UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

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

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

                                                         OR

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

         For the transition period from                      to
                                            ----------------    ----------------


                         Commission file number 0-23367


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


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


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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports,  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

Yes      X     No
     --------      ---------

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

               Class                     Shares Outstanding as of August 7, 2001
------------------------------------     ---------------------------------------
    Common Stock, without par value                        1,506,705


<PAGE>




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


PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>


Item 1.   Financial Statements                                                                                 Page
                                                                                                               ----

              Condensed Consolidated Balance Sheets as of December 31, 2000
<S>                 <C> <C>                                                                                    <C>
           And June 30, 2001 (unaudited)                                                                       3

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

         Unaudited Condensed Statement of Shareholders' Equity                                                 5

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

         Unaudited Notes to Condensed Consolidated Financial Statements                                        8

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                          19


PART II - OTHER INFORMATION


Item 1.   Legal Proceedings                                                                                   21

Item 4.    Submission of Matters to a Vote of Security Holders                                                21

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

Signatures                                                                                                    22
</TABLE>



                                       2
<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                      December 31,          June 30,
                                     ASSETS                                               2000                2001
                                                                                                          (Unaudited)

CURRENT ASSETS:
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
    Cash and cash equivalents                                                     $     691,417        $     987,438
    Accounts receivable, net of allowance for doubtful accounts
       of $201,047 and $210,536 at December 31, 2000 and
       June 30, 2001, respectively                                                    3,871,818            3,650,995
    Current portion of notes receivable - related parties                               214,112              201,239
    Deferred income taxes                                                               104,429              104,429
    Income tax receivable                                                                87,000               87,000
    Prepaid expenses and other assets                                                   339,938              620,070
                                                                                   ------------          -----------
              Total current assets                                                    5,308,714            5,651,171

PROPERTY AND EQUIPMENT, net                                                           6,967,914            6,206,768

OTHER NONCURRENT ASSETS:
    Intangible assets, net                                                           13,693,092           14,252,262
    Deferred charges and other assets                                                   179,156              161,287
    Deferred tax asset, net                                                             184,192              184,192
                                                                                   ------------         ------------
              Total assets                                                          $26,333,068          $26,455,680
                                                                                    ===========          ===========

                       LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                          $  2,897,043         $  3,306,143
    Current maturities of long-term debt                                                154,666            6,095,136
                                                                                   ------------         ------------
              Total current liabilities                                               3,051,709            9,401,279

LONG-TERM LIABILITIES:
    Long-term debt, net of current maturities                                         6,681,623              495,834
    Other long-term obligations                                                         128,820              144,556
                                                                                   ------------         ------------
              Total liabilities                                                        9,862,152          10,041,669
                                                                                   -------------        ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Preferred Stock, no par value, 10,000,000 shares
       authorized; none outstanding                                                           -                    -
    Common Stock, no par value, 20,000,000 shares
       authorized; 1,506,705 shares issued and
       outstanding                                                                   16,855,661           16,855,661
    Accumulated deficit                                                                (384,745)            (441,650)
                                                                                   ------------         ------------
              Total shareholders' equity                                             16,470,916           16,414,011
                                                                                   ------------         ------------

              Total liabilities and shareholders' equity                            $26,333,068          $26,455,680
                                                                                    ===========          ===========


</TABLE>





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



                                       3
<PAGE>




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

<TABLE>
<CAPTION>

                                                               Quarters Ended                 Six Months Ended
                                                                   June 30,                        June 30,
                                                              -----------------             --------------------
                                                             2000           2001             2000             2001

------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>             <C>               <C>
NET REVENUE                                             $ 7,810,220     $ 7,518,664     $15,612,791       $15,233,335
DIRECT EXPENSES:
    Clinical salaries and benefits                       2,989,344       3,055,754         6,088,814         6,349,117
    Dental supplies                                        513,051         441,578         1,011,410           913,968
    Laboratory fees                                        714,469         649,184         1,458,064         1,272,583
    Occupancy    823,022                                   828,835       1,614,813         1,642,861
    Advertising and marketing                               70,630          98,636           159,578           181,140
    Depreciation and amortization                          601,417         612,821         1,179,208         1,225,762
    General and administrative                             769,110         791,216         1,539,014         1,568,802
                                                       -----------     -----------       -----------       -----------
                                                         6,481,043       6,478,024        13,050,901        13,154,233
                                                         ---------       ---------         ---------         ---------
Contribution from dental offices                         1,329,177       1,040,640         2,561,890         2,079,102

Corporate Expenses:
    General and administrative                             882,760         720,125         1,775,748         1,693,394
    Depreciation and amortization                           84,670          82,766           166,502           165,252
                                                       -----------     -----------       -----------       -----------

Operating income 361,747                                   237,749         619,640           220,456

Interest expense, net                                     (156,106)       (119,411)         (314,869)         (277,361)
                                                       -----------     -----------       -----------       -----------
Income (loss) before income taxes                          205,641         118,338           304,771           (56,905)
Income tax expense                                         (76,743)              -          (113,718)                -
                                                       -----------     -----------       -----------       -----------

Net income (loss)                                    $     128,898    $    118,338      $    191,053   $       (56,905)
                                                      ============     ===========       ===========    ==============

Net income (loss) per share of Common Stock:
    Basic                                           $          .08    $        .08      $        .12   $          (.04)
                                                       ===========     ===========       ===========     =============
    Diluted                                         $          .08   $         .08      $        .12  $           (.04)
                                                       ===========     ===========       ===========      ============


Weighted average number of shares of Common Stock and dilutive securities:
    Basic                                                1,532,561       1,506,705         1,532,758         1,506,705
                                                         =========       =========         =========         =========
    Diluted                                              1,534,508       1,506,799         1,534,092         1,506,705
                                                         =========       =========         =========         =========



</TABLE>









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



                                       4
<PAGE>





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



<TABLE>
<CAPTION>



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

   Net Loss                                                   -                 -          (56,905)             (56,905)

BALANCES, June 30, 2001                               1,506,705      $ 16,855,661       $ (441,650)        $ 16,414,011
                                                      =========      ============   ===============         ===========
</TABLE>

