UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

         For the fiscal year ended       December 31, 2002
                                        --------------------------------------

                                                         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 or       (IRS Employer
                       organization)                      Identification No.)

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

                  Registrant's telephone number: (303) 691-0680

Securities registered pursuant to Section 12(b) of the Act:

              Title of each class     Name of each exchange on which registered
-----------------------------------   --------------------------------------
                     None.                                 None.


Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, without par value
------------------------------------------------------------------------------
                                (Title of Class)

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ___ ]


<PAGE>


The  aggregate   market  value  of  the   Registrant's   voting  stock  held  by
non-affiliates of the Registrant computed by reference to the price at which the
common equity was as of June 28, 2002, the last business day of the Registrant's
most recent  completed  second fiscal quarter was $7,370,919.  This  calculation
assumes that  certain  parties may be  affiliates  of the  Registrant  and that,
therefore,  909,990  shares of voting  stock are held by  non-affiliates.  As of
March 24, 2003, the Registrant had 1,354,137 shares of its common stock, without
par value ("Common Stock") outstanding.

On February 26, 2001 the Registrant  affected a reverse stock split in which the
Registrant  issued  one share of Common  Stock for every  four  shares of Common
Stock then outstanding.  Therefore,  all shares,  options,  share prices, option
prices and earnings per share calculations for all periods in this document have
been restated to reflect the effect of the reverse stock split.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  information  required by Part III of this Report (Items 10,11,12 and 13) is
incorporated  by reference  from the  Registrant's  Proxy  Statement to be filed
pursuant to Regulation  14A with respect to the annual  meeting of  shareholders
scheduled to be held on or about June 3, 2003.

                           FORWARD-LOOKING STATEMENTS

Statements  contained in this Annual  Report on Form 10-K  ("Annual  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 Items 1. and 2.,  "Business and  Properties,"
Item 5.,  "Market for the  Registrant's  Common  Equity and Related  Stockholder
Matters"  and  Item 7.,  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of  Operations,"  regarding the intent,  belief or current
expectations  of the Company or its officers with respect to the  development or
acquisition of additional  dental  practices and the  successful  integration of
such practices 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.

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,
failure  to  consummate  or  successfully  integrate  proposed  developments  or
acquisitions  of  dental  practices,  the  ability  of  the  Company  to  manage
effectively an increasing number of dental practices, the general economy of the
United States and the specific  markets in which the Company's  dental practices
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
7. "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations - Risk Factors," 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.




                                       2
<PAGE>



                     Birner Dental Management Services, Inc.
                                    Form 10-K
                                Table of Contents
<TABLE>
<CAPTION>

  Part     Item(s)                                                                                               Page


<S>       <C>                                                                                                      <C>
I.        1. and 2.   Business and Properties                                                                       4
                          General                                                                                   4
                          Dental Services Industry                                                                  4
                          Operations                                                                                5
                          Existing Offices                                                                          6
                          Patient Services                                                                          7
                          Dental Practice Management Model                                                          7
                          Payor Mix                                                                                 9
                          The Company Dentist Philosophy                                                            9
                          Expansion Program                                                                        10
                          Affiliation Model                                                                        11
                          Competition                                                                              12
                          Government Regulation                                                                    12
                          Insurance                                                                                14
                          Trademark                                                                                14
                          Facilities and Employees                                                                 15
          3.          Legal Proceedings                                                                            15
          4.          Submission of Matters to a Vote of Security Holders                                          15
II.       5.          Market for Registrant's Common Equity and Related Stockholder Matters
                                                                                                                   16
                        Equity Compensation Plan Information                                                       17
          6.          Selected Financial Data                                                                      18
          7.          Management's Discussion and Analysis of Financial Condition and Results of
                      Operations                                                                                   19
          7A.         Quantitative and Qualitative Disclosures About Market Risk                                   34
          8.          Financial Statements and Supplementary Data                                                  35
          9.          Changes in and Disagreements with Accountants on Accounting and Financial
                      Disclosure                                                                                   58
III.      10.         Directors and Executive Officers of the Registrant                                           59
          11.         Executive Compensation                                                                       59
          12.         Security Ownership of Certain Beneficial Owners and Management                               59
          13.         Certain Relationships and Related Transactions                                               59
          14.         Controls and Procedures
IV.       15.         Exhibits, Financial Statement Schedules, and Reports on Form 8-K                             60
</TABLE>




                                       3
<PAGE>



                                     PART I

ITEMS 1. AND 2.   BUSINESS AND PROPERTIES.


General

The Company acquires, develops, and manages geographically dense dental practice
networks  in select  markets,  currently  including  Colorado,  New  Mexico  and
Arizona.  With its 40 dental practices ("Offices") in Colorado and eight Offices
in New Mexico,  the Company believes,  based on industry knowledge and contacts,
that it is the largest  provider of dental  management  services in Colorado and
New Mexico. The Company provides a solution to the needs of dentists,  patients,
and third-party payors by allowing the Company's  affiliated dentists to provide
high-quality,  efficient  dental  care  in  patient-friendly,   family  practice
settings.  Dentists  practicing at the various locations  provide  comprehensive
general dentistry services, and the Company increasingly offers specialty dental
services  through  affiliated  specialists.  The  Company  currently  manages 54
Offices,  of which 37 were acquired and 17 were developed  internally  ("de novo
Offices").

Dental Services Industry

According  to the Centers for  Medicare and  Medicaid  Services  ("CMS")  dental
expenditures  in the U.S.  increased from $31.5 billion in 1990 to $65.6 billion
in 2001.  CMS also projects that dental  expenditures  will reach  approximately
$118.3 billion by 2012,  representing  an increase of  approximately  80.3% over
2001 dental  expenditures.  The Company believes this growth is driven by (i) an
increase in the number of people covered by third-party payment arrangements and
the  resulting  increase  in  their  utilization  of  dental  services,  (ii) an
increasing  awareness of the benefits of dental treatments,  (iii) the retention
of teeth into later stages of life, (iv) the general aging of the population, as
older  patients  require  more  extensive  dental  services,  and (v) a  growing
awareness of and demand for preventative and cosmetic services.

Traditionally,  most dental  patients have paid for dental  services  themselves
rather  than  through  third-party   payment   arrangements  such  as  indemnity
insurance,  preferred  provider  plans or managed  dental plans.  More recently,
factors such as increased  consumer demand for dental services and the desire of
employers to provide  enhanced  benefits for their employees have resulted in an
increase in third-party payment arrangements for dental services. Current market
trends, including the rise of third-party payment arrangements, have contributed
to the increased  consolidation of practices in the dental services industry and
to the formation of dental practice management  companies.  The Company believes
that the percentage of people covered by third-party  payment  arrangements will
continue to increase due in part to the popularity of such arrangements.


                                       4
<PAGE>



Operations

Location of Offices











[MAP INSERTED HERE]




                                       5
<PAGE>



Existing Offices

As of the date of this Annual Report,  the Company managed a total of 54 Offices
in Colorado,  New Mexico,  and Arizona.  The  following  table  identifies  each
Office,  the  location of each  Office,  the date each Office was acquired or de
novo  developed,  and any specialty  dental  services  offered at that Office in
addition to comprehensive general dental services:
<TABLE>
<CAPTION>

                                                                                   Date Acquired/         Specialty
            Office Name                             Office Address                  Developed*            Services
            -----------                             --------------                 --------------         ---------

<S>                                        <C>                                      <C>                   <C>
 Colorado
   Boulder
    Perfect Teeth/Boulder                  4155 Darley, #F                          September 1997
    Perfect Teeth/Folsom                   1840 Folsom, Suite 302                   April 1998
   Castle Rock
    Perfect Teeth/Castle Rock              390 South Wilcox, Unit D                 October 1995
   Colorado Springs
    Perfect Teeth/Cheyenne Meadows         827 Cheyenne Meadows Road                June 1998*
    Perfect Teeth/Garden of the Gods       4329 Centennial Boulevard                July 1996*
    Perfect Teeth/South 8th Street         1050 South Eighth Street                 August 1998            1,2
    Perfect Teeth/Uintah Gardens           1768 West Uintah Street                  May 1996*
    Perfect Teeth/Union & Academy          5140 North Union                         September 1997
    Perfect Teeth/Woodman Valley           6914 North Academy Boulevard, Unit 1B    April 1998*
    Perfect Teeth/Powers                   5929 Constitution Avenue                 March 1999*            1,2
   Denver
    Perfect Teeth/64th and Ward            12650 West 64th Avenue, Unit J           January 1996*
    Perfect Teeth/88th and Wadsworth       8749 Wadsworth Boulevard                 September 1997        1,2,4
    Perfect Teeth/Arapahoe                 7600 East Arapahoe Road, #311            October 1995            1
    Perfect Teeth/Bowmar                   5151 South Federal Boulevard, #G-2       October 1995
    Perfect Teeth/Buckley and Quincy       4321 South Buckley Road                  September 1997         1,2
    Perfect Teeth/Central Denver           1633 Fillmore Street, Suite 200          May 1996
    Perfect Teeth/East 104th Avenue        2200 East 104th Avenue, #112             May 1996                1
    Perfect Teeth/East Cornell             12200 East Cornell Avenue, # E           August 1996
    Perfect Teeth/East Iliff               16723 East Iliff Avenue                  May 1997
    Glendale Dental Group                  4521 East Virginia Avenue                February 1999
    Perfect Teeth/Golden                   17211 South Golden Road, #100            June 1999*
    Perfect Teeth/Green Mountain           13035 West Alameda Parkway               December 1998*
    Perfect Teeth/Highlands Ranch          9227 Lincoln Avenue, Suite 100           July 1999*              1
    Perfect Teeth/Ken Caryl                7660 South Pierce                        September 1997
    Perfect Teeth/Leetsdale                7150 Leetsdale Drive, #110A              March 1996*
    Mississippi Dental Group               11175 East Mississippi Avenue, #110      September 1998
    Perfect Teeth/Monaco and Evans         2121 South Oneida, Suite 321             November 1995        1,2,3,4
    Perfect Teeth/North Sheridan           11550 North Sheridan, #101               May 1996
    Perfect Teeth/Parker                   11005 South Parker Road                  December 1998*          1
    Perfect Teeth/Sheridan and 64th Avenue 5169 West 64th Avenue                    May 1996
    Perfect Teeth/South Holly Street       8211 South Holly Street                  September 1997          2
    Perfect Teeth/Speer                    700 East Speer Boulevard                 February 1997
    Perfect Teeth/West 38th Avenue         7760 West 38th Avenue, #200              May 1996                1
    Perfect Teeth/West 120th Avenue        6650 West 120th Avenue, A-6              September 1997
    Perfect Teeth/West Jewell              8064 West Jewell                         April 1998
    Perfect Teeth/Yale                     7515 West Yale Avenue, Suite A           April 1997             1,3
   Fort Collins
    Perfect Teeth/South Fort Collins       1355 Riverside Avenue, Unit D            May 1996
   Greeley
    Perfect Teeth/Greeley                  902 14th Street                          September 1997
   Longmont
    Perfect Teeth/Longmont                 641 Ken Pratt Boulevard                  September 1997
   Loveland
    Perfect Teeth/ Loveland                3400 West Eisenhower Boulevard           September 1996




                                       6
<PAGE>

                                                                                   Date Acquired/         Specialty
            Office Name                             Office Address                  Developed*            Services
            -----------                             --------------                 --------------         ---------

 New Mexico
   Albuquerque
    Perfect Teeth/Alice                    5909 Alice NE                            February 1998
    Perfect Teeth/Candelaria               6101 Candelaria NE                       April 1997
    Perfect Teeth/Cubero Drive             5900 Cubero Drive NE, Suite E            September 1998
    Perfect Teeth/Four Hills               13140-E Central Avenue, SE               August 1997*            3
    Perfect Teeth/Fourth Street            5721 Fourth Street NW                    August 1997
    Perfect Teeth/Wyoming and Candelaria   8501 Candelaria NE, Suite D3             August 1997
    Rio Rancho
    Perfect Teeth/Rio Rancho               4500 Arrowhead Ridge Drive               July 1999*              3
   Santa Fe
    Perfect Teeth/Plaza Del Sol            720 St. Michael Drive, Suite O           May 1998*               3
 Arizona
   Goodyear
    Perfect Teeth/Palm Valley              14175 West Indian School Bypass Road,#B6 March 2000*
   Mesa
    Perfect Teeth/Power & McDowell         2733 North Power Road, Suite 101         October 2000*
   Phoenix
    Perfect Teeth/Thomas and 15th Avenue   3614 North 15th Avenue, Suite B          September 1998
   Scottsdale
    Perfect Teeth/Bell Road & 64th Street  6345 East Bell Road, Suite 1             July 1998             1,2,3
    Perfect Teeth/Shea & 90th Street       9393 North 90th Street, Suite 207        September 1998
   Tempe
    Perfect Teeth/Elliot and McClintock    7650 S. McClintock Dr., #110             June 1999*
</TABLE>

(1)      Orthodontics
(2)      Periodontics
(3)      Oral Surgery
(4)      Pedodontics

The Offices  typically  are located  either in  shopping  centers,  professional
office buildings or stand-alone  buildings.  The majority of the de novo Offices
are located in supermarket-anchored shopping centers. The Offices have from four
to 16  treatment  rooms and range in size from 1,200 square feet to 7,300 square
feet.

Patient Services

The  Company  seeks  to  develop  long-term   relationships  with  patients.   A
comprehensive  exam and evaluation is conducted  during a patient's first visit.
Through patient education,  the patients develop an awareness of the benefits of
a  comprehensive,  long-term dental care plan. The Company believes that it will
retain  these  patients  longer  and  that  these  patients  will  have a higher
utilization of the Company's dental services including specialty,  elective, and
cosmetic services.

Dentists  practicing  at the Offices  provide  comprehensive  general  dentistry
services,  including crowns and bridges,  fillings  (including  state-of-the-art
gold, porcelain and composite  inlays/onlays),  and aesthetic procedures such as
porcelain veneers and bleaching.  In addition,  hygienists provide cleanings and
periodontal  services  including root planing and scaling.  If appropriate,  the
patient is offered specialty dental services, such as orthodontics, oral surgery
and periodontics,  which are available at certain of the Company's  Offices,  as
indicated  on the  table  above.  These  services  are  provided  by  affiliated
specialists  who  rotate  through  certain  offices  in the  Company's  existing
markets.  The addition of specialty services is a key component of the Company's
strategy,  as it enables the Company to capture  revenue from  typically  higher
margin services that would otherwise be referred to non-affiliated providers. In
addition, by offering a broad range of dental services within a single practice,
the  Company is able to  distinguish  itself  from its  competitors  and realize
operating  efficiencies  and economies of scale through  higher  utilization  of
professionals and facilities.

Dental Practice Management Model

The Company has developed a dental practice management model designed to achieve
its  goal of  providing  personalized,  high-quality  dental  care in a  patient
friendly setting similar to that found in a traditional  private  practice.  The
Company's dental practice management model consists of the following components:



                                       7
<PAGE>





Recruiting of Dentists.  The Company seeks  dentists with  excellent  skills and
experience,  who are  sensitive to patient  needs,  interested  in  establishing
long-term  patient  relationships  and are motivated by financial  incentives to
enhance Office  operating  performance.  The Company believes that practicing in
its  network  of  Offices  offers  both  recently  graduated  dentists  and more
experienced dentists advantages over a solo or smaller group practice, including
relief  from the burden of  administrative  responsibilities  and the  resulting
ability to focus almost  exclusively  on  practicing  dentistry.  Advantages  to
dentists affiliated with the Company also include a compensation  structure that
rewards productivity, employee benefits such as health insurance, a 401(k) plan,
continuing  education,  payment of professional  membership fees and malpractice
insurance.  The  Company's  effort to recruit  managing  dentists  is  primarily
focused on dentists with three or more years of practice experience. The Company
typically recruits associate dentists graduating from residency programs. It has
been the Company's  experience,  that many dentists in the early stages of their
careers  have  incurred  substantial  student  loans.  As a  result,  they  face
significant financial constraints in starting their own practices or buying into
existing practices, especially in view of the capital-intensive nature of modern
dentistry.

