles of Incorporation, incorporated herein by
     reference to Exhibit 3.1 to the Company's Registration Statement of Form
     S-1 (SEC File No. 333-36391), as filed with the Securities and Exchange
     Commission on September 25, 1997.

3.2  Amended and Restated Bylaws, incorporated herein by reference to Exhibit
     3.3 to the Company's Registration Statement on Form S-1 (SEC File No.
     333-36391), as filed with the Securities and Exchange Commission on
     September 25, 1997.

4.1  Reference  is  made  to  Exhibits  3.1  through  3.2.

4.2  Specimen Stock Certificate, incorporated herein by reference to Exhibit 4.2
     to the Company's Registration Statement on Form S-1 (SEC File No.
     333-36391), as filed with the Securities and Exchange Commission on
     September 25,  1997.

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
























                                       26