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



                                       5
<PAGE>



                                                                    Page 1 of 2

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

                                                                                                Six Months Ended
                                                                                                    June 30,
                                                                                            2000                 2001

-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                   <C>                   <C>
    Net income (loss)                                                                $     191,053          $  (56,905)
    Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
          Depreciation and amortization                                                  1,345,710           1,391,014
          Loss on sale of property                                                               -               3,660
          Provision for doubtful accounts                                                   16,736               9,489
              Changes in assets and liabilities, net of effects from
       acquisitions:
          Accounts receivable                                                             (117,666)            211,334
          Prepaid expense, income tax receivable and other assets                               68            (262,263)
          Accounts payable and accrued expenses                                            (27,456)            409,100
          Other long-term obligations                                                       20,475              15,736
                                                                                       -----------         -----------
    Net cash provided by operating activities                                            1,428,920           1,721,165
                                                                                       -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Notes receivable - related parties                                                     (82,045)             12,873
    Capital expenditures                                                                  (422,394)           (327,855)
    Development of new dental offices                                                     (222,273)                  -
    Acquisition of dental offices                                                          (68,993)           (430,843)
                                                                                       -----------         ------------
    Net cash used in investing activities                                                 (795,705)           (745,825)
                                                                                       -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net repayments - line of credit                                                       (386,000)           (582,000)
    Repayment of long-term debt                                                            (90,965)            (97,319)
    Purchase and retirement of Common Stock                                                 (9,825)                  -
                                                                                       -----------         -----------
    Net cash used in financing activities                                                 (486,790)           (679,319)
                                                                                       ------------        -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                  146,425             296,021
CASH AND CASH EQUIVALENTS, beginning of period                                             806,954             691,417
                                                                                       -----------         -----------
CASH AND CASH EQUIVALENTS, end of period                                               $   953,379         $   987,438
                                                                                       ===========         ===========


</TABLE>













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



                                       6
<PAGE>



                                                                  Page 2 of 2

            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                Six Months Ended
                                                                                                     June 30,
<S>                                                                                     <C>                       <C>
                                                                                        2000                      2001



SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:


       Cash paid during the period for interest                                      $       317,295       $    298,929
                                                                                     ===============       ============

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


SUPPLEMENTAL DISCLOSURE OF NONCASH
    INVESTING AND FINANCING ACTIVITIES:

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



</TABLE>



























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



                                       7
<PAGE>







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

(1)    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
       ------------------------------------------------------

The  financial  statements  included  herein  have been  prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with accounting  principles generally accepted
in the United States have been  condensed or omitted  pursuant to such rules and
regulations,  although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading.  A description of
the Company's accounting policies and other financial information is included in
the audited  consolidated  financial statements as filed with the Securities and
Exchange  Commission in the Company's  Form 10-K for the year ended December 31,
2000.

In the opinion of management,  the accompanying unaudited condensed consolidated
financial  statements  contain all  adjustments  necessary to present fairly the
financial  position  of the  Company  as of June  30,  2001 and the  results  of
operations and cash flows for the periods presented. All such adjustments are of
a normal  recurring  nature.  The results of operations  for the quarter and six
months ended June 30, 2001 are not  necessarily  indicative  of the results that
may be achieved for a full fiscal year and cannot be used to indicate  financial
performance for the entire year.



(2)    EARNINGS PER SHARE

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

                                                                       Quarters Ended June 30,
                                                        2000                                     2001
                                                                    Per Share                              Per Share
                                           Income        Shares       Amount       Income       Shares        Amount

Basic EPS:
------------------------------------------------------------------------------------------------------------------------------------
   Net income available to
<S>                                        <C>           <C>         <C>           <C>           <C>         <C>
     shares of Common Stock                $ 128,898     1,532,561   $ .08         $  118,338    1,506,705   $ .08

   Effect of dilutive shares of Common
Stock from stock options
and warrants                                       -         1,947       -               -              94      -

Diluted EPS:
                                           ---------    ----------   -----        -----------    ----------  ----
   Net income available to
      shares of Common Stock               $ 128,898     1,534,508   $ .08         $  118,338    1,506,799   $ .08
                                           ==========    =========   =====         ==========    =========   =====
</TABLE>

The difference in weighted average shares outstanding between basic earnings per
share and diluted earnings per share for the quarters ended June 30, 2000 and
2001 relates to the effect of 1,947 and 94, respectively, of dilutive shares of
Common Stock from stock options and warrants which are included in total shares
for the diluted calculation.


                                       8
<PAGE>





<TABLE>
<CAPTION>


                                                                        Six Months Ended June 30,
                                                            2000                                     2001
                                                                      Per Share                              Per Share
                                             Income        Shares       Amount       (Loss)       Shares        Amount

Basic EPS:
------------------------------------------------------------------------------------------------------------------------------------
   Net income (loss) available to
<S>                                        <C>           <C>         <C>           <C>           <C>        <C>
     shares of Common Stock                $ 191,053     1,532,758   $ .12         $  (56,905)   1,506,705  $ (.04)

   Effect of dilutive shares of Common
Stock from stock options
and warrants                                       -         1,334      -                   -            -      -

Diluted EPS:
                                           ---------    ----------    -----        -----------   ---------   ----
   Net income (loss) available to
      shares of Common Stock               $ 191,053     1,534,092   $ .12         $  (56,905)   1,506,705  $ (.04)
                                           ==========    =========   =====         ==========    =========  ======
</TABLE>

The difference in weighted average shares outstanding between basic earnings per
share and diluted earnings per share for the six month period ended June 30,
2000 relates to the effect of 1,334 of dilutive shares of Common Stock from
stock options and warrants which are included in total shares for the diluted
calculation. All options and warrants to purchase shares of Common Stock were
excluded from the computation of diluted earnings per share for the six month
period ended June 30, 2001 since they were anti-dilutive as a result of the
Company's net loss for the period. The number of options and warrants excluded
from the earnings per share calculation because they are anti-dilutive, using
the treasury stock method were 1,743 for the six month period ended June 30,
2001.