The Company advertises for the dentists it seeks in national and regional dental
journals,  local market  newspapers,  professional  conferences  and directly at
dental  schools with strong  residency  programs.  In addition,  the Company has
found that its existing  affiliated  dentists provide a good referral source for
recruiting future dentists.

Training  of  Non-Dental  Employees.  The Company  has  developed  a  formalized
training program for non-dental  employees,  which is conducted by the Company's
staff. This program includes training in patient interaction, scheduling, use of
the computer system,  office procedures and protocols,  and third-party  payment
arrangements.  Additionally,  the Company  encourages  its  employees  to attend
continuing  education  seminars  as a  supplement  to the  Company's  formalized
training program. In addition,  Company regional directors also meet weekly with
the Company's senior management and administrative staff to review pertinent and
timely topics and generate ideas that can be shared with all Offices. Management
believes that its training program and the on-going meetings with employees have
contributed to an improvement in the operations at its Offices.

Staffing Model. The Company's staffing model attempts to maximize  profitability
in the Offices by adjusting  personnel  according to an Office's  revenue level.
Staffing at mature Offices can vary based on the number of treatment  rooms, but
generally includes one to three dentists, two to four dental assistants,  one to
three hygienists,  one to three hygiene  assistants and two to five front office
personnel.  Staffing at de novo  Offices  typically  consists  initially  of one
dentist,  one dental assistant and one front office person.  As the patient base
builds at an  Office,  additional  staff is added to  accommodate  the growth as
provided in the staffing model developed by the Company.  The Company  currently
has a staff of five regional directors in Colorado and one regional director for
New Mexico and Arizona.  These regional directors,  who are each responsible for
four to 14 Offices and the specialty practice,  oversee operations,  development
of non-dental  employees,  recruiting and work to implement the Company's dental
practice management model to maximize revenues and profitability.

Management  Information  Systems.  All of the Offices  have the same  management
information system, which allows the Company to receive uniform data that can be
analyzed  easily in order to measure and improve  operating  performance  in the
Offices. As part of its acquisition  integration  process,  the Company converts
acquired  Offices to its management  information  system as soon as practicable.
The Company's current system enables it to maintain on-line contact with each of
its Offices and allows the Company to monitor the Offices by obtaining real-time
data relating to patient and insurance information, treatment plans, scheduling,
revenues  and  collections.  The  Company  provides  each  Office  with  monthly
operating and financial data, which is analyzed and used to improve the Office's
performance.

Advertising and Marketing.  The Company seeks to increase  patient volume at its
Offices from time to time through television, radio, print advertising and other
marketing  techniques.  The Company's advertising efforts are primarily aimed at
increasing its  fee-for-service  business and emphasizes the  high-quality  care
provided,  as well as the timely,  individualized  attention  received  from the
Company's affiliated dentists.

Quality Assurance.  The Company has designed and implemented a quality assurance
program for dental  personnel,  including a background  check.  Each  affiliated
dentist is a graduate of an accredited dental program,  and most State licensing
authorities  require  dentists to undergo  annual  training.  The  dentists  and
hygienists  practicing  at the  Offices  obtain  a  portion  of  their  required
continuing education through the Company's internal training programs.


                                       8
<PAGE>




Purchasing / Vendor Relationships.  The Company has negotiated arrangements with
a number of its more significant vendors, including dental laboratory and supply
providers,  to reduce per unit  costs.  By  aggregating  supply  purchasing  and
laboratory  usage, the Company believes that it has received  favorable  pricing
compared to solo or smaller group practices.  This system of centralized  buying
and  distribution  on an as-needed  basis  reduces the storage of inventory  and
supplies at the Offices.

Payor Mix

The Company's  payors include  indemnity  insurers,  preferred  provider  plans,
managed dental care plans, and uninsured patients. The Company seeks to optimize
the revenue mix at each Office  between  fee-for-service  business and capitated
managed  care  plans,  taking  into  account  the  local  dental  market.  While
fee-for-service  business  generally  provides a greater  margin than  capitated
managed dental care business,  capitated  managed dental care business serves to
increase  facility  utilization  and  dentist  productivity.  Consequently,  the
Company seeks to supplement its  fee-for-service  business with revenue  derived
from contracts with capitated managed dental care plans. The Company  negotiates
the managed  care  contracts  on behalf of the  professional  corporations  that
operate the Offices (the  "P.C.s"),  although the P.C.s enter into the contracts
with the various  managed care plans.  Managed care  relationships  also provide
increased co-payment revenue,  referrals of additional  fee-for-service patients
and  opportunities  for dentists  practicing at the Offices to educate  patients
about the benefits of elective dental  procedures that may not be covered by the
patients' capitated managed dental care plans.

During the years ended December 31, 2000, 2001, and 2002 the following companies
were responsible for the corresponding percentages of the Company's total dental
group practice revenue (includes  capitation  premiums and  co-payments):  Aetna
Healthcare was responsible for 9.1%, 7.4% and 6.6%,  respectively,  CIGNA Dental
Health was responsible for 5.9%, 6.0% and 6.3%,  respectively and Delta Care was
responsible for 8.6%, 8.0% and 6.6%, respectively.

The Company has  successfully  reduced the percentage of its business that comes
from managed dental care plans, from 51.4% of gross revenues in 1998 to 27.5% of
gross  revenues in 2002,  and replaced  that revenue  stream with higher  margin
fee-for-service   revenues.  This  higher  margin  fee-for-service  revenue  has
predominantly been business derived from preferred provider plans.

The Company Dentist Philosophy

The  Company  seeks to develop  long-term  relationships  with its  dentists  by
building  the  practice at each of its Offices  around a managing  dentist.  The
Company's  dental  practice  management  model  provides  managing  dentists the
autonomy and  independence  of a private  family  practice  setting  without the
capital   commitment   and   with   the    administrative    burdens   such   as
billing/collections, payroll, accounting, and marketing. This gives the managing
dentists the ability to focus primarily on providing high-quality dental care to
their  patients.  The  managing  dentist  retains the  responsibilities  of team
building  and  developing  long-term  relationships  with  patients and staff by
building  trust and  providing  a  friendly,  relaxed  atmosphere  in his or her
Office.  The managing  dentist  exercises  his or her own  clinical  judgment in
matters of patient  care. In addition,  managing  dentists are given an economic
incentive to improve the operating  performance of their Offices, in the form of
a bonus  based  upon the  operating  performance  of the  Office.  In  addition,
managing  dentist's may be granted stock options in the Company that  ordinarily
vest over a three-to-five year period.

When the  revenues of an Office  justify  expansion,  associate  dentists can be
added to the team.  Associate  dentists  are  typically  recent  graduates  from
residency  programs,  and usually  spend up to two years working with a managing
dentist.  Depending on performance  and abilities,  an associate  dentist may be
given the opportunity to become a managing dentist.



                                       9
<PAGE>



Expansion Program

Overview

Since  its  formation  in May 1995,  the  Company  has  acquired  42  practices,
including five practices that have been consolidated  with existing Offices.  Of
those  acquired  practices  (including  the  five  practices  consolidated  with
existing Offices), 34 were located in Colorado, five were located in New Mexico,
and three were  located in  Arizona.  Although  the  Company  has  acquired  and
integrated several group practices, many of the Company's acquisitions have been
solo dental practices.  The Company has developed 18 de novo Offices  (including
one practice that was consolidated  with an existing  Office).  During 2000, the
Company's growth strategy  shifted from an acquisition and development  approach
to an  approach  that is focused on greater  utilization  of  existing  physical
capacity through recruiting more dentists and support staff.

The following table sets forth the change in the number of Offices managed by
the Company from January 1, 1998 through December 31, 2002.
<TABLE>
<CAPTION>


                                                      1998         1999          2000           2001          2002
                                                      ----         ----          ----           ----          ----
<S>                                                    <C>          <C>           <C>            <C>           <C>
Offices at beginning of the period                     34           49            54             56            54
De novo Offices                                         5            5             2              0             0
Acquired Offices                                       10            1             0              0             0
Consolidation of Offices                                0           (1)            0             (2)            0
                                                      ----         ----          ----           ----          ----
Offices at end of the period                           49           54            56             54            54
                                                      ====         ====          ====           ====          ====
</TABLE>

Capacity Utilization

The Company  expects to expand in existing  markets  primarily by enhancing  the
operating  performance of its existing Offices.  Enhancing operating performance
will principally be accomplished through the addition of dentists and hygienists
to further utilize existing physical capacity in the Offices.

De Novo Office Developments

One method by which the Company enters new markets and expands its operations in
existing  markets is through the  development  of de novo  Offices.  Five of the
Company's seven Colorado Springs  Offices,  six of the Company's 29 Denver metro
area Offices,  three of the Company's  eight New Mexico Offices and three of the
Company's six Arizona Offices were de novo  developments.  The Company generally
locates de novo  Offices  in prime  retail  locations  in areas  where  there is
significant  population growth.  These locations provide high visibility for the
Company's signage and easy walk-in access for its customers.  Historically,  the
Company has used consistent office designs, colors, logo and signage for each of
its de novo Offices.

The average investment by the Company in each of its 17 de novo Offices has been
approximately  $194,000,  which  includes  the  cost  of  equipment,   leasehold
improvements and working capital associated with the initial operations.  The de
novo Offices,  which were opened  between  January 1996 and October 2000,  began
generating positive  contribution from dental offices, on average,  within eight
months of opening.

Acquisition Strategy

Prior  to  entering  a  new  market,   the  Company  considers  the  population,
demographics,  market potential,  competitive and regulatory environment, supply
of  available  dentists,  needs of managed  care plans or other large payors and
general economic  conditions within the market. Once the Company has established
a presence in a new market,  the Company  seeks to increase its presence in that
market  through  acquisitions  and by developing  de novo  Offices.  The Company
identifies  potential  acquisition   candidates  through  a  variety  of  means,
including  selected  inquiries of dentists by the Company,  direct  inquiries by
dentists,   referrals  from  other  dentists,   participation   in  professional
conferences and referrals from practice  brokers.  The Company seeks to identify
and acquire dental practices for which the Company  believes  application of its
dental practice management model will improve revenue and operating performance.




                                       10
<PAGE>



Recent Acquisitions and De Novo Offices

Colorado:  During 2002,  the Company  acquired the remaining 50% interest in two
existing Offices in Colorado.


Affiliation Model

Relationship with Professional Corporations (P.C.s)

Each  Office  is  operated  by a P.C.,  which is  owned by one of six  different
licensed  dentists  practicing  within the  Company's  network.  The Company has
entered into  agreements  with owners of 53 of the P.C.s which provide that upon
the death,  disability,  incompetence  or insolvency of the owner, a loss of the
owner's license to practice  dentistry,  a termination of the owner's employment
by the P.C. or the Company, a conviction of the owner for a criminal offense, or
a breach by the P.C. of the  Management  Agreement  (as defined  below) with the
Company, the Company may require the owner to sell his or her shares in the P.C.
for  a  nominal  amount  to a  third-party  designated  by  the  Company.  These
agreements  also prohibit the owner from  transferring or pledging the shares in
the P.C.s except to parties approved by the Company who agree to be bound by the
terms of the  agreements.  Upon a transfer of the shares to another  party,  the
owner agrees to resign all  positions  held as an officer or the director of the
P.C.

One licensed dentist who owns a P.C. operating an Office in Colorado has entered
into stock purchase, pledge and security agreements with the Company. Under this
agreement,  if certain  events  occur  including  the  failure  to  perform  the
obligations  under  the  employment   agreement  with  the  P.C.,  cessation  of
employment  with the P.C.  for any reason,  death or  insolvency  or directly or
indirectly  causing  the P.C.  to breach its  obligations  under the  Management
Agreement, then the Company may cause the P.C. to redeem the dentist's ownership
interest in the P.C. for an agreed price which is not  considered to be material
by the  Company.  Two of the three  directors  of this P.C.  are nominees of the
Company and the dentist has given the Company's  Chief Executive  Officer,  Fred
Birner an irrevocable proxy to vote his shares in the P.C.

Management Agreements with Affiliated Offices

The Company  derives all of its revenue from its management  agreements with the
P.C.s (the "Management  Agreements").  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 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)  supervision of all dentists and dental  hygienists,  (ii) ensuring
compliance 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's  financial
statements are consolidated  with the financial  statements of the P.C.s,  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 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 the Office under the Management  Agreement,  including (i) salaries,
benefits  and other direct  costs of Company  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 Office are borne
by the  Company,  other than the  compensation  and benefits of the dentists and
hygienists  who work at the  Offices of the P.C.s.

                                       11
<PAGE>

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  plans  to  continue  to use the  current  form  of its  Management
Agreement to the extent possible. However, the terms of the Management Agreement
are subject to change to comply with existing or new regulatory  requirements or
to enable the Company to compete more effectively.

Employment Agreements

Most dentists practicing at the Offices have entered into employment  agreements
or independent contractor agreements with a P.C. The majority of such agreements
can be  terminated  by either  party  without  cause  with 90 days  notice.  The
employment  agreement for one of the managing dentists who is also a shareholder
of a P.C. has a term of 20 years and can only be terminated by the employer P.C.
upon the occurrence of certain events. If the employment of the managing dentist
is  terminated  for any reason,  the  employer  P.C. has the right to redeem the
shares of the P.C.  operating  the Office  held by the  managing  dentist.  Such
agreements  typically contain  non-competition  provisions for a period of up to
three to five years following their  termination  within a specified  geographic
area,  usually a  specified  number of miles  from the  associated  Office,  and
restrict  solicitation  of patients and  employees.  Managing  dentists  receive
compensation  based upon a specified  amount per hour worked or a percentage  of
revenue or  collections  attributable  to their work,  or a bonus based upon the
operating  performance of the Office,  whichever is greater.  Associate dentists
are compensated based upon a specified amount per hour worked or a percentage of
revenue  or  collections  attributable  to their  work,  whichever  is  greater.
Specialists  are  compensated  based upon a percentage of revenue or collections
attributable  to their work.  The P.C. with whom the dentist has entered into an
employment agreement pays the dentists' compensation and benefits.

Competition

The dental services industry is highly fragmented,  consisting primarily of solo
and smaller group  practices.  The dental  practice  management  segment of this
industry is highly  competitive and is expected to become more  competitive.  In
this regard,  the Company expects that the provision of  multi-specialty  dental
services at  convenient  locations  will become  increasingly  more common.  The
Company  is aware of  several  dental  practice  management  companies  that are
operating in its markets,  including Dental One, American Dental Partners,  Inc.
and Dental Health Centers of America.  Companies with dental practice management
businesses similar to that of the Company which currently operate in other parts
of  the  country,  may  begin  targeting  the  Company's  existing  markets  for
expansion.  Such competitors may have greater  financial  resources or otherwise
enjoy  competitive  advantages,  which may make it difficult  for the Company to
compete against them or to acquire additional Offices on terms acceptable to the
Company.

The  business of  providing  general  and  specialty  dental  services is highly
competitive in the markets in which the Company  operates.  The Company believes
it competes with other  providers of dental and specialty  services on the basis
of factors such as brand name recognition, convenience, cost and the quality and
range of services provided.  Competition may include practitioners who have more
established  practices  and  reputations.  The  Company  also  competes  against
established  practices in the retention  and  recruitment  of general  dentists,
specialists,  hygienists  and  other  personnel.  If the  availability  of  such
individuals  begins to  decline in the  Company's  markets,  it may become  more
difficult to attract and retain  qualified  personnel to sufficiently  staff the
existing  Offices  or to  meet  the  staffing  needs  of the  Company's  planned
expansion.

Government Regulation

The practice of dentistry is regulated at both the state and federal levels, and
the regulation of health care-related  companies is increasing.  There can be no
assurance  that the  regulatory  environment  in which the  Company or the P.C.s
operate will not change significantly in the future. The laws and regulations of
all states in which the Company operates impact the Company's  operations but do
not currently  materially restrict the Company's  operations in those states. In
addition,  state and federal laws regulate health maintenance  organizations and
other  managed  care  organizations  for which  dentists  may be  providers.  In
connection  with its  operations  in  existing  markets and  expansion  into new
markets,  the Company may become  subject to additional  laws,  regulations  and
interpretations  or enforcement  actions.  The laws  regulating  health care are
broad and subject to varying  interpretations,  and there is currently a lack of
case law construing such statutes and regulations. The ability of the Company to
operate  profitably  will depend in part upon the ability of the Company and the
P.C.s to operate in compliance with applicable health care regulations.



                                       12
<PAGE>


State Regulation

The laws of many states,  including Colorado and New Mexico, permit a dentist to
conduct a dental practice only as an individual, a member of a partnership or an
employee of a professional  corporation,  limited  liability  company or limited
liability  partnership.  These  laws  typically  prohibit,  either  by  specific
provision or as a matter of general  policy,  non-dental  entities,  such as the
Company,  from  practicing  dentistry,  from employing  dentists and, in certain
circumstances,  hygienists or dental  assistants,  or from otherwise  exercising
control over the provision of dental services.  Under the Management Agreements,
the P.C.s  control all clinical  aspects of the  practice of  dentistry  and the
provision  of  dental  services  at  the  Offices,  including  the  exercise  of
independent  professional  judgment  regarding the diagnosis or treatment of any
dental disease, disorder or physical condition.  Persons to whom dental services
are  provided at the Offices are  patients of the P.C.s and not of the  Company.
The Company  does not employ the  dentists  who provide  dental  services at the
Offices nor does the Company have or exercise any control or direction  over the
manner or methods in which dental services are performed or interfere in any way
with the exercise of professional judgment by the dentists.

Many  states,  including  Colorado,  limit the ability of a person  other than a
licensed dentist, to own or control dental equipment or offices used in a dental
practice.  Some states allow  leasing of equipment  and office space to a dental
practice,  under a bona fide lease, if the equipment and office remain under the
control of the dentist. Some states,  including Arizona and New Mexico,  require
all  advertisements  to be in the  name of the  dentist.  A  number  of  states,
including  Arizona,  Colorado  and New  Mexico,  also  regulate  the  content of
advertisements  of dental  services.  In  addition,  Colorado,  New  Mexico  and
Arizona,  and many other states impose limits on the tasks that may be delegated
by dentists to hygienists and dental  assistants.  Some states require  entities
designated as "clinics" to be licensed, and may define clinics to include dental
practices  that are  owned or  controlled  in whole or in part by  non-dentists.
These laws and their  interpretations  vary from state to state and are enforced
by the courts and by regulatory authorities with broad discretion.

Many states have fraud and abuse laws which are similar to the federal fraud and
abuse law described  below, and which in many cases apply to referrals for items
or services  reimbursable  by any  third-party  payor,  not just by Medicare and
Medicaid.  A number of  states,  including  Arizona,  Colorado  and New  Mexico,
prohibit the submitting of false claims for dental services.

Many states, including Colorado and New Mexico, also prohibit "fee-splitting" by
dentists  with  any  party  except  other  dentists  in  the  same  professional
corporation or practice entity. In most cases, these laws have been construed to
apply to the  practice  of  paying a  portion  of a fee to  another  person  for
referring  a patient  or  otherwise  generating  business,  and not to  prohibit
payment of reasonable  compensation  for facilities and services (other than the
generation  of  referrals),  even if the payment is based on a percentage of the
practice's revenues.

In  addition,  many  states  have  laws  prohibiting  paying  or  receiving  any
remuneration,  direct or  indirect,  that is intended to include  referrals  for
health care items or services, including dental items and services.

In addition,  there are certain  regulatory  risks associated with the Company's
role in negotiating and administering managed care contracts. The application of
state   insurance   laws  to  third   party  payor   arrangements,   other  than
fee-for-service  arrangements,  is an unsettled area of law with little guidance
available.  As the P.C.s contract with  third-party  payors,  on a capitation or
other basis under which the relevant P.C. assumes  financial risk, the P.C.s may
become subject to state insurance laws. Specifically, in some states, regulators
may  determine  that the  Company or the P.C.s are  engaged in the  business  of
insurance, particularly if they contract on a financial-risk basis directly with
self-insured  employers or other entities that are not licensed to engage in the
business of insurance. In Arizona,  Colorado and New Mexico, the P.C.s currently
only  contract on a  financial-risk  basis with  entities  that are  licensed to
engage in the  business of insurance  and thus are not subject to the  insurance
laws of those states. To the extent that the Company or the P.C.s are determined
to be engaged in the  business  of  insurance,  the  Company  may be required to
change the method of payment from third-party  payors and the Company's  revenue
may be materially and adversely affected.

Federal Regulation

Federal  laws  generally  regulate  reimbursement,  billing  and  self  referral
practices  under  Medicare and Medicaid  programs.  Because the P.C.s  currently
receive no revenue under  Medicare or Medicaid,  the impact of these laws on the
Company to date has been negligible.  There can be no assurance,  however,  that
the P.C.s will not have  patients in the future  covered by these laws,  or that
the scope of these laws will not be  expanded in the  future,  and if  expanded,
such laws or interpretations  thereunder could have a material adverse effect on
the Company's business, financial condition and operating results.


                                       13
<PAGE>


Federal  regulations  also allow state licensing  boards to revoke or restrict a
dentist's  license  in the event  such  dentist  defaults  in the  payment  of a
government-guaranteed  student loan,  and further allow the Medicare  program to
offset such overdue loan payments  against Medicare income due to the defaulting
dentist's  employer.  The Company cannot assure  compliance by dentists with the
payment terms of their student loans, if any.

Revenues of the P.C.s or the Company from all insurers,  including  governmental
insurers, are subject to significant regulation. Some payors limit the extent to
which   dentists  may  assign  their   revenues   from   services   rendered  to
beneficiaries.  Under these "reassignment" rules, the Company may not be able to
require  dentists to assign their  third-party  payor  revenues  unless  certain
conditions  are met,  such as  acceptance by dentists of assignment of the payor
receivable  from  patients,  reassignment  to the  Company  of the sole right to
collect  the  receivables,  and  written  documentation  of the  assignment.  In
addition,  governmental  payment  programs  such as Medicare and Medicaid  limit
reimbursement  for services  provided by dental  assistants and other  ancillary
personnel  to those  services  which were  provided  "incident  to" a  dentist's
services.  Under  these  "incident  to" rules,  the  Company  may not be able to
receive  reimbursement for services provided by certain members of the Company's
Offices' staff unless  certain  conditions  are met, such as  requirements  that
services must be of a type commonly  furnished in a dentist's office and must be
rendered under the dentist's  direct  supervision and that clinical Office staff
must be  employed  by the dentist or the P.C.  The  Company  does not  currently
derive a significant portion of its revenue under such programs.

The  operations of the Offices are also subject to compliance  with  regulations
promulgated  by the  Occupational  Safety  and Health  Administration  ("OSHA"),
relating to such matters as heat sterilization of dental instruments and the use
of barrier  techniques  such as masks,  goggles and gloves.  The Company  incurs
expenses on an ongoing basis relating to OSHA monitoring and compliance.

Although the Company  believes its  operations  as  currently  conducted  are in
material compliance with existing applicable laws and regulations,  there can be
no  assurance  that  the  Company's   contractual   arrangements   will  not  be
successfully challenged as violating applicable laws and regulations or that the
enforceability of such arrangements will not be limited as a result of such laws
and  regulations.  In  addition,  there can be no  assurance  that the  business
structure  under which the Company  operates,  or the  advertising  strategy the
Company  employs will not be deemed to  constitute  the  unlicensed  practice of
dentistry or the operation of an unlicensed clinic or health care facility.  The
Company has not sought  judicial or regulatory  interpretations  with respect to
the manner in which it conducts its business.  There can be no assurance  that a
review of the  business  of the  Company  and the P.C.s by courts or  regulatory
authorities  will not  result  in a  determination  that  could  materially  and
adversely  affect their  operations or that the regulatory  environment will not
change so as to restrict the  Company's  existing or future  operations.  In the
event  that any  legislative  measures,  regulatory  provisions  or  rulings  or
judicial  decisions  restrict  or  prohibit  the  Company  from  carrying on its
business or from expanding its operations to certain  jurisdictions,  structural
and organizational  modifications of the Company's organization and arrangements
may be required which could have a material  adverse  effect on the Company,  or
the Company may be required to cease operations.

Commencing  April 14, 2003,  health care providers,  including the Company,  are
required to comply with the electronic data security and privacy requirements of
the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). HIPAA
delegates  enforcement authority to the Centers for Medicare Services Office for
Civil  Rights.  Noncompliance  with  HIPAA  regulations  can  result  in  severe
penalties  up to  $250,000  in fines  and up to ten years in  prison.  While the
Company is in full compliance with all requirements, it cannot presently predict
the ultimate impact of the HIPAA regulations on the Company and its business.

Insurance

The Company believes that its existing insurance coverage is adequate to protect
it from the risks  associated with the ongoing  operation of its business.  This
coverage   includes   property  and   casualty,   general   liability,   workers
compensation, director's and officer's corporate liability, employment practices
liability,  corporate  errors and  omissions  liability,  excess  liability  and
professional liability insurance for dentists,  hygienists and dental assistants
at the Offices.

Trademark

The Company is the registered owner of the PERFECT TEETH(R) trademark in the
United States.



                                       14
<PAGE>



Facilities and Employees

The  Company's  corporate  headquarters  are located at 3801 E. Florida  Avenue,
Suite 508, Denver, Colorado, in approximately 9,500 square feet occupied under a
lease,  which expires in January 2006.  The Company  believes that this space is
adequate  for its  current  needs.  The  Company  also leases real estate at the
location of each Office under leases  ranging in term from one to 10 years.  The
Company  believes the  facilities  at each of its Offices are adequate for their
current  level of  business.  The  Company  generally  anticipates  leasing  and
developing  new  Offices  in  its  current  markets  rather  than  significantly
expanding the size of its existing Offices.

As of December 31, 2002, the Company had 77 general dentists, 13 specialists and
60 affiliated  hygienists  that were employed by the P.C.s,  and 341  non-dental
employees.


ITEM 3.   LEGAL PROCEEDINGS.

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

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.


                                       15
<PAGE>




                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company  received  notice from the Nasdaq  Stock Market 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 Board of Directors
approved a one-for-four  reverse stock split. 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 all periods
have been restated to reflect this reverse stock split.

The  Common  Stock is quoted on the  Nasdaq  SmallCap  Market  under the  symbol
"BDMS".  The following table sets forth, for the period indicated,  the range of
high and low sales prices per share of Common  Stock,  as reported on The Nasdaq
National  Market System up to February 26, 2001 and The Nasdaq  SmallCap  Market
thereafter:
<TABLE>
<CAPTION>

                                                                           HIGH               LOW
                                                                           ----               ---
   2001
   ----
<S>                                                                     <C>                <C>
   First Quarter                                                        $   3.25           $  1.88
   Second Quarter                                                           2.20              1.94
   Third Quarter                                                            3.02              1.95
   Fourth Quarter                                                           4.91              2.60

   2002
   ----
   First Quarter                                                        $   7.55           $  4.33
   Second Quarter                                                          11.85              6.16
   Third Quarter                                                           11.50              8.11
   Fourth Quarter                                                          11.00              9.02

   2003
   ----
   First Quarter (January 1, 2003 through March 24, 2003)               $  14.25            $ 9.31
</TABLE>

At March 24, 2003 the last reported sale price of the Company's Common Stock was
$12.25 per share.  As of the same date,  there were  1,354,137  shares of Common
Stock  outstanding held by 70 holders of record and approximately 525 beneficial
owners.

The Company has not  declared or paid  dividends  on its Common  Stock since its
formation,  and  the  Company  does  not  anticipate  paying  dividends  in  the
foreseeable future. The Company's existing credit facility prohibits the payment
of cash dividends on the Common Stock without the lender's  consent.  Any future
credit  facility,  which the Company may obtain,  is also likely to prohibit the
payment  of  dividends.  Declaration  or payment of  dividends,  if any,  in the
future,  will be at the  discretion of the Board of Directors and will depend on
the Company's then current financial condition,  results of operations,  capital
requirements and other factors deemed relevant by the Board of Directors.



                                       16
<PAGE>


Equity Compensation Plan Information

The following table sets forth information concerning options, warrants and
rights outstanding and available for granting as of December 31, 2002:
<TABLE>
<CAPTION>


                                          (a)                           (b)                          (c)
Plan category                 Number of securities to be    Weighted-average exercise    Number of securities
                              issued upon exercise of       price of outstanding         remaining available for
                              outstanding options,          options, warrants and        future issuance under
                              warrants and rights           rights                       equity compensation plans
                                                                                         (excluding securities
<S>                                     <C>                            <C>                         <C>
Equity compensation plans
approved by security holders            221,088                        $7.64                       217,876
Equity compensation plans
not approved by security holders         30,000                        $5.06                             0

Total                                   251,088                        $7.33                       217,876
</TABLE>

Warrants issued are for a period of five years and vest 33% each year for three
years, provided however, that upon a sale of the Company, all Warrants shall
automatically become vested.




                                       17
<PAGE>



ITEM 6.   SELECTED FINANCIAL DATA.

The following  table sets forth  selected  consolidated  financial and operating
data for the Company.  The data for the years ended December 31, 2000, 2001, and
2002 should be read in  conjunction  with the Company's  consolidated  financial
statements  included  elsewhere  in this  document.  The  selected  consolidated
financial  data for the 1998 and 1999  periods  are derived  from the  Company's
historical consolidated financial statements.

A one-for-four  split of the Company's stock became effective as of February 26,
2001. As a result,  all earnings per share data presented in the following table
has been restated to reflect this reverse stock split.