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

Under the Company's  Credit  Facility (as amended on September  29,  2000),  the
Company may borrow up to $10.0 million for working  capital needs,  acquisitions
and capital  expenditures  including  capital  expenditures for de novo Offices.
Advances  bear  interest  at the  lender's  base rate  (prime plus a rate margin
ranging  from .25% to 1.50%  based on the ratio of  consolidated  senior debt to
consolidated  Earnings  Before  Income  Taxes,   Depreciation  and  Amortization
("EBITDA") or at an adjusted London Interbank Offered Rate ("LIBOR") (LIBOR plus
a rate margin  ranging  from 1.50% to 2.75%  based on the ratio of  consolidated
senior debt to consolidated  EBITDA),  at the Company's  option.  The Company is
also obligated to pay an annual facility fee ranging from .25% to .50% (based on
the ratio of  consolidated  senior debt to  consolidated  EBITDA) on the average
unused amount of the line of credit  during the previous full calendar  quarter.
Borrowings  are  limited  to an  availability  formula  based  on the  Company's
adjusted  EBITDA.  As amended,  the loan matures on April 30, 2002.  At June 30,
2001,  the Company had  approximately  $7.8 million  available  and $5.9 million
outstanding under the Credit Facility.  The Credit Facility is secured by a lien
on the Company's accounts receivable and its Management  Agreements.  The Credit
Facility  prohibits  the  payment  of  dividends  and  other   distributions  to
shareholders;  restricts or prohibits the Company from  incurring  indebtedness,
incurring liens, disposing of assets; making investments or making acquisitions,
and  requires  the Company to maintain  certain  financial  ratios on an ongoing
basis. As a result of the Company's Credit Facility  maturing on April 30, 2002,
the entire  amount  outstanding  under the  Company's  Credit  Facility has been
classified as a short-term liability. As a result of this reclassification,  the
Company was not in compliance with the Credit Facility's  current ratio covenant
of at least 1.25 to 1.0 at June 30, 2001. The sole reason for non-compliance was
due to the  classification  of the entire  amount  outstanding  under the Credit
Facility as a short-term  liability.  The Company's  lender waived this covenant
for the quarter  ended June 30, 2001 due to the sole reason for  non-compliance.
At June 30, 2001, the Company was in compliance  with all covenants  required by
the  Credit   Facility.   The  Company  is   currently   evaluating  a  proposed
restructuring of the Credit Facility by its current lender.  Under this proposed
restructuring,  a portion  of the total  amount  outstanding  under the  current
Credit Facility would be converted to a term loan.



                                       9
<PAGE>


(4)    SHAREHOLDERS' EQUITY

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

 (5)   RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

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

(7)      ACQUISITIONS

On April 30, 2001 the Company  acquired  the  remaining  50% interest in Perfect
Teeth/Alice  P.C.  for a total  purchase  price of $869,006.  The  consideration
consisted  of $435,006 in cash and  $434,000 in notes  payable with a term of 60
months and an  interest  rate of 8.0%.  The  Company  recorded  an  increase  to
intangible  assets for the total purchase price of the remaining 50% interest in
this Office.



                                       10
<PAGE>





(8)    SUBSEQUENT EVENTS
       ------------------

On July 31, 2001 the Company consolidated two of its Colorado Springs, Colorado
practices into one Office.


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

Forward-Looking Statements

The statements contained in this Form 10-Q ("Quarterly Report") of Birner Dental
Management Services, Inc. (the "Company") which are not historical in nature are
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform  Act  of  1995.  These  forward-looking   statements  include
statements in this Item 2.,  "Management's  Discussion and Analysis of Financial
Condition  and  Results  of  Operations,"  and  in  Part  II,  Item  1.,  "Legal
Proceedings", regarding intent, belief or current expectations of the Company or
its officers with respect to the development or acquisition of additional dental
practices  ("Offices")  and the successful  integration of such Offices into the
Company's network,  recruitment of additional dentists, funding of the Company's
expansion,  capital  expenditures,  payment or  nonpayment  of  dividends,  cash
outlays for income taxes and outcome of pending legal proceedings.

Such  forward-looking  statements  involve certain risks and uncertainties  that
could cause actual results to differ materially from anticipated results.  These
risks and  uncertainties  include  regulatory  constraints,  changes  in laws or
regulations  concerning the practice of dentistry or dental practice  management
companies,  the  availability  of suitable  new markets and  suitable  locations
within such markets,  changes in the Company's  operating or expansion strategy,
the general  economy of the United States and the specific  markets in which the
Company's  Offices  are located or are  proposed  to be  located,  trends in the
health  care,  dental  care and  managed  care  industries,  as well as the risk
factors set forth in the  "Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations - Risk  Factors"  section of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (as filed
with the Securities  Exchange  Commission on March 29, 2001), the  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations  -Year
2001" of this Quarterly Report, and other factors as may be identified from time
to time in the Company's filings with the Securities and Exchange  Commission or
in the Company's press releases.

General

The following discussion relates to factors,  which have affected the results of
operations  and  financial  condition  of the Company for the  quarters  and six
months  ended  June 30,  2000  and  2001.  This  information  should  be read in
conjunction with the Company's Condensed  Consolidated  Financial Statements and
related Notes thereto included elsewhere in this Quarterly Report.


Overview


The Company was formed in May 1995,  and as of June 30, 2001  managed 55 Offices
in  Colorado,  New Mexico and  Arizona  staffed  by 72 general  dentists  and 10
specialists.   The  Company  has  acquired  42  Offices   (five  of  which  were
consolidated  into existing  Offices) and opened 18 de novo  Offices.  Of the 42
acquired  Offices,  only three (the first three  practices,  which were acquired
from the Company's President, Mark Birner, DDS) were acquired from affiliates of
the  Company.  The  Company  derives  all of its  revenue  from  its  Management
Agreements with professional  corporations  ("P.C.s") which conduct the practice
at each Office.  In addition,  the Company assumes a number of  responsibilities
when it  acquires a new  practice or  develops a de novo  Office,  which are set
forth in a Management Agreement, as described below.