The data in the following table is in thousands except per share data, number of
offices and number of dentists:
<TABLE>
<CAPTION>

                                                                                      Years Ended December 31,
                                                                   1998          1999         2000          2001          2002
                                                                   ----          ----         ----          ----          ----
<S>                                                              <C>           <C>           <C>            <C>           <C>

Statements of Operations Data: (1)

Net revenue                                                      $ 21,741      $ 28,553      $ 29,419       $ 29,249      $ 30,255


Direct expenses                                                   17,287         24,425        25,475         25,158        25,105
Contribution from dental offices                                   4,454          4,128         3,944          4,091         5,150
Corporate expenses                                                 3,182          4,038         3,747          3,270         3,304
Operating income                                                   1,272             90           197            822         1,846
Income (loss) before income taxes                                    843          (389)         (434)            371         1,501
Income tax (expense) benefit                                       (128)            111           113          (121)          (567)
Income (loss) before change in accounting                            715          (278)         (321)            250           934
principle
Cumulative effect of change in accounting                           (39)               -            -              -             -
principle
Net income (loss)                                                    675          (278)         (321)            250           934

Basic earnings per share of Common Stock:
Income (loss) before cumulative effect of change                     .46          (.18)         (.21)            .17           .63
in accounting principle
Cumulative effect of change in accounting                          (.03)              -             -              -             -
principle
Net income (loss)(2)                                                 .43          (.18)         (.21)            .17           .63

Diluted earnings per share of Common Stock:
Income (loss) before cumulative effect of change                     .44          (.18)         (.21)            .16           .58
in accounting principle
Cumulative effect of change in accounting                          (.02)              -             -              -             -
principle
Net income (loss)(2)                                                 .42          (.18)         (.21)            .16           .58

Balance Sheet Data (3):
Cash and cash equivalents                                        $ 2,170          $ 807         $ 691          $ 949       $ 1,073
Working capital (deficit)                                          2,309          1,467         2,043            301        (1,541)
Total assets                                                      25,543         27,949        26,333         24,762        24,230
Long-term debt, less current maturities                            3,240          6,771         6,682          3,296         1,087
Total shareholders' equity                                        18,746         16,905        16,471         16,721        16,759
Dividends declared per share of Common Stock                           -              -             -              -             -

Operating Data:
Number of offices (3)                                                 49             54            56             54            54
Number of dentists (3)(4)                                             73             90            91             86            90
Total net revenue per office                                        $444           $529          $525           $542          $560
</TABLE>
---------------------
(1)      Acquisitions  of Offices and  development of de novo Offices affect the
         comparability  of the data. In 1998, the Company acquired an additional
         10 Offices  and  opened  five de novo  Offices.  In 1999,  the  Company
         acquired one Office,  opened five de novo Offices and  consolidated two
         existing  Offices  into one. In 2000,  the  Company  opened two de novo
         Offices.  During 2001, the Company  consolidated  four existing Offices
         into two.
(2)      Computed  on the  basis  described  in Note 2 of Notes to  Consolidated
         Financial Statements of the Company.
(3)      Data is as of the end of the respective periods presented.
(4)      This represents the actual number of dentists employed by the P.C.s and
         specialists  who contract  with the P.C.s to provide  specialty  dental
         services.



                                       18
<PAGE>



ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

General

The following  discussion and analysis  relates to factors,  which have affected
the  consolidated  results of operations and financial  condition of the Company
for the three years ended  December 31, 2002.  Reference  should also be made to
the Company's  consolidated  financial  statements and related notes thereto and
the Selected Financial Data included  elsewhere in this document.  This document
contains forward-looking statements. Discussions containing such forward-looking
statements may be found in the material set forth below and under Items 1 and 2.
"Business and Properties,"  Item 5., "Market for the Registrant's  Common Equity
and  Related  Stockholder  Matters"  as  well  as in  this  document  generally.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
events  or  results  may  differ   materially   from  those   discussed  in  the
forward-looking  statements as a result of various factors,  including,  without
limitation  the risk  factors set forth in this Item 7 under the  heading  "Risk
Factors."

Overview

The  Company  was  formed in May 1995,  and  currently  manages  54  Offices  in
Colorado, New Mexico, and Arizona staffed by 77 dentists and 13 specialists. The
Company has acquired 42 practices (five of which were consolidated into existing
Offices) and opened 18 de novo Offices  (one of which was  consolidated  into an
existing  Office).  Of the 42  acquired  practices,  only three (the first three
practices,  which were  acquired  from the  Company's  President,  Mark  Birner,
D.D.S.) were acquired from affiliates of the Company. The Company derives all of
its Revenue (as defined below) from its Management Agreements with the P.C.s. 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 the Management
Agreement, as described below. The Company expects to expand in existing markets
primarily by enhancing the operating  performance of its existing Offices and by
developing de novo Offices.  The Company has  historically  expanded in existing
markets by acquiring solo and group dental practices and may do so in the future
if an economically feasible opportunity presents itself.  Generally, the Company
seeks to acquire dental practices for which the Company believes  application of
its Dental Practice  Management Model will improve  operating  performance.  See
Items  1 and  2.  "Business  and  Properties  -  Operations  -  Dental  Practice
Management Model."

The Company  was formed  with the  intention  of  becoming  the  leading  dental
practice  management company in Colorado.  The Company's success in the Colorado
market led to its expansion into New Mexico and Arizona.  The Company  commenced
operations in Colorado in October 1995 with the acquisition of three  practices,
and  acquired a fourth  practice  in November  1995.  During  1996,  the Company
developed  five de novo  Offices and  acquired  12  practices  (including  three
practices which were consolidated with existing  Offices).  In 1997, the Company
developed  one de novo Office and acquired 15  practices.  In 1998,  the Company
developed  five de novo Offices and acquired 10 practices.  In 1999, the Company
developed  five de novo  Offices,  acquired one practice  and  consolidated  two
practices  into one. In 2000,  the  Company  developed  two de novo  Offices and
purchased  the  remaining  50% interest in two existing  Offices.  In 2001,  the
Company  consolidated  four  existing  Offices into two Offices and acquired the
remaining 50% interest in one existing Office.  In 2002 the Company acquired the
remaining 50% interest in two existing Offices.

The combined  purchase  amounts for the four practices  acquired in 1995, the 12
practices  acquired in 1996, the 15 practices acquired in 1997, the 10 practices
acquired in 1998, and the practice acquired in 1999 were approximately $412,000,
$4.4 million,  $5.3 million,  $5.8 million and  $760,000,  respectively.  The 17
remaining de novo  Offices  which were opened  between  January 1996 and October
2000 began generating  positive  contribution  from dental offices,  on average,
within eight months of opening.  See Items 1 and 2.  "Business and  Properties -
Expansion Program."

The Company has grown  primarily  through  the  ongoing  development  of a dense
dental practice network and the implementation of its dental practice management
model.  During the three years ended  December 31,  2002,  net revenue was $29.4
million in 2000,  $29.2 million in 2001,  and $30.3 million in 2002.  During the
three years ended December 31, 2002,  contribution from dental offices increased
from $3.9  million  in 2000 to $4.1  million  for 2001,  and  increased  to $5.1
million for 2002.  During the three years ended  December  31,  2002,  operating
income  increased from $197,000 for 2000 to $822,000 in 2001 and to $1.8 million
in 2002.



                                       19
<PAGE>




At December 31, 2002, the Company's total assets of $24.2 million included $15.5
million of identifiable  intangible assets related to Management Agreements.  At
that date,  the Company's  total  shareholders'  equity was $16.8  million.  The
Company  reviews the recorded amount of intangible  assets and other  long-lived
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.  As of
December 31, 2002 a review by the Company determined that there was no permanent
impairment of any long-lived or intangible asset at any Office.

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.  Management  service  fee  revenue  represents  the net
revenue  earned  by the  Company  for the  Offices  for which  the  Company  has
management agreements, but does not have control. 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.

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  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) 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 the Office under the Management  Agreement,  including (i) salaries,
benefits  and other direct  costs of Company  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 Office are borne
by the  Company,  other than the  compensation  and benefits 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.



                                       20
<PAGE>



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
Office (other than  compensation and benefits of dentists and  hygienists),  the
risk of  over-utilization  of dental  services  at the  Office  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.  See Items 1 and 2. "Business and Properties -
Payor Mix."

The Company seeks to increase its  fee-for-service  business by  increasing  the
patient volume of existing Offices through  effective  marketing and advertising
programs  and by opening new  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
provides a greater  margin 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

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 Company believes that the  period-to-period  comparisons
set forth below may not be representative of future operating results.

For the year  ended  December  31,  2002,  Revenue  increased  to $42.7  million
compared to $41.4  million for the year ended  December 31, 2001, an increase of
$1.3 million or 3.1%. This was attributable to higher revenues  generated in the
54 Offices in existence during both full periods.

For the year  ended  December  31,  2001,  Revenue  increased  to $41.4  million
compared to $41.2  million for the year ended  December 31, 2000, an increase of
$200,000 or 0.4%. An increase in Revenue of $454,000 was attributable to the two
de novo Offices that were opened during 2000,  which was  partially  offset by a
decrease in Revenue of $300,000 at the 52 Offices in existence  during both full
periods.

The Company has successfully  reduced the percentage of its business which comes
from capitated  managed dental care plans from 51.4% of Revenue in 1998 to 27.5%
of Revenue in 2002,  and  replaced  that  capitated  revenue  stream with higher
margin fee-for-service  business. This higher margin fee-for-service revenue has
predominately been business derived from preferred provider plans.



                                       21
<PAGE>




The following  table sets forth the  percentages  of Net Revenue  represented by
certain items reflected in the Company's 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 consolidated financial statements and related notes thereto.
<TABLE>
<CAPTION>

                                                                Years Ended December 31,
                                           -------------------------------------------------------------------
                                                 2000                      2001                    2002
                                           ------------------        -----------------        ----------------

<S>                                               <C>                       <C>                    <C>
Net revenue                                       100.0  %                  100.0 %                100.0 %

Direct expenses:
     Clinical salaries and benefits                40.9                      40.4                   38.3
     Dental supplies                                6.4                       6.0                    5.9
     Laboratory fees                                8.9                       8.4                    7.8
     Occupancy                                     11.0                      11.2                   11.3
     Advertising and marketing                      1.1                       1.1                    1.2
     Depreciation and amortization                  8.2                       8.4                    7.9
     General and administrative
                                                   10.1                      10.5                   10.6
                                           ------------------        -----------------        ----------------

                                                   86.6                      86.0                   83.0
                                           ------------------        -----------------        ----------------
Contribution from dental offices                   13.4                      14.0                   17.0
Corporate expenses:
     General and administrative                    11.6                      10.1                    9.8
     Depreciation and amortization                  1.1                       1.1                    1.1

                                           ------------------        -----------------        ----------------
Operating income                                     0.7                      2.8                    6.1
Interest expense, net                               (2.2)                    (1.5)                  (1.1)

                                           ------------------        -----------------        ----------------
Income (loss) before income taxes                   (1.5)                     1.3                    5.0
Income tax (expense) benefit                         0.4                     (0.4)                  (1.9)
Net income (loss)                                   (1.1)%                    0.9 %                  3.1 %
                                           ==================        =================        ================
</TABLE>


Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net  revenue.  Net  revenue  increased  from  $29.2  million  for the year ended
December 31, 2001 to $30.3  million for the year ended  December  31,  2002,  an
increase of $1.0 million or 3.4%.  The increase in net revenue was  attributable
to the 54 practices in existence during both full periods.

Clinical salaries and benefits.  Clinical  salaries and benefits  decreased from
$11.8 million for the year ended December 31, 2001 to $11.6 million for the year
ended  December 31, 2002, a decrease of $205,000 or 1.7%.  This decrease was due
primarily to attrition of support  staff at the Offices that began in the second
quarter of 2001 and  continued  into the third quarter of 2002 as well as a wage
freeze  that was  implemented  during  2001 and  continued  through  2002.  As a
percentage of net revenue,  clinical salaries and benefits  decreased from 40.4%
in 2001 to 38.3% in 2002.

Dental supplies. Dental supplies remained constant at $1.8 million for the years
ended  December 31, 2001 and December 31, 2002.  As a percentage of net revenue,
dental supplies decreased from 6.0% in D2001 to 5.9% in 2002.

Laboratory fees.  Laboratory fees decreased from $2.5 million for the year ended
December  31,  2001 to $2.4  million for the year ended  December  31,  2002,  a
decrease of $104,000 or 4.2%.  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 from 8.4% in 2001 to 7.8%
in 2002.

Occupancy. Occupancy increased from $3.3 million for the year ended December 31,
2001 to $3.4  million  for the year ended  December  31,  2002,  an  increase of
$127,000 or 3.9%. This increase was due to increased  rental payments  resulting
from the renewal of Office  leases at current  market  rates for  Offices  whose
leases  expired  subsequent to the 2001 period.  As a percentage of net revenue,
occupancy expense increased from 11.2% in 2001 to 11.3% in 2002.

Advertising and marketing. Advertising and marketing increased from $315,000 for
the year ended  December  31, 2001 to $353,000  for the year ended  December 31,
2002,  an increase  of $38,000 or 12.0%.  This  increase  was  primarily  due to
additional yellow page advertising in local directories.  As a percentage of net
revenue, advertising and marketing increased from 1.1% in 2001 to 1.2% in 2002.



                                       22
<PAGE>



Depreciation and amortization.  Depreciation and amortization, which consists of
depreciation  and amortization  expense incurred at the Offices,  decreased from
$2.5  million for the year ended  December 31, 2001 to $2.4 million for the year
ended December 31, 2002, a decrease of $73,000 or 3.0%. This decrease is related
to the decrease in the Company's  depreciable and  amortizable  asset base. As a
percentage of net revenue,  depreciation and amortization decreased from 8.4% in
2001 to 7.9% in 2002.

General  and  administrative.   General  and  administrative   costs  which  are
attributable  to the  Offices,  increased  from $3.1  million for the year ended
December  31, 2001 to $3.2  million for the year ended  December  31,  2002,  an
increase of $132,000 or 4.3%.  This  increase was the result of higher  expenses
for office supplies and computer  supplies,  which includes the cost of the data
network between the individual Offices and the Corporate Office. As a percentage
of net revenue, general and administrative expenses increased from 10.5% in 2001
to 10.6% in 2002.

Contribution  from dental offices.  As a result of the above,  contribution from
dental offices  increased from $4.1 million for the year ended December 31, 2001
to $5.1  million  for the year ended  December  31,  2002,  an  increase of $1.1
million or 25.9%.  As a  percentage  of net  revenue,  contribution  from dental
offices increased from 14.0% in 2001 to 17.0% in 2002.

Corporate  expenses - general and  administrative.  Corporate expenses - general
and  administrative  increased from $2.9 million for the year ended December 31,
2001 to $3.0  million  for the year ended  December  31,  2002,  an  increase of
$29,000 or 1.0%. As a percentage of net revenue, corporate expense - general and
administrative decreased from 10.1% in 2001 to 9.8% in 2002.

Corporate  expenses  -  depreciation  and  amortization.  Corporate  expenses  -
depreciation  and  amortization  increased  from  $322,000  for the  year  ended
December 31, 2001 to $327,000 for the year ended  December 31, 2002, an increase
of $5,000 or 1.6%. This increase was a result of higher depreciation  expense as
a result of the development of computer software relating to the  implementation
of the Perfect  Teeth Dental Plan which began in 2001.  As a  percentage  of net
revenue, corporate expenses - depreciation and amortization remained constant at
1.1% from 2001 to 2002.

Operating  income.  As a result of the above,  operating  income  increased from
$822,000 for the year ended December 31, 2001 to $1.8 million for the year ended
December 31, 2002, an increase of $1.0 million or 124.6%. As a percentage of net
revenue, operating income increased from 2.8% in 2001 to 6.1% in 2002.

Interest expense,  net.  Interest  expense,  net decreased from $451,000 for the
year ended December 31, 2001 to $345,000 for the year ended December 31, 2002, a
decrease of $106,000 or 23.5%. This decrease was primarily the result of a lower
average interest rate and a lower average  outstanding debt balance during 2002.
As a percentage of net revenue,  interest  expense,  net decreased  from 1.5% in
2001 to 1.1% in 2002.