                                       11
<PAGE>





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

                                       1997   1998      1999    2000    2001 (1)
Offices at beginning of the period     18       34        49      54        56
De novo Offices                         1        5         5       2         0
Acquired Offices                       15       10         1       0         0
Consolidation of Offices                0        0        (1)      0        (1)
Offices at end of the period           34       49        54      56        55

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


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

At June 30, 2001,  the  Company's  total assets of  approximately  $26.5 million
included  approximately $14.3 million of identifiable  intangible assets related
to  Management  Agreements.  At that date,  the Company had total  shareholders'
equity of approximately  $16.4 million.  The Company reviews the recorded amount
of  intangible  assets and other  fixed  assets for  impairment  for each Office
whenever events or changes in circumstances  indicate the carrying amount of the
assets may not be recoverable. If this review indicates that the carrying amount
of the assets may not be  recoverable  as determined  based on the  undiscounted
cash flows of each Office, whether acquired or developed,  the carrying value of
the asset is reduced to fair  value.  Among the factors  that the  Company  will
continually  evaluate are  unfavorable  changes in each Office,  relative market
share and local market  competitive  environment,  current period and forecasted
operating results, cash flow levels of Offices and the impact on the net revenue
earned by the  Company,  and the  legal and  regulatory  factors  governing  the
practice of dentistry.


Components of Revenue and Expenses


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



                                       12
<PAGE>





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

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

The Company's Revenue is derived  principally from  fee-for-service  revenue and
revenue  from  capitated  managed  dental  care plans.  Fee-for-service  revenue
consists  of P.C.  revenue  received  from  indemnity  dental  plans,  preferred
provider  plans and direct  payments by patients not covered by any  third-party
payment  arrangement.  Managed  dental care  revenue  consists  of P.C.  revenue
received from capitated managed dental care plans, including capitation payments
and patient  co-payments.  Capitated  managed  dental care contracts are between
dental benefits  organizations and the P.C.s.  Under the Management  Agreements,
the Company  negotiates and administers  these contracts on behalf of the P.C.s.
Under a  capitated  managed  dental care  contract,  the dental  group  practice
provides dental services to the members of the dental benefits  organization and
receives a fixed monthly  capitation  payment for each plan member covered for a
specific schedule of services  regardless of the quantity or cost of services to
the  participating  dental  group  practice  obligated  to  provide  them.  This
arrangement shifts the risk of utilization of these services to the dental group
practice   providing   the  dental   services.   Because  the  Company   assumes
responsibility under the Management  Agreements for all aspects of the operation
of the dental  practices  (other than the practice of dentistry)  and thus bears
all costs of the P.C.s  associated  with the provision of dental services at the
Offices (other than  compensation and benefits of dentists and hygienists),  the
risk of  over-utilization  of dental  services  at the Offices  under  capitated
managed  dental care plans is effectively  shifted to the Company.  In addition,
dental group  practices  participating  in a capitated  managed dental care plan
often receive supplemental payments for more complicated or elective procedures.
In contrast,  under traditional indemnity insurance arrangements,  the insurance
company pays whatever reasonable charges are billed by the dental group practice
for the dental services provided.



                                       13
<PAGE>



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

Results of Operations

The improvement from a loss in the first quarter of 2001 to profitability in the
second  quarter of 2001 is the direct result of cost  reductions  implemented in
May and June of this  year.  These cost  reductions  are  expected  to result in
approximately  $900,000 in annual  savings for the Company and are primarily the
result of personnel  reductions at the corporate level. The full impact of these
cost savings will not be realized until the third quarter of 2001.  During 2001,
the Company has consolidated  two offices with other nearby  facilities and will
continue to evaluate the viability of  consolidating  certain  offices as leases
expire.  These  consolidations  allow  for  more  efficient  utilization  of the
facilities and reduce overall costs and personnel  requirements.  As a result of
the shift in focus from expansion of the Company's business through acquisitions
and the  development  of de novo Offices to the greater  utilization of existing
physical capacity through the recruitment of additional  dentists and staff, the
period-to-period comparisons set forth below may not be representative of future
operating results.

For the three  months ended June 30, 2001,  Revenue  decreased to $10.7  million
from $10.8 million for the three months ended June 30, 2000, a decrease of 1.4%.
Revenue at the 54 Offices in  existence  during both full  periods  decreased to
$10.6  million in 2001 from  $10.8  million in 2000,  a  decrease  of 1.9%.  The
decrese in Revenue at the  Offices in  exhistence  for both full  periods is the
direct result of having fewer dentists in the Company's  network during the 2001
period compared to the 2000 period. The decline in the number of dentists is due
to slow  recruitment  and  normal  attrition.  This  decrease  was  offset by an
increase in Revenue of $50,000  attributable to the Office,  which was opened in
October 2000.

For the six months ended June 30, 2001,  Revenue decreased to $21.6 million from
$21.7  million  for the six months  ended  June 30,  2000,  a decrease  of 0.4%.
Revenue at the 53 Offices in  existence  during both full  periods  decreased to
$21.3  million in 2001 from  $21.6  million in 2000,  a  decrease  of 1.6%.  The
decrese in Revenue at the  Offices in  exhistence  for both full  periods is the
direct result of having fewer dentists in the Company's  network during the 2001
period compared to the 2000 period. The decline in the number of dentists is due
to slow  recruitment  and  normal  attrition.  This  decrease  was  offset by an
increase  in Revenue of $254,000  attributable  to the two  Offices,  which were
opened in 2000.
                                       14
<PAGE>

The following  table sets forth the  percentages  of net revenue  represented by
certain items reflected in the Company's  Condensed  Consolidated  Statements of
Operations.  The  information  contained in the table  represents the historical
results  of the  Company.  The  information  that  follows  should  be  read  in
conjunction with the Company's Condensed  Consolidated  Financial Statements and
related Notes thereto contained elsewhere in this Quarterly Report.
<TABLE>
<CAPTION>

                                                  Quarters Ended June 30,         Six Months Ended June 30,
                                                  ------------------------        -------------------------
                                                    2000            2001            2000              2001
                                                    ----            ----            ----              ----


<S>                                                 <C>            <C>             <C>                <C>
NET REVENUE                                         100.0 %        100.0 %         100.0 %            100.0 %
DIRECT EXPENSES:
   Clinical salaries and benefits                    38.3 %         40.6 %          39.0 %             41.7 %
   Dental supplies                                    6.6 %          5.9 %           6.5 %              6.0 %
   Laboratory fees                                    9.1 %          8.6 %           9.3 %              8.3 %
   Occupancy                                         10.5 %         11.0 %          10.3 %             10.8 %
   Advertising and marketing                          0.9 %          1.3 %           1.0 %              1.2 %
   Depreciation and amortization                      7.7 %          8.2 %           7.6 %              8.1 %
   General and administrative                         9.8 %         10.5 %           9.9 %             10.3 %
                                                    -------       --------         -------           --------
                                                     82.9 %         86.1 %          83.6 %             86.4 %
                                                     ------       --------          ------            -------

Contribution from dental offices                     17.1 %         13.9 %          16.4 %             13.6 %

Corporate Expenses:
   General and administrative                        11.3 %          9.6 %          11.4 %             11.1 %
   Depreciation and amortization                      1.1 %          1.1 %           1.1 %              1.1 %
                                                    -------       --------         -------           --------
Operating income                                      4.7 %          3.2%            3.9 %              1.4 %
Interest expense, net                                (2.0)%         (1.6)%          (2.0)%             (1.8)%
                                                     ------        -------          ------             ------
Income (loss) before income taxes                     2.7%           1.6%            1.9 %             (0.4 )%
Income tax expense                                   (1.0) %        (0.0)%          (0.7)%             (0.0)%
                                                    --------       -------         -------            -------
Net income (loss)                                     1.7%           1.6%            1.2 %             (0.4 )%
                                                    =======       =======          =======            ========

</TABLE>



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

Net revenue.  For the three months ended June 30, 2001 net revenue  decreased to
$7.5 million  compared to $7.8 million for the three months ended June 30, 2000,
a decrease of  approximately  3.7%. Net revenue at the 54 Offices managed by the
Company which were in existence  for both second  quarter  periods  decreased to
$7.5  million for the second  quarter of 2001  compared to $7.8  million for the
second  quarter of 2000, a decrease of  approximately  3.7%.  This  decrease was
primarily  due  to  1)  the  higher  amounts  retained  by  dental  offices  for
compensation  paid by the  professional  corporations to dentists and hygienists
resulting  from the shift in the  Company's  revenue  mix from  managed  care to
fee-for-service  and the  corresponding  higher labor costs associated with this
fee-for-service  business,  and 2) the higher cost of doing  business in a tight
labor market for dentists and hygienests.  This decrease was partially offset by
an increase in net revenue of $23,000 attributable to the Office that was opened
during October of 2000.

Clinical  salaries  and  benefits.  For the three  months  ended  June 30,  2001
clinical  salaries  and  benefits  increased  to $3.1  million  compared to $3.0
million for the three  months  ended June 30,  2000,  an increase of 2.2%.  This
increase was primarily  due to the  increased  number of Offices open during the
2000 period and the  corresponding  addition of non-dental  personnel as well as
the Company's annual compensation  increase,  which took effect on July 1, 2000.
As a percentage  of net  revenue,  clinical  salaries and benefits  increased to
40.6% for the three months  ended June 30, 2001  compared to 38.3% for the three
months ended June 30, 2000.

Dental  supplies.  For the three  months  ended June 30,  2001  dental  supplies
decreased  to $442,000  compared to $513,000 for the three months ended June 30,
2000, a decrease of 13.9%.  This decrease was primarily due to lower  production
during this  period and fewer de novo office  starts  which  require  additional
expenses to  establish a start-up  inventory.  As a  percentage  of net revenue,
dental  supplies  decreased  to 5.9% for the three  months  ended June 30,  2001
compared to 6.6% for the three months ended June 30, 2000.

Laboratory  fees.  For the three  months  ended June 30,  2001  laboratory  fees
decreased  to $649,000  compared to $714,000 for the three months ended June 30,
2000, a decrease of 9.1%.  This  decrease  was  primarily  due to the  Company's
efforts to consolidate the use of dental  laboratories so that improved  pricing
could be  obtained  based  upon  the  Company's  laboratory  case  volume.  As a
percentage  of net  revenue,  laboratory  fees  decreased  to 8.6% for the three
months ended June 30, 2001 compared to 9.1% for the three months June 30, 2000.

                                       15
<PAGE>

Occupancy.  For the three months ended June 30, 2001 occupancy expense increased
to $829,000  compared to $823,000 for the three  months ended June 30, 2000,  an
increase of 0.7%.  This  increase was  primarily  due to  incremental  occupancy
expenditures  related to the  increased  number of Offices  open during the 2000
period in addition to increased  rental  payments  resulting from the renewal of
Office  leases  at  current  market  rates  for  Offices  whose  leases  expired
subsequent to the 2000 period. As a percentage of net revenue, occupancy expense
increased to 11.0% for the three  months  ended June 30, 2001  compared to 10.5%
for the three months ended June 30, 2000.

Advertising and marketing.  For the three months ended June 30, 2001 advertising
and  marketing  increased  to $99,000  compared to $71,000 for the three  months
ended June 30,  2000,  an increase of 39.7%.  As a  percentage  of net  revenue,
advertising and marketing  increased to 1.3% for the three months ended June 30,
2001 compared to 0.9% for the three months ended June 30, 2000.

Depreciation  and  amortization.  For the  three  months  ended  June  30,  2001
depreciation and  amortization,  which consists of depreciation and amortization
expense incurred at the Offices,  increased to $613,000 compared to $601,000 for
the three  months  ended June 30, 2000,  an increase of 1.9%.  This  increase is
related to the increase in the Company's depreciable and amortizable asset base.
The increase in the asset base is directly  related to the  Company's  growth in
terms of number of  Offices,  upgrades  to  existing  Offices  and  addition  of
equipment to older  Offices.  As a percentage of net revenue,  depreciation  and
amortization increased to 8.2% for the three months ended June 30, 2001 compared
to 7.7% for the three months ended June 30, 2000.  The increase in  depreciation
and  amortization  as a  percentage  of net  revenue  is  related  to the higher
depreciable  asset base  associated  with the  Company's de novo Offices and the
addition of equipment to older Offices.