Net  income.  As a result of the  above,  the  Company  reported  net  income of
$934,000 for the year ended December 31, 2002 compared to net income of $250,000
for the year ended  December 31, 2001,  an increase of $684,000 or 273.6%.  As a
percentage  of net revenue,  net income  increased  from 0.9% in 2001 to 3.1% in
2002.  Net  income for the year ended  December  31,  2002 was net of income tax
expense of $567,000  while net income for the year ended  December  31, 2001 was
net of income tax expense of $121,000.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net  revenue.  Net  revenue  decreased  from  $29.4  million  for the year ended
December  31, 2000 to $29.2  million for the year ended  December  31,  2001,  a
decrease  of  $169,000  or 0.6%.  A  decrease  in net  revenue of  $451,000  was
attributable to the 52 practices in existence during both full periods, of which
$282,000  was offset by an increase in net revenue  attributable  to two de novo
offices that were opened during the 2000 fiscal year.

Clinical salaries and benefits.  Clinical  salaries and benefits  decreased from
$12.0 million for the year ended December 31, 2000 to $11.8 million for the year
ended  December 31, 2001, a decrease of $217,000 or 1.8%.  This decrease was due
primarily to attrition of support staff at the Offices who were not replaced and
also because of a wage freeze that was implemented  during 2001. As a percentage
of net revenue,  clinical salaries and benefits  decreased from 40.9% in 2000 to
40.4% in 2001.

Dental supplies.  Dental supplies decreased from $1.9 million for the year ended
December  31,  2000 to $1.8  million for the year ended  December  31,  2001,  a
decrease of $115,000 or 6.2%.  This  decrease was primarily due to fewer de novo
Office  starts  that  require  additional   expenses  to  establish  a  start-up
inventory.  As a percentage of net revenue,  dental supplies decreased from 6.4%
in 2000 to 6.0% in 2001.



                                       23
<PAGE>


Laboratory fees.  Laboratory fees decreased from $2.6 million for the year ended
December  31,  2000 to $2.5  million for the year ended  December  31,  2001,  a
decrease of $164,000 or 6.2%.  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 from 8.9% in 2000 to 8.4%
in 2001.

Occupancy. Occupancy increased from $3.2 million for the year ended December 31,
2000 to $3.3  million  for the year ended  December  31,  2001,  an  increase of
$39,000 or 1.2%.  This increase was due to certain  Offices which were only open
for part of the year ended  December 31, 2000 and a full year in 2001 as well as
increased rental payments resulting from the renewal of Office leases at current
market rates for Offices  whose leases  expired  subsequent  to the 2000 period.
This was partially  offset by lower costs  associated with the  consolidation of
four  offices into two during 2001.  As a percentage  of net revenue,  occupancy
expense increased from 11.0% in 2000 to 11.2% in 2001.

Advertising and marketing. Advertising and marketing decreased from $328,000 for
the year ended  December  31, 2000 to $315,000  for the year ended  December 31,
2001, a decrease of $13,000 or 4.0%. This decrease was primarily due to the fact
that no new  Offices  were  opened in 2001 as compared to the opening of two new
Offices  in  2000  and the  corresponding  savings  of the  initial  expense  of
promoting new Offices. As a percentage of net revenue, advertising and marketing
remained constant at 1.1% for both 2000 and 2001.

Depreciation and amortization.  Depreciation and amortization, which consists of
depreciation  and amortization  expense incurred at the Offices,  increased from
$2.4  million for the year ended  December 31, 2000 to $2.5 million for the year
ended  December  31,  2001,  an  increase of $53,000 or 2.2%.  This  increase is
related to the increase in the Company's depreciable and amortizable asset base.
As a percentage of net revenue,  depreciation  and  amortization  increased from
8.2% in 2000 to 8.4% in 2001.

General  and  administrative.   General  and  administrative   costs  which  are
attributable  to the  Offices,  increased  from $3.0  million for the year ended
December  31, 2000 to $3.1  million for the year ended  December  31,  2001,  an
increase of $99,000 or 3.4%.  This increase was primarily due to certain Offices
which were only open for part of the year  ended  December  31,  2000 and a full
year in  2001.  As a  percentage  of net  revenue,  general  and  administrative
expenses increased from 10.1% in 2000 to 10.5% in 2001.

Contribution from dental offices. As a result of the above, contribution from
dental offices increased from $3.9 million for the year ended December 31, 2000
to $4.1 million for the year ended December 31, 2001, an increase of $148,000 or
3.8%. As a percentage of net revenue, contribution from dental offices increased
from 13.4% in 2000 to 14.0% in 2001.

Corporate  expenses - general and  administrative.  Corporate expenses - general
and  administrative  decreased from $3.4 million for the year ended December 31,
2000 to $2.9  million  for the year ended  December  31,  2001,  a  decrease  of
$467,000 or 13.7%.  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 from 11.6% in 2000 to
10.1% in 2001.

Corporate  expenses  -  depreciation  and  amortization.  Corporate  expenses  -
depreciation  and  amortization  decreased  from  $332,000  for the  year  ended
December 31, 2000 to $322,000  for the year ended  December 31, 2001, a decrease
of $10,000  or 3.0%.  This  decrease  was a result of the  Company's  efforts to
control capital expenditures and the fact that some corporate assets have become
fully  depreciated.  As a  percentage  of  net  revenue,  corporate  expenses  -
depreciation and amortization remained constant at 1.1% from 2000 to 2001.

Operating income. As a result of the above, operating income increased from
$197,000 for the year ended December 31, 2000 to $822,000 for the year ended
December 31, 2001, an increase of $625,000 or 317.8%. As a percentage of net
revenue, operating income increased from 0.7% in 2000 to 2.8% in 2001.

Interest expense,  net.  Interest  expense,  net decreased from $630,000 for the
year ended December 31, 2000 to $451,000 for the year ended December 31, 2001, a
decrease of $180,000 or 28.5%. This decrease was primarily the result of a lower
average interest rate and a lower average  outstanding debt balance during 2001.
As a percentage of net revenue,  interest  expense,  net decreased  from 2.2% in
2000 to 1.5% in 2001.

Net income (loss).  As a result of the above, the Company reported net income of
$250,000  for the  year  ended  December  31,  2001  compared  to a net  loss of
$(321,000)  for the year ended  December 31, 2000. Net income for the year ended
December  31, 2001 was net of income tax expense of $121,000  while the net loss
for the year ended December 31, 2000 included an income tax benefit of $113,000.



                                       24
<PAGE>



Critical Accounting Policies

The  Company's  financial  statements  have been  prepared  in  accordance  with
accounting principles generally accepted in the United States, which require the
Company to make  estimates  and  judgments  that affect the reported  amounts of
assets,  liabilities,  revenues and  expenses,  and the related  disclosures.  A
summary of those significant  accounting  policies can be found in the Company's
Notes to Consolidated Financial Statements. The estimates used by management are
based upon the  Company's  historical  experiences  combined  with  management's
understanding  of current  facts and  circumstances.  Certain  of the  Company's
accounting  policies are  considered  critical as they are both important to the
portrayal of the Company's financial condition and the results of its operations
and  require  significant  or  complex  judgments  on the  part  of  management.
Management  has not  determined  how reported  amounts would differ based on the
application of different accounting policies. Management has also not determined
the  likelihood  that  materially  different  amounts  could be  reported  under
different  conditions or using different  assumptions.  Management believes that
the  following  represent  the  critical  accounting  policies of the Company as
described in Financial  Reporting Release No. 60,  "Cautionary  Advice Regarding
Disclosure  About  Critical  Accounting  Policies",  which  was  issued  by  the
Securities  and Exchange  Commission:  Impairment of intangible  and  long-lived
assets, allowance for doubtful accounts and deferred income taxes.

The Company's dental practice  acquisitions involve the purchase of tangible and
intangible  assets and the  assumption  of certain  liabilities  of the acquired
Offices.  As part of the purchase price  allocation,  the Company  allocates the
purchase price to the tangible and identifiable  intangible  assets acquired and
liabilities assumed, based on estimated fair market values. Costs of acquisition
in  excess  of the  net  estimated  fair  value  of  tangible  and  identifiable
intangible  assets  acquired  and  liabilities  assumed  are  allocated  to  the
Management Agreement. The Management Agreement represents the Company's right to
manage the Offices during the 40-year term of the agreement.  The assigned value
of the Management  Agreement is amortized using the straight-line  method over a
period of 25 years. 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 this evaluation  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.

The Company's  allowance for doubtful  accounts  reflects a reserve that reduces
customer  accounts  receivable  to the net amount  estimated to be  collectible.
Estimating the credit worthiness of customers and the recoverability of customer
accounts requires management to exercise  considerable  judgment.  In estimating
uncollectible amounts, management considers factors such as general economic and
industry-specific  conditions,  historical customer  performance and anticipated
customer  performance.  While management considers the Company's processes to be
adequate to effectively  quantify its exposure to doubtful accounts,  changes in
economic,  industry or specific  customer  conditions may require the Company to
adjust its allowance for doubtful accounts.

Deferred income taxes are recognized for the expected tax consequences in future
years for differences  between the tax bases of assets and liabilities and their
financial reporting amounts, based upon enacted tax laws and statutory tax rates
applicable  to the  periods  in which the  differences  are  expected  to affect
taxable income.  The Company's  significant  deferred tax assets are related to:
Accruals not  currently  deductible,  allowance for doubtful  accounts,  AMT tax
credit  carry-forward,  tax benefit of stock options  exercised and depreciation
expense for tax which is less than  depreciation  expense for books. The Company
has not  established a valuation  allowance to reduce deferred tax assets as the
Company expects to fully recover these amounts in future periods.  The Company's
significant   deferred  tax  liability  is  the  result  of   intangible   asset
amortization   expense  for  tax  being  greater  than  the   intangible   asset
amortization  expense for books.  Management reviews and adjusts those estimates
annually based upon the most current information available. However, because the
recoverability  of  deferred  taxes  are  directly  dependent  upon  the  future
operating  results of the Company,  actual  recoverability of deferred taxes may
differ materially from management's estimates.

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 the initial public offering of Common Stock.

Net cash provided by operating  activities was $1.7 million,  $4.0 million,  and
$5.0 million for the years ended December 31, 2000, 2001 and 2002, respectively.
During the year ended  December 31, 2002,  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  $738,000 and a decrease in accounts  receivable of  approximately


                                       25
<PAGE>
$367,000.  During the year ended  December  31, 2001,  excluding  net income and
after adding back  non-cash  items,  the  Company's  cash  provided by operating
activities   consisted  primarily  of  a  decrease  in  accounts  receivable  of
approximately  $784,000, an increase in accounts payable and accrued expenses of
approximately  $294,000  offset,  in part, by an increase in prepaid expenses of
approximately  $289,000.  During the year ended  December  31, 2000 after adding
back  depreciation and amortization and other non-cash  expenses,  the Company's
cash used in operating activities consisted primarily of a reduction in accounts
payable and accrued  expenses of approximately  $705,000  offset,  in part, by a
decrease in prepaid expenses of approximately $122,000.

Net cash used in investing  activities was $1.5 million,  $1.1 million, and $1.4
million for the years ended  December  31,  2000,  2001 and 2002,  respectively.
During the year ended  December 31, 2002,  $514,000 was invested in the purchase
of additional property and equipment and $1.2 million was used for acquiring the
remaining 50% interest in two existing Offices. This was partially offset by the
repayment of $284,000 in notes receivable from related parties.  During the year
ended  December  31, 2001,  $547,000 was invested in the purchase of  additional
property and  equipment  and $435,000 was used for  acquiring  the remaining 50%
interest in one existing  Office.  During the year ended December 31, 2000, $1.1
million  was  invested in the  purchase of  additional  property  and  equipment
(including  $428,000 for two de novo  Offices) and  $197,000 for  acquiring  the
remaining 50% interest in two existing Offices.

For the years ended December 31, 2000,  2001 and 2002 net cash used in financing
activities was $401,000,  $2.7 million and $3.4 million,  respectively.  For the
year  ended  December  31,  2002,  net cash  used in  financing  activities  was
comprised of $2.1 million for the pay-down on the bank  term-loan,  $168,000 for
the pay-down on the  Company's  line of credit,  $312,000  for the  repayment of
long-term debt and $1.2 million for the purchase and retirement of common stock.
This was  partially  offset by $111,000 of proceeds  from the exercise of Common
Stock  options  and  $95,000  from  the tax  benefit  of  Common  Stock  options
exercised.  For the year ended  December  31,  2001,  net cash used in financing
activities  was comprised of $2.4 million for the pay-down on the Company's line
of credit,  $203,000 for the  repayment  of  long-term  debt and $67,000 for the
payment of financing  costs. For the year ended December 31, 2000, net cash used
in financing activities was comprised of $195,000 for the repayment of long-term
debt,  $113,000 for the purchase and  retirement of Common Stock and $93,000 for
the pay-down on the Company's line of credit.

Under the  Company's  Credit  Facility (as amended on  September  9, 2002),  the
Company  may  borrow on a  revolving  basis up to the  lesser  of an  applicable
Borrowing  Base  (calculated in accordance  with the most recent  Borrowing Base
Certificate  delivered  to the Lender) or $2.0  million  and on a  non-revolving
basis, an aggregate  principal  amount not in excess of $4.0 million for working
capital,  restructuring  of the Original  Loan and for other  general  corporate
purposes. Balances bear interest at the lender's prime rate. The Company is also
obligated to pay an annual  facility fee of .50% on the average unused amount of
the revolving line of credit during the previous full calendar month. Borrowings
are limited to an availability  formula based on the Company's eligible accounts
receivable.  As amended,  both the  revolving  loan and the  non-revolving  note
mature on April 30, 2003.  At December 31, 2002,  the Company had no  borrowings
outstanding  and  approximately  $2.0 million  available for borrowing under the
revolving line of credit and $1.825 million  outstanding under the non-revolving
loan.  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. At December 31, 2002 the
Company was in full compliance with all of its covenants under this agreement.

As of December 31,  2002,  the Company had  approximately  $1.4 million in notes
payable  issued in  connection  with  various  Office  acquisitions,  which bear
interest  at  8.0%.  At  December  31,  2002,  the  Company's  had  no  material
commitments  for capital  expenditures.  The Company's  retained  earnings as of
December  31,  2002 were  approximately  $799,000  and the Company had a working
capital deficit on that date of  approximately  $1.5 million,  which was in part
the result of the  classification  of the entire  amount  outstanding  under the
non-revolving  loan  as  a  short-term  liability.   The  Company  believes  the
non-revolving  loan will be  extended  beyond its  current  maturity  date.  The
Company's  earnings  before  interest,   taxes,  depreciation  and  amortization
("EBITDA")  increased 26.5% to $4.6 million for the twelve months ended December
31, 2002  compared to $3.6  million  for the same  twelve-month  period in 2001.
During the 2002 fiscal year, the Company reduced total bank debt  outstanding by
$2.2 million to $1.8 million as of December 31, 2002.

The Company  believes that cash generated from  operations will be sufficient to
fund its anticipated working capital needs and capital expenditures for at least
the next 12 months,  even in the event the  Company is not able to  successfully
negotiate  a new Line of Credit at the end of its term.  The  Company  believes,
however,  that it will be able to renew  the  Line of  Credit  with its  current
lender or a different lender with the same or better terms than currently exist.
In addition, in order to meet its long-term liquidity needs the Company may need
to 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 raise 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.  See "Risk Factors - Need for Additional  Capital;
Uncertainty of Additional Financing" in this Item 7.