General and administrative. For the three months ended June 30, 2001 general and
administrative,  which is  attributable  to the  Offices,  increased to $791,000
compared to $769,000 for the three  months  ended June 30, 2000,  an increase of
approximately  2.9%. As a percentage of net revenue,  general and administrative
expenses increased to 10.5% for the three months ended June 30, 2001 compared to
9.8% during the three months ended June 30, 2000.


Contribution  from dental offices.  As a result of the above,  contribution from
dental  offices  decreased  to $1.0  million for the three months ended June 30,
2001  compared  to $1.3  million for the three  months  ended June 30,  2000,  a
decrease of 21.7%.  As a  percentage  of net revenue,  contribution  from dental
offices  decreased to 13.9% for the three months ended June 30, 2001 compared to
17.1% for the three months ended June 30, 2000.

Corporate expenses - general and administrative. For the three months ended June
30, 2001 corporate expenses - general and  administrative  decreased to $720,000
compared to $883,000  for the three  months  ended June 30,  2000, a decrease of
18.4%.  This decrease is attributable  to a management  initiative in the second
quarter of 2001 to lower corporate expenses through a reduction in personnel and
other cost cutting measures. As a percentage of net revenue, corporate expense -
general and administrative decreased to 9.6% for the three months ended June 30,
2001 compared to 11.3% during the three months ended June 30, 2000.

Corporate  expenses - depreciation and amortization.  For the three months ended
June 30, 2001 corporate  expenses - depreciation and  amortization  decreased to
$83,000 as compared to $85,000 for the three months  ended June 30,  2000.  As a
percentage of net revenue,  corporate  expenses - depreciation  and amortization
remained  constant at 1.1% for the three months ended June 30, 2001  compared to
the three months ended June 30, 2000.

Operating  income.  As a result of the above,  the  Company  produced  operating
income  of  $238,000  for the three  months  ended  June 30,  2001  compared  to
operating  income of  $362,000  for the three  months  ended  June 30,  2000,  a
decrease of 34.3%.

Interest expense, net. For the three months ended June 30, 2001 interest expense
decreased  to $119,000  compared to $156,000 for the three months ended June 30,
2000, a decrease of 23.5%.  This decrease in interest expense is attributable to
a lower  average  interest  rate as well  as a lower  average  outstanding  debt
balance. As a percentage of net revenue,  interest expense decreased to 1.6% for
the three months ended June 30, 2001 compared to 2.0% for the three months ended
June 30, 2000.

Net income.  As a result of the above, the Company's net income was $118,000 for
the three months ended June 30, 2001  compared to net income of $129,000 for the
three months ended June 30, 2000.

                                       16
<PAGE>

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000:

Net  revenue.  For the six months  ended June 30, 2001 net revenue  decreased to
$15.2 million  compared to $15.6 million for the six months ended June 30, 2000,
a decrease of  approximately  2.4%. Net revenue at the 53 Offices managed by the
Company which were in existence  for both six month  periods  decreased to $15.0
million for the first six months of 2001 compared to $15.5 million for the first
six  months of 2000,  a  decrease  of  approximately  3.3%.  This  decrease  was
primarily  due  to  1)  the  higher  amounts  retained  by  dental  offices  for
compensation  paid by the  professional  corporations to dentists and hygienists
resulting  from the shift in the  Company's  revenue  mix from  managed  care to
fee-for-service  and the  corresponding  higher labor costs associated with this
fee-for-service  business,  and 2) the higher cost of doing  business in a tight
labor market for dentists and hygienists.  This decrease was partially offset by
an increase in net revenue of $141,000 attributable to the two offices that were
opened during 2000.

Clinical salaries and benefits.  For the six months ended June 30, 2001 clinical
salaries and benefits increased to $6.3 million compared to $6.1 million for the
six months ended June 30, 2000, an increase of 4.3%. This increase was primarily
due to the  increased  number of Offices  open  during  the 2000  period and the
corresponding  addition of non-dental  personnel as well as the Company's annual
compensation increase, which took effect on July 1, 2000. As a percentage of net
revenue,  clinical  salaries and benefits  increased to 41.7% for the six months
ended June 30, 2001 compared to 39.0% for the six months ended June 30, 2000.

Dental  supplies.  For the six  months  ended  June  30,  2001  dental  supplies
decreased to $914,000 compared to $1.0 million for the six months ended June 30,
2000, a decrease of 9.6%.  This decrease was  primarily due to lower  production
during this  period and fewer de novo office  starts  which  require  additional
expenses to  establish a start-up  inventory.  As a  percentage  of net revenue,
dental  supplies  decreased  to 6.0% for the six  months  ended  June  30,  2001
compared to 6.5% for the six months ended June 30, 2000.


Laboratory  fees.  For the six  months  ended  June  30,  2001  laboratory  fees
decreased to $1.3 million compared to $1.5 million for the six months ended June
30, 2000, a decrease of 12.7%.  This decrease was primarily due to the Company's
efforts to consolidate the use of dental  laboratories so that improved  pricing
could be  obtained  based  upon  the  Company's  laboratory  case  volume.  As a
percentage of net revenue,  laboratory fees decreased to 8.3% for the six months
ended June 30, 2001 compared to 9.3% for the six months June 30, 2000.

Occupancy.  For the six months ended June 30, 2001  occupancy  expense  remained
constant at $1.6  million.  As a percentage  of net revenue,  occupancy  expense
increased to 10.8% for the six months ended June 30, 2001  compared to 10.3% for
the six months ended June 30, 2000.

Advertising  and marketing.  For the six months ended June 30, 2001  advertising
and  marketing  increased  to $181,000  compared to $160,000  for the six months
ended June 30,  2000,  an increase of 13.5%.  As a  percentage  of net  revenue,
advertising  and  marketing  increased to 1.2% for the six months ended June 30,
2001 compared to 1.0% for the six months ended June 30, 2000.

Depreciation  and  amortization.   For  the  six  months  ended  June  30,  2001
depreciation and  amortization,  which consists of depreciation and amortization
expense incurred at the Offices,  remained  constant at $1.2 million compared to
the six months ended June 30, 2000. As a percentage of net revenue, depreciation
and  amortization  increased  to 8.1% for the six  months  ended  June 30,  2001
compared to 7.6% for the six months ended June 30, 2000.

General and  administrative.  For the six months ended June 30, 2001 general and
administrative,  which is attributable to the Offices, increased to $1.6 million
compared to $1.5 million for the six months ended June 30, 2000,  an increase of
1.9%.  As a  percentage  of net  revenue,  general and  administrative  expenses
increased  to 10.3% for the six months  ended  June 30,  2001  compared  to 9.9%
during the six months ended June 30, 2000.

Contribution  from dental offices.  As a result of the above,  contribution from
dental offices  decreased to $2.1 million for the six months ended June 30, 2001
compared to $2.6  million for the six months  ended June 30, 2000, a decrease of
18.8%.  As a  percentage  of  net  revenue,  contribution  from  dental  offices
decreased to 13.6% for the six months ended June 30, 2001  compared to 16.4% for
the six months ended June 30, 2001

                                       17
<PAGE>

Corporate expenses - general and  administrative.  For the six months ended June
30, 2001  corporate  expenses - general  and  administrative  decreased  to $1.7
million  compared to $1.8  million  for the six months  ended June 30,  2000,  a
decrease of 4.6%. This decrease is  attributable  to a management  initiative in
the second quarter of 2001 to lower  corporate  expenses  through a reduction in
personnel  and other cost  cutting  measures.  As a  percentage  of net revenue,
corporate  expense - general and  administrative  decreased to 11.1% for the six
months  ended June 30, 2001  compared to 11.4%  during the six months ended June
30, 2000.

Corporate  expenses - depreciation  and  amortization.  For the six months ended
June 30, 2001 corporate  expenses - depreciation and  amortization  decreased to
165,000  compared  to  $167,000  for the six months  ended June 30,  2000.  As a
percentage of net revenue,  corporate  expenses - depreciation  and amortization
remained constant at 1.1% for the six months ended June 30, 2001 compared to the
six months ended June 30, 2000.

Operating  income.  As a result of the above,  the  Company  produced  operating
income of $220,000 for the six months ended June 30, 2001  compared to operating
income of $620,000 for the six months ended June 30, 2000, a decrease of 64.4%.

Interest expense, net. For the six months ended June 30, 2001 interest expense
decreased to $277,000 compared to $315,000 for the six months ended June 30,
2000, a decrease of 11.9%. This decrease in interest expense is attributable to
a lower average interest rate as well as a lower average outstanding debt
balance. As a percentage of net revenue, interest expense decreased to 1.8% for
the six months ended June 30, 2001 compared to 2.0% for the six months ended
June 30, 2000.

Net income (loss).  As a result of the above, the Company's  incurred a net loss
of $57,000  for the six months  ended June 30,  2001  compared  to net income of
$191,000 for the six months ended June 30, 2000.

Liquidity and Capital Resources

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


Net cash provided by operating  activities  was  approximately  $1.4 million and
$1.7  million  for the six months  ended June 30,  2000 and 2001,  respectively.
During the 2001 period,  excluding  the net loss 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
$409,000,  and a decrease  in accounts  receivable  of  approximately  $211,000,
partially  offset by an increase in prepaid  expense,  income tax receivable and
other  assets  of  approximately   $262,000.  Net  cash  provided  by  operating
activities  during the 2000 period,  excluding  net income and after adding back
non-cash items, decreased primarily due to an increase in accounts receivable of
approximately $118,000.

Net cash used in investing  activities was  approximately  $796,000 and $746,000
for the six  months  ended  June 30,  2000 and 2001,  respectively.  For the six
months ended June 30, 2001,  approximately $431,000 was invested in the purchase
of the remaining 50% interest in an existing Office and additional  property and
equipment purchases totaling approximately $328,000. During the six month period
ended June 30, 2000,  approximately $222,000 was utilized for the development of
de novo Offices, approximately $69,000 was utilized to acquire the remaining 50%
interest in an existing  dental Office,  approximately  $422,000 was invested in
the purchase of additional property and equipment and approximately  $82,000 was
related to the issuance of notes receivable from related parties.

Net cash used in financing  activities  was  approximately  $487,000 for the six
months ended June 30, 2000 and  approximately  $679,000 for the six months ended
June 30,  2001.  During the six months  ended  June 30,  2001,  net cash used in
financing activities was comprised of approximately  $582,000 used to reduce the
amount  outstanding  on the  Company's  bank  line of credit  and  approximately
$97,000 for the  repayment of long-term  debt.  During the six months ended June
30, 2000, net cash used in financing  activities was comprised of  approximately
$386,000 used to reduce the amount of  outstanding on the Company's bank line of
and approximately $91,000 for the repayment of long-term debt.