                                       26
<PAGE>

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.  On May 8,  2002  the  Company's  Board  of  Directors
unanimously approved the purchase of shares of the Company's Common Stock on the
open  market up to $1.0  million.  On October 24,  2002 the  Company's  Board of
Directors unanimously approved an incremental increase of $500,000 in the amount
that could be used to purchase shares of the Company's  Common Stock on the open
market to $1.5 million.  During 2000, the Company, in 18 separate  transactions,
purchased  26,282  shares  of  its  Common  Stock  for  total  consideration  of
approximately  $113,000 at prices ranging from $3.80 to $6.68 per share.  During
2002, the Company, in 93 separate transactions,  purchased 117,236 shares of its
Common Stock for total  consideration  of  approximately  $1.2 million at prices
ranging  from $7.35 to $11.25  per share,  of which  approximately  $60,000  was
recorded  as  compensation  expense  in  accordance  with  Financial  Accounting
Standards Board Interpretation Number 44.

Recent Accounting Pronouncements

In June  2001,  the FASB  approved  for  issuance  SFAS  143,  Asset  Retirement
Obligations.   SFAS  143  establishes  accounting  requirements  for  retirement
obligations associated with tangible long-lived assets, including (1) the timing
of the liability  recognition,  (2) initial  measurement of the  liability,  (3)
allocation of asset  retirement cost to expense,  (4) subsequent  measurement of
the liability and (5) financial statement disclosures. SFAS 143 requires that an
asset  retirement  cost should be capitalized as part of the cost of the related
long-lived  asset and  subsequently  allocated to expense using a systematic and
rational method. The statement is effective for the financial  statements issued
for fiscal years  beginning  after June 15,  2002.  The Company does not believe
that the adoption of this statement will have a material effect on its financial
position, results of operations, or cash flows.

In April 2002, the FASB approved for issuance Statements of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
SFAS 13, and Technical  Corrections"  ("SFAS 145").  SFAS 145 rescinds  previous
accounting guidance,  which required all gains and losses from extinguishment of
debt be classified as an extraordinary  item. Under SFAS 145  classification  of
debt  extinguishment  depends on the facts and circumstances of the transaction.
SFAS 145 is effective for fiscal years beginning after May 15, 2002 and adoption
is not expected to have a material effect on the Company's financial position or
results of its operations.

In July 2002, the FASB issued Statements of Financial  Accounting  Standards No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities"  (SFAS
146).  SFAS 146 requires  companies to recognize  costs  associated with exit or
disposal  activities  when  they  are  incurred  rather  than  at the  date of a
commitment  to an exit or disposal  plan.  Examples of costs covered by SFAS 146
include lease  termination  costs and certain employee  severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal  activity.  SFAS 146 is to be applied  prospectively to exit or
disposal activities  initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.

In August 2002, the FASB issued Statements of Financial Accounting Standards No.
147,  "Acquisitions  of Certain  Financial  Institutions"  (SFAS 147).  SFAS 147
requires financial  institutions to follow the guidance in SFAS 141 and SFAS 142
for business  combinations and goodwill and intangible assets, as opposed to the
previously applied accounting literature. This statement also amends SFAS 144 to
include  in its  scope  long-term  customer  relationship  intangible  assets of
financial institutions. The provisions of SFAS 147 do not apply to the Company.

In December 2002, the FASB issued Statements of Financial  Accounting  Standards
No.148,  "Accounting for Stock-Based  compensation - Transition and Disclosure -
an amendment of FASB  Statement  123" (SFAS 123). For entities that change their
accounting for stock-based  compensation  from the intrinsic  method to the fair
value   method  under  SFAS  123,  the  fair  value  method  is  to  be  applied
prospectively  to those  awards  granted  after the  beginning  of the period of
adoption  (the  prospective   method).  The  amendment  permits  two  additional
transition  methods for  adoption of the fair value  method.  In addition to the
prospective  method,  the entity can choose to either (i)  restate  all  periods
presented  (retroactive  restatement method) or (ii) recognize compensation cost
from the  beginning  of the fiscal year of adoption as if the fair value  method
had been used to account for awards (modified  prospective  method).  For fiscal
years  beginning  December 15, 2003,  the  prospective  method will no longer be
allowed.  The Company currently accounts for its stock-based  compensation using
the intrinsic value method as proscribed by Accounting  Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options, therefore, it does not intend to adopt
the transition requirements as specified in SFAS 148. The Company will adopt the
new SFAS 148 disclosure requirements in the first quarter of fiscal 2003.



                                       27
<PAGE>



Risk Factors

This Annual Report contains forward-looking  statements.  Discussions containing
such  forward-looking  statements may be found in the material set forth in this
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations," Items 1 and 2. "Business and Properties" and Item 5. "Market for
the Registrant's Common Equity and Related  Stockholder  Matters," as well as in
this  Annual  Report   generally.   Investors   are  cautioned   that  any  such
forward-looking  statements are not guarantees of future performance and involve
risks and  uncertainties.  Actual events or results may differ  materially  from
those  discussed  in the  forward-looking  statements  as a  result  of  various
factors, including, without limitation, the risk factors set forth below and the
matters set forth in this Annual Report generally.

Demands on  Management  from  Growth.  The  Company  has been  providing  dental
practice  management  services  since  October  1995.  Prior to April 1997,  the
Company provided dental practice  management  services  exclusively in Colorado.
The  Company's  growth has placed,  and will  continue to place,  strains on the
Company's management, operations and systems. The growth has required the hiring
and training of additional  employees to oversee the  operations and training of
non-dental  employees in the new  Offices,  the use of  management  resources to
integrate the  operations of the new Offices with the operations of the Company,
and the  incurring of  incremental  costs to convert to or install the Company's
management information system. The Company's ability to compete effectively will
depend upon its ability to hire, train and assimilate  additional management and
other employees,  and its ability to expand, improve and effectively utilize its
operating,  management,  marketing  and  financial  systems to  accommodate  its
expanded  operations.  Any failure by the Company's  management  to  effectively
anticipate,  implement and manage the changes  required to sustain the Company's
growth may have a material adverse effect on the Company's  business,  financial
condition and operating  results.  See Items 1 and 2. "Business and Properties -
Expansion Program."

Dependence  Upon  Availability  of  Dentists  and Other  Personnel.  The Company
believes that the  profitability and operations of its Offices and its expansion
strategy are  dependent  on the  availability  and  successful  recruitment  and
retention of dentists,  dental  assistants,  hygienists,  specialists  and other
personnel.  The Company may not be able to recruit or retain  dentists and other
personnel  for its  existing  and newly  established  Offices,  which may have a
material  adverse effect on the Company's  expansion  strategy and its business,
financial  condition and  operating  results.  See Items 1 and 2.  "Business and
Properties - Operations - Dental Practice Model."

Dependence on Management  Agreements,  the P.C.s and  Affiliated  Dentists.  The
Company  receives  management  fees for  services  provided  to the P.C.s  under
Management Agreements.  The Company owns most of the non-dental operating assets
of the Offices but does not employ or contract with dentists,  employ hygienists
or control the provision of dental care.  The Company's  revenue is dependent on
the  revenue  generated  by  the  P.C.s.  Therefore,   effective  and  continued
performance  of dentists  providing  services  for the P.C.s is essential to the
Company's long-term success.  Under each Management Agreement,  the Company pays
substantially  all of the operating and non-operating  expenses  associated with
the  provision  of dental  services  except for the salaries and benefits of the
dentists and hygienists and principal and interest payments of loans made to the
P.C.  by the  Company.  Any  material  loss of revenue by the P.C.s would have a
material  adverse  effect on the  Company's  business,  financial  condition and
operating  results,  and any  termination  of a Management  Agreement  (which is
permitted  in the event of a material  default or  bankruptcy  by either  party)
could have such an effect. In the event of a breach of a Management Agreement by
a P.C.,  there can be no  assurance  that the legal  remedies  available  to the
Company  will be adequate to  compensate  the Company for its damages  resulting
from such breach.  See Items 1 and 2.  "Business  and  Properties -  Affiliation
Model."

Need for Additional Capital; Uncertainty of Additional Financing. Implementation
of the Company's  growth strategy has required  significant  capital  resources.
Such  resources  will be needed to  establish  additional  Offices,  maintain or
upgrade the  Company's  management  information  systems,  and for the effective
integration,  operation and expansion of the Offices.  The Company  historically
has used  principally cash and promissory notes as consideration in acquisitions
of dental  practices and intends to continue to do so. If the Company's  capital
requirements  over the next  several  years  exceed  cash  flow  generated  from
operations and borrowings available under the Company's existing Credit Facility
or any  successor  credit  facility,  the Company  may need to issue  additional
equity  securities  and incur  additional  debt. If additional  funds are raised
through the issuance of equity  securities,  dilution to the Company's  existing
shareholders may result.  Additional debt or non-Common Stock equity  financings
could be required to the extent that the Common Stock fails to maintain a market
value  sufficient to warrant its use for future  financing  needs. If additional
funds are raised  through the  incurrence of debt,  such debt  instruments  will
likely contain restrictive  financial,  maintenance and security covenants.  The
Company's  existing  credit  facility limits the amount the Company may spend in
any calendar year to acquire  dental  practices.  The Company may not be able to
obtain additional required capital on satisfactory terms, if at all. The failure
to  raise  the  funds  necessary  to  finance  the  expansion  of the  Company's
operations or the Company's other capital requirements could have a material and
adverse  effect on the  Company's  ability  to pursue  its  strategy  and on its
business,  financial condition and operating results. See "Liquidity and Capital
Resources" in this Item 7.

                                       28
<PAGE>

Risks Associated with De Novo Office Development.  The Company utilizes internal
and  external  resources  to  identify  locations  in  suitable  markets for the
development  of de novo Offices.  Identifying  locations in suitable  geographic
markets and negotiating leases can be a lengthy and costly process. Furthermore,
the Company will need to provide each new Office with the appropriate equipment,
furnishings, materials and supplies. To date, the Company's average cost to open
a de novo  Office  has  been  approximately  $194,000.  Future  de  novo  Office
development may require a greater investment by the Company.  Additionally,  new
Offices must be staffed with one or more  dentists.  Because a new Office may be
staffed with a dentist with no previous  patient base,  significant  advertising
and marketing expenditures may be required to attract patients.  There can be no
assurance  that a de novo Office will become  profitable  for the  Company.  See
Items 1 and 2.  "Business  and  Properties - Expansion  Program - De Novo Office
Developments."

Government Regulation.  The practice of dentistry is regulated at both the state
and federal levels. There can be no assurance that the regulatory environment in
which the Company or P.C.s operate will not change  significantly in the future.
In addition,  state and federal laws regulate health  maintenance  organizations
and other managed care  organizations  for which  dentists may be providers.  In
general,  regulation of health care companies is increasing.  In connection with
its operations in existing  markets and expansion into new markets,  the Company
may become  subject to  additional  laws,  regulations  and  interpretations  or
enforcement  actions.  The laws regulating  health care are broad and subject to
varying  interpretations,  and there is currently a lack of case law  construing
such statutes and regulations.  The ability of the Company to operate profitably
will  depend in part upon the  ability of the  Company to operate in  compliance
with applicable health care regulations.

The laws of many states,  including Colorado and New Mexico, permit a dentist to
conduct a dental practice only as an individual, a member of a partnership or an
employee of a professional  corporation,  limited  liability  company or limited
liability  partnership.  These  laws  typically  prohibit,  either  by  specific
provision or as a matter of general  policy,  non-dental  entities,  such as the
Company,  from  practicing  dentistry,  from employing  dentists and, in certain
circumstances,  hygienists or dental  assistants,  or from otherwise  exercising
control over the provision of dental services.

Many  states,  including  Colorado,  limit the ability of a person  other than a
licensed  dentist to own or control dental equipment or offices used in a dental
practice.  In addition,  Arizona,  Colorado,  New Mexico,  and many other states
impose limits on the tasks that may be delegated by dentists to  hygienists  and
dental  assistants.  Some states,  including  Arizona,  Colorado and New Mexico,
regulate the content of advertisements  of dental services.  Some states require
entities  designated  as  "clinics" to be  licensed,  and may define  clinics to
include  dental  practices  that are owned or  controlled in whole or in part by
non-dentists.  These laws and their interpretations vary from state to state and
are enforced by the courts and by regulatory authorities with broad discretion.

Many states, including Colorado and New Mexico, also prohibit "fee-splitting" by
dentists  with  any  party  except  other  dentists  in  the  same  professional
corporation or practice entity. In most cases, these laws have been construed as
applying  to the  practice  of paying a portion of a fee to  another  person for
referring  a patient  or  otherwise  generating  business,  and not to  prohibit
payment of reasonable  compensation  for facilities and services (other than the
generation  of  referrals),  even if the payment is based on a percentage of the
practice's revenues.

Many  states have fraud and abuse laws,  which apply to  referrals  for items or
services  reimbursable  by any  third-party  payor,  not  just by  Medicare  and
Medicaid.  A number of  states,  including  Arizona,  Colorado  and New  Mexico,
prohibit the submitting of false claims for dental services.

In addition,  there are certain  regulatory  risks associated with the Company's
role in negotiating and administering managed care contracts. The application of
state   insurance   laws  to  third   party  payor   arrangements,   other  than
fee-for-service  arrangements,  is an unsettled area of law with little guidance
available. Specifically, in some states, regulators may determine that the P.C.s
are engaged in the business of  insurance,  particularly  if they  contract on a
financial-risk basis directly with self-insured employers or other entities that
are not  licensed  to  engage in the  business  of  insurance.  If the P.C.s are
determined  to be engaged in the  business  of  insurance,  the  Company  may be
required  to change  the  method of  payment  from  third-party  payors  and the
Company's business,  financial condition and operating results may be materially
and adversely affected.

Federal  laws  generally  regulate  reimbursement  and billing  practices  under
Medicare and Medicaid  programs.  The federal fraud and abuse statute prohibits,
among other things, the payment,  offer,  solicitation or receipt of any form of
remuneration,  directly  or  indirectly,  in cash or in  kind  to  induce  or in
exchange for (i) the referral of a person for services  reimbursable by Medicare
or Medicaid,  or (ii) the  purchasing,  leasing,  ordering or  arranging  for or
recommending the purchase, lease or order of any item, good, facility or service
which is reimbursable  under Medicare or Medicaid.  Because the P.C.s receive no
revenue under Medicare and Medicaid,  the impact of these laws on the Company to
date has been  negligible.
                                       29
<PAGE>

There can be no assurance, however, that the P.C.s will not have patients in the
future  covered  by these  laws,  or that the  scope of these  laws  will not be
expanded in the future, and if expanded, such laws or interpretations thereunder
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and operating results.

Commencing  April 14, 2003,  health care providers,  including the Company,  are
required to comply with the electronic data security and privacy requirements of
the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). HIPAA
delegates  enforcement authority to the Centers for Medicare Services Office for
Civil  Rights.  Noncompliance  with  HIPAA  regulations  can  result  in  severe
penalties  up to  $250,000  in fines  and up to ten years in  prison.  While the
Company is in full compliance with all requirements, it cannot presently predict
the ultimate impact of the HIPAA regulations on the Company and its business.

Although the Company believes that its operations as currently  conducted are in
material  compliance  with applicable  laws,  there can be no assurance that the
Company's  contractual  arrangements  will  not be  successfully  challenged  as
violating   applicable   fraud   and   abuse,   self-referral,   false   claims,
fee-splitting, insurance, facility licensure or certificate-of-need laws or that
the  enforceability of such arrangements will not be limited as a result of such
laws. In addition,  there can be no assurance that the business  structure under
which the Company  operates,  or the advertising  strategy the Company  employs,
will not be deemed to  constitute  the  unlicensed  practice of dentistry or the
operation of an unlicensed  clinic or health care facility.  The Company has not
sought  judicial or  regulatory  interpretations  with  respect to the manner in
which it conducts its business.  There can be no assurance  that a review of the
business of the Company and the P.C.s by courts or regulatory  authorities  will
not result in a determination  that could  materially and adversely affect their
operations or that the regulatory  environment will not change so as to restrict
the Company's existing or future  operations.  In the event that any legislative
measures,  regulatory  provisions or rulings or judicial  decisions  restrict or
prohibit  the Company  from  carrying  on its  business  or from  expanding  its
operations to certain jurisdictions, structural and organizational modifications
of the Company's organization and arrangements may be required, which could have
a material  adverse  effect on the  Company,  or the  Company may be required to
cease  operations  or change the way it  conducts  business.  See Items 1 and 2.
"Business and Properties - Government Regulation."

Risks  Associated with  Acquisitions.  The Company has grown  substantially in a
relatively short period of time, in large part through  acquisitions of existing
Offices and through the development of de novo Offices.  Since its  organization
in May 1995, the Company has completed 42 dental practice acquisitions,  five of
which have been  consolidated  into existing  Offices.  The Company has recently
shifted its focus from  expansion by  acquisitions  and  development  of de novo
Offices to the greater  utilization of existing  physical  capacity  through the
recruitment of additional dentists and staff. The success of future acquisitions
will depend on factors, which include the following:

         *  Ability  to  Identify   Suitable   Dental   Practices.   Identifying
         appropriate  acquisition  candidates and negotiating  and  consummating
         acquisitions  can be a lengthy  and costly  process.  Furthermore,  the
         Company may compete for acquisition  opportunities  with companies that
         have greater resources than the Company. There can be no assurance that
         suitable acquisition candidates will be identified or that acquisitions
         will be  consummated  on terms  favorable to the  Company,  on a timely
         basis or at all. If a planned acquisition fails to occur or is delayed,
         the Company's  quarterly financial results may be materially lower than
         analysts'  expectations,  which likely  would cause a decline,  perhaps
         substantial,  in the market  price of the Common  Stock.  In  addition,
         increasing consolidation in the dental management services industry may
         result in an  increase in  purchase  prices  required to be paid by the
         Company to acquire dental practices.

         * Integration of Dental  Practices.  The integration of acquired dental
         practices into the Company's  networks is a difficult,  costly and time
         consuming  process which,  among other things,  requires the Company to
         attract  and  retain   competent   and   experienced   management   and
         administrative  personnel and to implement and integrate  reporting and
         tracking systems,  management  information  systems and other operating
         systems.  In addition,  such  integration  may require the expansion of
         accounting  controls  and  procedures  and the  evaluation  of  certain
         personnel  functions.  There  can  be  no  assurance  that  substantial
         unanticipated   problems,   costs  or  delays   associated   with  such
         integration  efforts or with such  acquired  practices  will not occur.
         There  also  can be no  assurance  that  the  Company  will  be able to
         successfully integrate acquired practices in a timely manner or at all,
         or that any  acquired  practices  will  have a  positive  impact on the
         Company's results of operations and financial condition.

         * Management of Acquisitions.  The success of acquisitions  made by the
         Company  will  depend  in  part  on the  Company's  ability  to  manage
         effectively  an increasing  number of Offices.  The addition of Offices
         may  impair  the  Company's  ability  to  provide  management  services
         efficiently  and  successfully  to  existing  Offices and to manage and
         supervise adequately the Company's employees.  The Company's results of
         operations  and  financial  condition  could  be  materially  adversely
         affected if it is unable to do so effectively.

                                       30
<PAGE>

         * Availability of Funds for Acquisitions.  Additional  acquisitions may
         require substantial  capital investment and adequate  financing.  Funds
         are needed for (i) the purchase of assets of dental practices, (ii) the
         integration of operations of acquired dental  practices,  and (iii) the
         purchase of additional equipment and technology for acquired practices.
         In addition,  increasing  consolidation in the dental services industry
         may result in an increase in purchase prices required to be paid by the
         Company to acquire  dental  practices.  Any inability of the Company to
         obtain suitable financing could cause the Company to limit or otherwise
         modify its acquisitions,  which could have a material adverse effect on
         the Company's results of operations and financial condition.  See "Risk
         Factors  - Need  for  Additional  Capital;  Uncertainty  of  Additional
         Financing" in this Item 7.

         * Ability  to  Increase  Revenues  and  Operating  Income  of  Acquired
         Practices.  A key  element  of  the  Company's  growth  strategy  is to
         increase revenues and operating income at its acquired  Offices.  There
         can be no assurance  that the Company's  revenues and operating  income
         from its acquired  Offices  will improve or that  revenues or operating
         income from existing  Offices will continue to improve.  Any failure by
         the Company in improving  revenues or  operating  income at its Offices
         could  have a  material  adverse  effect on the  Company's  results  of
         operations and financial condition.

Reliance  on  Certain  Personnel.  The  success of the  Company,  depends on the
continued  services of a relatively  limited  number of members of the Company's
senior  management,  including its  President,  Mark Birner,  D.D.S.,  its Chief
Executive Officer,  Fred Birner, and its Chief Financial Officer,  Treasurer and
Secretary,  Dennis  Genty.  Some key  employees  have only  recently  joined the
Company.  The Company  believes its future  success will depend in part upon its
ability to attract and retain qualified  management  personnel.  Competition for
such personnel is intense and the Company competes for qualified  personnel with
numerous  other  employers,  some of which  have  greater  financial  and  other
resources  than the Company.  The loss of the services of one or more members of
the  Company's  senior  management  or the  failure  to add or retain  qualified
management  personnel  could have a  material  adverse  effect on the  Company's
business, financial condition and operating results.

Risks Associated with  Cost-Containment  Initiatives.  The health care industry,
including  the dental  services  market,  is  experiencing  a trend  toward cost
containment,  as payors seek to impose lower reimbursement rates upon providers.
The Company believes that this trend will continue and will increasingly  affect
the provision of dental services.  This may result in a reduction in per-patient
and  per-procedure  revenue from  historic  levels.  Significant  reductions  in
payments  to  dentists or other  changes in  reimbursement  by payors for dental
services may have a material adverse effect on the Company's business, financial
condition and operating results.

Risks  Associated  with Capitated  Payment  Arrangements.  Part of the Company's
growth strategy  involves  selectively  obtaining  capitated managed dental care
contracts.  Under a capitated managed dental care contract,  the dental practice
provides dental services to the members of the plan 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 practice which is obligated to provide them, and may receive a co-pay for
each service provided.  This arrangement  shifts the risk of utilization of such
services to the dental group practice that provides the dental services. Because
the Company  assumes  responsibility  under its  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 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 contrast,
under  traditional  indemnity  insurance  arrangements,  the  insurance  company
reimburses reasonable charges that are billed for the dental services provided.

In 2002, the Company derived  approximately 13.0% of its revenues from capitated
managed  dental  care  contracts,  and  14.5% of its  revenues  from  associated
co-payments.  Risks  associated  with  capitated  managed  dental care contracts
include principally (i) the risk that the capitation payments and any associated
co-payments do not adequately  cover the costs of providing the dental services,
(ii) the risk  that one or more of the P.C.s may be  terminated  as an  approved
provider by managed dental care plans with which they  contract,  (iii) the risk
that the Company will be unable to negotiate future  capitation  arrangements on
satisfactory  terms with managed care dental plans, and (iv) the risk that large
subscriber  groups will terminate  their  relationship  with such managed dental
care plans which would  reduce  patient  volume and  capitation  and  co-payment
revenue.  There can be no  assurance  that the Company will be able to negotiate
future  capitation  arrangements on behalf of P.C.s on satisfactory  terms or at
all, or that the fees  offered in current  capitation  arrangements  will not be
reduced to levels  unsatisfactory to the Company.  Moreover,  to the extent that
costs  incurred  by the  Company's  affiliated  dental  practices  in  providing
services to patients  covered by capitated  managed dental care contracts exceed
the revenue under such contracts,  the Company's  business,  financial condition
and operating results may be materially and adversely affected.  See Items 1 and
2. "Business and Properties - Operations - Payor Mix."

                                       31
<PAGE>

Risks of  Becoming  Subject  to  Licensure.  Federal  and  state  laws  regulate
insurance companies and certain other managed care  organizations.  Many states,
including Colorado, also regulate the establishment and operation of networks of
health  care   providers.   In  most   states,   these  laws  do  not  apply  to
discounted-fee-for-service  arrangements. These laws also do not generally apply
to networks that are paid on a capitated basis, unless the entity with which the
network  provider  is  contracting  is not a  licensed  health  insurer or other
managed care  organization.  There are exceptions to these rules in some states.
For example,  certain states require a license for a capitated  arrangement with
any party unless the  risk-bearing  entity is a  professional  corporation  that
employs the  professionals.  The Company believes its current  activities do not
constitute the provision of insurance in Colorado or New Mexico, and thus, it is
in  compliance  with the  insurance  laws of these  states  with  respect to the
operation of its Offices.  There can be no assurance that these laws will not be
changed or that  interpretations of these laws by the regulatory  authorities in
those states,  or in the states in which the Company  expands,  will not require
licensure or a restructuring of some or all of the Company's operations.  In the
event that the  Company is  required to become  licensed  under these laws,  the
licensure  process can be lengthy and time consuming and,  unless the regulatory
authority permits the Company to continue to operate while the licensure process
is progressing,  the Company could  experience a material  adverse change in its
business  while the  licensure  process is  pending.  In  addition,  many of the
licensing  requirements  mandate strict financial and other requirements,  which
the Company may not  immediately be able to meet.  Further,  once licensed,  the
Company  would be  subject  to  continuing  oversight  by and  reporting  to the
respective  regulatory agency. The regulatory framework of certain jurisdictions
may limit the  Company's  expansion  into,  or  ability to  continue  operations
within,  such  jurisdictions  if the Company is unable to modify its operational
structure  to  conform  to such  regulatory  framework.  Any  limitation  on the
Company's  ability  to  expand  could  have a  material  adverse  effect  on the
Company's business, financial condition and operating results.

Risks Arising From Health Care Reform.  Federal and state governments  currently
are  considering  various  types of health care  initiatives  and  comprehensive
revisions to the health care and health insurance systems. Some of the proposals
under consideration, or others that may be introduced, could, if adopted, have a
material  adverse  effect on the  Company's  business,  financial  condition and
operating  results.  It is uncertain what legislative  programs,  if any will be
adopted in the future,  or what action Congress or state  legislatures  may take
regarding health care reform proposals or legislation.  In addition,  changes in
the health care industry,  such as the growth of managed care  organizations and
provider  networks,  may  result  in  lower  payments  for the  services  of the
Company's managed practices.

Risks Associated with Intangible Assets. At December 31, 2002, intangible assets
on the Company's  consolidated  balance sheet were $15.5  million,  representing
64.0% of the Company's total assets at that date. The Company expects the amount
allocable to intangible assets on its balance sheet to increase in the future in
connection  with  additional  acquisitions,  which will  increase the  Company's
amortization  expense. In the event of any sale or liquidation of the Company or
a  portion  of its  assets,  there  can be no  assurance  that the  value of the
Company's  intangible  assets  will  be  realized.  In  addition,   the  Company
continually  evaluates whether events and circumstances have occurred indicating
that any  portion  of the  remaining  balance  of the  amount  allocable  to the
Company's  intangible assets may not be recoverable.  When factors indicate that
the amount allocable to the Company's  intangible assets should be evaluated for
possible impairment, the Company may be required to reduce the carrying value of
such assets. Any future  determination  requiring the write off of a significant
portion of unamortized intangible assets could have a material adverse effect on
the Company's business, financial condition and operating results.

Possible  Exposure to  Professional  Liability.  In recent years,  dentists have
become subject to an increasing number of lawsuits alleging malpractice. Some of
these lawsuits  involve large claims and  significant  defense costs.  Any suits
involving the Company or dentists at the Offices, if successful, could result in
substantial damage awards that may exceed the limits of the Company's  insurance
coverage.  The Company provides practice management services; it does not engage
in the  practice of  dentistry  or control  the  practice  of  dentistry  by the
dentists or their compliance with regulatory requirements directly applicable to
providers. There can be no assurance,  however, that the Company will not become
subject to litigation in the future as a result of the dental services  provided
at the Offices.  The Company  maintains  professional  liability  insurance  for
itself and provides for  professional  liability  insurance  covering  dentists,
hygienists and dental  assistants at the Offices.  While the Company believes it
has adequate liability  insurance  coverage,  there can be no assurance that the
coverage  will be adequate to cover losses or that  coverage will continue to be
available upon terms satisfactory to the Company. In addition,  certain types of
risks and  liabilities,  including  penalties and fines imposed by  governmental
agencies, are not covered by insurance.  Malpractice insurance, moreover, can be
expensive and varies from state to state.  Successful  malpractice  claims could
have a material adverse effect on the Company's  business,  financial  condition
and operating results. See Items 1 and 2. "Business and Properties - Insurance."

Risks  Associated with  Non-Competition  Covenants and Other  Arrangements  with
Managing  Dentists.  The Management  Agreements  require the P.C.s to enter into
employment  agreements  with dentists which include  non-competition  provisions
typically  for three to five years  after  termination  of  employment  within a
specified geographic area, usually a specified number of miles from the relevant
Office, and restrict solicitation of employees and patients.

                                       32
<PAGE>

In Colorado,  covenants  not to compete are  prohibited  by statute with certain
exceptions.  One  exception  permits  enforcement  of  covenants  not to compete
against  executive  and  management  personnel  and officers and  employees  who
constitute  professional staff to executive and management personnel.  Permitted
covenants  not to compete are  enforceable  in Colorado only to the extent their
terms are  reasonable in both  duration and  geographic  scope.  Arizona and New
Mexico courts have enforced covenants not to compete if their terms are found to
be reasonable.  It is thus uncertain whether a court will enforce a covenant not
to compete in those states in a given  situation.  In addition,  there is little
judicial  authority  regarding whether a practice  management  agreement will be
viewed as the type of  protectable  business  interest  that would  permit it to
enforce such a covenant or to require a P.C. to enforce such  covenants  against
dentists  formerly  employed  by  the  P.C.  Since  the  intangible  value  of a
Management  Agreement  depends  primarily on the ability of the P.C. to preserve
its business,  which could be harmed if employed  dentists went into competition
with the P.C., a  determination  that the covenants not to compete  contained in
the  employment  agreements  between  the P.C.  and its  employed  dentists  are
unenforceable  could have a material adverse impact on the Company.  See Items 1
and 2. "Business and Properties - Affiliation Model- Employment  Agreements." In
addition,  the Company is a party to various  agreements with managing  dentists
who own the P.C.s,  which restrict the dentists'  ability to transfer the shares
in the P.C.s. See Items 1 and 2. "Business and Properties - Affiliation  Model -
Relationship  with P.C.s." There can be no assurance that these  agreements will
be enforceable in a given situation.  A determination  that these agreements are
not enforceable could have a material adverse impact on the Company.

Seasonality. The Company's past financial results have fluctuated somewhat due
to seasonal variations in the dental service industry, with Revenue typically
declining in the fourth calendar quarter. The Company expects this seasonal
fluctuation to continue in the future.