                                       18
<PAGE>

Under the Company's  Credit  Facility (as amended on September  29,  2000),  the
Company may borrow up to $10.0 million for working  capital needs,  acquisitions
and capital  expenditures  including  capital  expenditures for de novo Offices.
Advances  bear  interest  at the  lender's  base rate  (prime plus a rate margin
ranging  from .25% to 1.50%  based on the ratio of  consolidated  senior debt to
consolidated  Earnings  Before  Income  Taxes,   Depreciation  and  Amortization
("EBITDA") or at an adjusted London Interbank Offered Rate ("LIBOR") (LIBOR plus
a rate margin  ranging  from 1.50% to 2.75%  based on the ratio of  consolidated
senior debt to consolidated  EBITDA),  at the Company's  option.  The Company is
also obligated to pay an annual facility fee ranging from .25% to .50% (based on
the ratio of  consolidated  senior debt to  consolidated  EBITDA) on the average
unused amount of the line of credit  during the previous full calendar  quarter.
Borrowings  are  limited  to an  availability  formula  based  on the  Company's
adjusted  EBITDA.  As amended,  the loan matures on April 30, 2002.  At June 30,
2001,  the Company had  approximately  $7.8 million  available  and $5.9 million
outstanding under the Credit Facility.  The Credit Facility is secured by a lien
on the Company's accounts receivable and its Management  Agreements.  The Credit
Facility  prohibits  the  payment  of  dividends  and  other   distributions  to
shareholders;  restricts or prohibits the Company from  incurring  indebtedness,
incurring liens, disposing of assets; making investments or making acquisitions,
and  requires  the Company to maintain  certain  financial  ratios on an ongoing
basis. As a result of the Company's Credit Facility  maturing on April 30, 2002,
the entire  amount  outstanding  under the  Company's  Credit  Facility has been
classified a short-term  liability.  As a result of this  reclassification,  the
Company was not in compliance with the Credit Facility's  current ratio covenant
of at least 1.25 to 1.0 at June 30, 2001. The sole reason for non-compliance was
due to the  classification  of the entire  amount  outstanding  under the Credit
Facility as a short-term  liability.  The Company's  lender waived this covenant
for the quarter  ended June 30, 2001 due to the sole reason for  non-compliance.
At June 30, 2001, the Company was in compliance  with all covenants  required by
the  Credit   Facility.   The  Company  is   currently   evaluating  a  proposed
restructuring of the Credit Facility by its current lender.  Under this proposed
restructuring,  a portion  of the total  amount  outstanding  under the  current
Credit Facility would be converted to a term loan.


At June 30, 2001,  the Company had  outstanding  indebtedness  of  approximately
$691,000  represented  by notes  issued  in  connection  with  various  practice
acquisitions, all of which bear interest at rates varying from 8.0% to 9.0%. The
Company's material commitments for capital expenditures total approximately $1.1
million  which  includes the  acquisition  of the  remaining 50% interest in two
existing  Offices  expected to occur  during the fourth  quarter of 2001 and the
second quarter of 2002 and the development of software to administer the Perfect
Teeth Dental Plan. The Company anticipates that these capital  expenditures will
be provided from cash on hand, cash generated by operations, or borrowings under
the Company's Credit Facility.  The Company's accumulated deficit as of June 30,
2001 was approximately $442,000 and the Company had a working capital deficit on
that  date  of   approximately   $3.8  million  which  was  the  result  of  the
classification  of  the  amount  outstanding  under  the  Credit  Facility  as a
short-term  liability.  When  excluding the effect of this  classification,  the
Company's working capital was $2.1 million.


The Company  believes that cash generated from  operations and borrowings  under
its current Credit Facility or under a new or renewed credit  facility,  will be
sufficient to fund its anticipated working capital needs,  capital  expenditures
and future  acquisitions  for at least the next 12 months.  The Company believes
that the Credit  Facility  will be renewed or replaced  prior to  expiration  on
April 30, 2002 on terms acceptable to the Company and is currently considering a
proposal  from its current  lender to renew the  existing  Credit  Facility.  In
addition,  in order to meet its long-term  liquidity needs the Company may issue
additional  equity and debt securities,  subject to market and other conditions.
However,  there can be no  assurance  that  such  additional  financing  will be
available on terms  acceptable  to the  Company.  The failure to raise the funds
necessary  to  finance  its  future  cash  requirements  or to renew its  Credit
Facility could adversely affect the Company's ability to pursue its strategy and
could negatively affect its operations in future periods.

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


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the financial  position,
results of  operations  or cash flows of the Company  due to adverse  changes in
financial  and  commodity  market  prices and rates.  The  Company is exposed to
market risk in the area of changes in United States interest rates. Historically
and as of June 30,  2001,  the Company has not used  derivative  instruments  or
engaged in hedging activities.

                                       19
<PAGE>

Interest  Rate Risk.  The interest  payable on the Company's  line-of-credit  is
variable  based upon the prime  rate or LIBOR (at the  Company's  option),  and,
therefore,  affected by changes in market interest rates. At June 30, 2001, $5.9
million was outstanding  under the LIBOR option with an interest rate of 6.3125%
(LIBOR plus  2.25%) and there was no  outstanding  balance  under the prime rate
option.  As a result,  the Company  does not believe  that  reasonably  possible
near-term  changes in interest rates will result in a material  effect on future
earnings,  fair  values  or cash  flows of the  Company.  Based on  calculations
performed by the Company,  a 1.0% increase in the Company's  interest rate would
result in  additional  interest  expense of  approximately  $32,000  for the six
months ended June 30, 2001.


                                       20
<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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)      The annual meeting of shareholders was held on June 7, 2001.

(b)      The  following  directors  were  elected  at the  meeting  to  serve  a
         three-year term as Class I directors:

                              For               Withheld Authority   Abstain
     James M. Ciccarelli      1,249,705             9,404              0
     Paul E. Valuck, D.D.S.   1,249,705             9,404              0

Continuing Directors

The following directors are continuing to serve their three-year term as Class
II directors which will expire at the Company's annual meeting in 2002:

     Dennis N. Genty
     Steven M. Bathgate

The following directors are continuing to serve their three-year terms as Class
III directors which will expire at the Company's annual meeting in 2003:

     Frederic W.J. Birner
     Mark A. Birner, D.D.S.

(c)      The only other  matter  voted upon at the  meeting  and results of that
         vote are as follows:

         The ratification of appointment of Arthur Andersen LLP as the Company's
         independent public accountants for the fiscal year 2001.

         For                                Against           Abstain
         ---                                -------           -------
         1,247,201                            211             11,697

     The matter mentioned above is described in detail in the Company's
     definitive proxy statement dated April 26, 2001 for the Annual Meeting of
     Shareholders held on June 7, 2001.


     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K


(a)      ExhibitS           None


(b)   Reports on Form 8-K   None





                                       21
<PAGE>





                                   SIGNATURES

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




                       BIRNER DENTAL MANAGEMENT SERVICES, INC.
                       a Colorado corporation


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


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




                                       22