Competition.  The dental  practice  management  segment  of the dental  services
industry  is highly  competitive  and is expected  to become  increasingly  more
competitive.  There are several dental  practice  management  companies that are
operating in the Company's  markets.  There are also a number of companies  with
dental practice  management  businesses similar to that of the Company currently
operating in other parts of the country which may enter the  Company's  existing
markets in the future.  As the Company seeks to expand its  operations  into new
markets,  it is likely  to face  competition  from  dental  practice  management
companies,  which already have  established a strong  business  presence in such
locations.  The  Company's  competitors  may  have  greater  financial  or other
resources or otherwise enjoy competitive advantages, which may make it difficult
for the  Company to compete  against  them or to acquire  additional  Offices on
terms  acceptable to the Company.  See Items 1 and 2. "Business and Properties -
Competition."

The business of providing general dental and specialty dental services is highly
competitive  in the  markets  in which the  Company  operates.  Competition  for
providing  dental services may include  practitioners  who have more established
practices and reputations. The Company competes against established practices in
the retention and recruitment of general dentists,  specialists,  hygienists and
other personnel. If the availability of such dentists,  specialists,  hygienists
and other personnel  begins to decline in the Company's  markets,  it may become
more difficult to attract qualified dentists, specialists,  hygienists and other
personnel.  There can be no  assurance  that the Company will be able to compete
effectively   against  other  existing   practices  or  against  new  single  or
multi-specialty  dental practices that enter its markets,  or to compete against
such  practices  in  the  recruitment  and  retention  of  qualified   dentists,
specialists,  hygienists and other  personnel.  See Items 1 and 2. "Business and
Properties - Competition."

Volatility of Stock Price. The market price of the Common Stock could be subject
to wide fluctuations in response to quarterly variations in operating results of
the Company or its  competitors,  changes in  earnings  estimates  by  analysts,
developments in the industry or changes in general economic conditions.

Restrictions on Payment of Dividends.  The Company has not declared or paid cash
dividends  on its Common  Stock since its  formation,  and the Company  does not
anticipate paying cash dividends on its Common Stock in the foreseeable  future.
The payment of dividends is prohibited under the terms of the Company's existing
credit facility and may be prohibited  under any future credit  facility,  which
the Company may obtain.  See Item 5. "Market for Registrant's  Common Equity and
Related Stockholder  Matters" and "Liquidity and Capital Resources" in this Item
7.



                                       33
<PAGE>



ITEM 7A.  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 December 31, 2002, the Company has not used derivative  instruments or
engaged in hedging activities.

Interest Rate Risk.  The interest  payable on the Company's  line-of-credit  and
term-loan  is  variable  based upon the prime rate and,  therefore,  affected by
changes in market  interest  rates.  At December  31, 2002,  $1.825  million was
outstanding  with an interest rate of 4.25%  (prime).  The Company may repay the
balance in full at any time without penalty.  As a result,  the Company does not
believe that any reasonably  possible  near-term changes in interest rates would
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
interest rate on the Company's Credit Facility would have resulted in additional
interest expense of  approximately  $32,000 for the twelve months ended December
31, 2002.



                                       34
<PAGE>



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                                                 INDEX TO FINANCIAL STATEMENTS

Birner Dental Management Services, Inc. and subsidiaries' consolidated financial
statements  as of  December  31,  2001 and 2002 and for the  three  years  ended
December 31, 2002:

                                                                        Page
                                                                        ----
    Report of Independent Public Accountants                             36
    Consolidated Balance Sheets                                          38
    Consolidated Statements of Operations                                39
    Consolidated Statements of Shareholders' Equity                      40
    Consolidated Statements of Cash Flows                                41
    Notes to Consolidated Financial Statements                           43









                                       35
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Birner Dental Management Services, Inc.:

We have audited the  accompanying  consolidated  balance sheets of Birner Dental
Management  Services,  Inc.  (a Colorado  corporation)  and  subsidiaries  as of
December  31,  2002  and  2001  and  the  related  consolidated   statements  of
operations,  shareholders' equity and cash flows for the years then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Birner  Dental  Management
Services, Inc. and subsidiaries as of December 31, 2002 and 2001 and the results
of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.




Hein + Associates LLP



Denver, Colorado,
February 11, 2003





                                       36
<PAGE>




The following report of independent public accountants is a copy of a previously
issued Arthur Andersen LLP report and has not been reissued by Arthur Andersen
LLP.



                           REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Birner Dental Management Services, Inc.:

We have audited the  accompanying  consolidated  balance  sheet of Birner Dental
Management  Services,  Inc.  (a Colorado  corporation)  and  subsidiaries  as of
December  31,  2000,  and the related  consolidated  statements  of  operations,
shareholders'  equity  and cash  flows for each of the two  years in the  period
ended December 31, 2000. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Birner  Dental  Management
Services,  Inc. and  subsidiaries  as of December  31, 2000,  and the results of
their  operations  and their  cash flows for each of the two years in the period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United States.




                                            ARTHUR ANDERSEN LLP



Denver, Colorado,
March 2, 2001







                                       37
<PAGE>





                  BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                                               December 31,
                                                                                      ------------------------------
                                      ASSETS                                             2001                2002
                                                                                      ------------------------------

CURRENT ASSETS:
<S>                                                                                <C>                  <C>
    Cash and cash equivalents                                                      $    949,236         $  1,072,757
    Accounts receivable, net of allowance for doubtful
       accounts of $201,795 and $212,803, respectively                                3,086,648            2,708,231
    Deferred tax asset                                                                  112,214              120,622
    Prepaid expenses and other assets                                                   724,429              738,119
                                                                                    -----------            ---------
              Total current assets                                                    4,872,527            4,639,729

PROPERTY AND EQUIPMENT, net                                                           5,369,198            3,926,422

OTHER NONCURRENT ASSETS:
    Intangible assets, net                                                           13,915,362           15,496,271
    Deferred charges and other assets                                                   216,285              167,098
    Notes receivable - related parties                                                  284,479                    -
    Deferred tax asset, net                                                             104,074                    -
                                                                                    -----------          -----------

              Total assets                                                          $24,761,925          $24,229,520
                                                                                    ===========          ===========

                       LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                           $ 3,239,202          $ 4,011,466
    Current maturities of long-term debt                                              1,332,158            2,169,713
                                                                                    -----------          -----------
              Total current liabilities                                               4,571,360            6,181,179

LONG-TERM LIABILITIES:
    Deferred tax liability, net                                                               -               24,258
    Long-term debt, net of current maturities                                         3,296,304            1,087,422
    Other long-term obligations                                                         173,089              177,635
                                                                                    -----------          -----------

              Total liabilities                                                       8,040,753            7,470,494

COMMITMENTS AND CONTINGENCIES (Note 10)

SHAREHOLDERS' EQUITY:
    Preferred Stock, no par value, 10,000,000 shares
       authorized; none outstanding                                                           -                    -
    Common Stock, no par value, 20,000,000 shares
       authorized; 1,506,705 and 1,434,817 shares issued and
       outstanding, respectively                                                     16,855,661           15,959,829
    Retained earnings (accumulated deficit)                                            (134,489)             799,197
                                                                                    -----------          -----------
              Total shareholders' equity                                             16,721,172           16,759,026
                                                                                    -----------          -----------

              Total liabilities and shareholders' equity                            $24,761,925          $24,229,520
                                                                                    ===========          ===========
</TABLE>



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


                                       38
<PAGE>




            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>



                                                                              Years Ended December 31,
                                                                2000                   2001                  2002
                                                                ----                   ----                  ----

<S>                                                          <C>                    <C>                   <C>
NET REVENUE:                                                 $29,418,772            $29,249,333           $30,254,749
DIRECT EXPENSES:
       Clinical salaries and benefits                         12,020,083             11,803,291            11,598,162
       Dental supplies                                         1,870,396              1,754,923             1,788,471
       Laboratory fees                                         2,634,975              2,471,087             2,366,710
       Occupancy                                               3,250,974              3,289,937             3,416,877
       Advertising and marketing                                 328,149                315,083               352,947
       Depreciation and amortization                           2,409,223              2,462,604             2,389,556
       General and administrative                              2,961,451              3,060,699             3,192,266
                                                             -----------            -----------           -----------

                                                              25,475,251             25,157,624            25,104,989
                                                             -----------            -----------           -----------
       Contribution from dental offices                        3,943,521              4,091,709             5,149,760

CORPORATE EXPENSES:
       General and administrative                              3,415,031              2,948,082             2,977,096
       Depreciation and amortization                             331,738                321,690               326,879

    Operating income                                             196,752                821,937             1,845,785
    Interest expense, net                                        630,410                450,869               344,738

    Income (loss) before income taxes                           (433,658)               371,068             1,501,047
    Income tax expense (benefit)                                (112,756)               120,812               567,361


    Net income (loss)                                        $  (320,902)          $    250,256           $   933,686
                                                             ===========           ============           ===========


Net income (loss) per share of Common Stock:
       Basic                                                 $      (.21)          $        .17           $       .63
                                                             ===========           ============           ===========

       Diluted                                               $      (.21)          $        .16           $       .58
                                                             ===========           ============           ===========


Weighted average number of shares of Common Stock and dilutive securities:
       Basic                                                   1,523,594              1,506,705             1,480,490
                                                             ===========           ============           ===========

       Diluted                                                 1,523,594              1,529,549             1,614,315
                                                             ===========           ============           ===========


</TABLE>

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



                                       39
<PAGE>




            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>




                                                                                         Retained
                                                                                         Earnings             Total
                                                              Common Stock             (Accumulated       Shareholders'
                                                        Shares           Amount          Deficit)            Equity
                                                        ------           ------           ---------       -----------
<S>                                                    <C>            <C>                 <C>             <C>
BALANCES, December 31, 1999                            1,532,987      $16,968,454         $ (63,843)      $16,904,611
    Purchase and retirement of Common Stock              (26,282)        (112,793)                -          (112,793)
    Net loss, FYE 2000                                         -                 -         (320,902)         (320,902)
                                                       ---------      -----------         ---------       -----------

BALANCES, December 31, 2000                            1,506,705       16,855,661          (384,745)       16,470,916
    Net Income, FYE 2001                                       -                -           250,256           250,256
                                                       ---------      -----------         ---------       -----------

BALANCES, December 31, 2001                            1,506,705       16,855,661          (134,489)       16,721,172
    Common Stock options exercised                        45,348          111,359                             111,359
    Purchase and retirement of Common Stock             (117,236)      (1,161,812)                         (1,161,812)
    Exercise of Common Stock options
       recorded as compensation expense                       -            60,054               -              60,054
    Tax benefit of Common Stock options
       exercised                                              -            94,567               -              94,567
    Net Income, FYE 2002                                                                    933,686           933,686
                                                       ---------      -----------         ---------       -----------



BALANCES, December 31, 2002                            1,434,817      $15,959,829          $799,197       $16,759,026
                                                       =========      ===========          ========       ===========

</TABLE>



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



                                       40
<PAGE>




            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                                    Years Ended December 31,
                                                                        2000                 2001                2002
                                                                        ----                 ----                ----

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>               <C>                <C>
    Net income (loss)                                              $    (320,902)    $    250,256       $     933,686
   Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
          Depreciation and amortization                                2,740,961        2,784,294           2,716,435
          (Gain) Loss on disposition of property                               -            7,956             (23,312)
          Provision for doubtful accounts                                  2,963              748              11,008
          Provision for (benefit from) deferred income taxes            (112,756)          72,333             172,924
          Amortization of debt issuance costs                             23,662           21,824              66,578

    Changes in assets and liabilities, net of effects from
    acquisitions:
          Accounts receivable                                            (49,852)         784,422             367,409
          Prepaid expense, income tax receivable
              and other assets                                           122,422         (289,187)            (14,770)
          Accounts payable and accrued expenses                         (705,196)         293,680             737,524
          Income taxes payable                                                 -           48,479             (18,260)
          Other long-term obligations                                     37,563           44,269               4,546
                                                                   -------------     ------------       -------------
    Net cash provided by operating activities                          1,738,865        4,019,074           4,953,768

CASH FLOWS FROM INVESTING ACTIVITIES:
    Notes receivable - related parties, net                             (140,042)         (70,367)            284,479
    Capital expenditures                                                (688,930)        (546,798)           (513,779)
    Development of new dental offices                                   (427,731)               -                   -
    Acquisition of dental offices                                       (197,163)        (435,006)         (1,158,477)
                                                                   -------------     ------------       -------------
    Net cash used in investing activities                             (1,453,866)      (1,052,171)         (1,387,777)
                                                                   -------------     ------------       -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net repayments - line of credit                                      (93,000)      (2,439,000)           (168,000)
    Repayment of bank term-loan                                                -                -          (2,050,000)
    Repayment of long-term debt                                         (194,743)        (202,827)           (312,327)
    Payment of financing costs                                                 -          (67,257)            (16,311)
    Proceeds from exercise of Common Stock options                             -                -             111,359
    Purchase and retirement of Common Stock                             (112,793)               -          (1,161,812)
    Exercise of Common Stock options recorded
      as compensation expense                                                  -                -              60,054
    Tax benefit of Common Stock options exercised                              -                -              94,567

    Net cash used in financing activities                               (400,536)      (2,709,084)         (3,442,470)
                                                                   -------------     ------------       -------------
NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                                (115,537)         257,819             123,521
CASH AND CASH EQUIVALENTS, beginning of year                             806,954          691,417             949,236
                                                                   -------------     ------------       -------------

CASH AND CASH EQUIVALENTS, end of year                             $     691,417     $     949,236      $   1,072,757
                                                                   =============     =============      =============

</TABLE>

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



                                       41
<PAGE>




            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                                Years Ended December 31,
                                                                 2000                   2001                  2002
                                                                 ----                   ----                  ----

SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:

<S>                                                         <C>                  <C>                   <C>
       Cash paid during the year for interest               $       630,570      $       503,979       $    345,081
                                                            ===============      ===============       ============
       Cash paid during the year for income taxes           $           -        $                                -
                                                            ===============      ===============       ============
370,880


SUPPLEMENTAL DISCLOSURES OF NONCASH
   INVESTING AND FINANCING ACTIVITIES:

       Notes payable incurred from:
          Acquisition of dental offices                     $      189,000       $       434,000       $  1,159,000
                                                            ===============      ===============       ============


</TABLE>













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





                                       42
<PAGE>



            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    DESCRIPTION OF BUSINESS AND ORGANIZATION

Birner Dental Management Services, Inc., a Colorado corporation (the "Company"),
was  incorporated  on May 17, 1995 and manages  dental  group  practices.  As of
December  31,  2000,  2001 and 2002 the  Company  managed  56, 54, and 54 dental
practices (collectively referred to as the "Offices"), respectively. The Company
provides management  services,  which are designed to improve the efficiency and
profitability  of  the  dental   practices.   These  Offices  are  organized  as
professional  corporations  and the Company  provides its management  activities
with  the  Offices  under  long-term  management   agreements  (the  "Management
Agreements").

The Company has grown primarily through acquisitions and de novo developments.
The following table highlights the Company's growth through December 31, 2002 as
follows:
<TABLE>
<CAPTION>


                                                                                  De Novo                   Office
                                                    Acquisitions              Developments              Consolidations
<S>                 <C>                                   <C>                       <C>                      <C>
                    1998 and Prior *                      41                        11                       (3)
                    1999                                   1                         5                       (1)
                    2000                                   -                         2                        -
                    2001                                   -                         -                       (2)
                    2002                                   -                         -                        -
                                                    -------------             ---------------           ---------------

                    Total                                 42                        18                       (6)
                                                    =============             ===============           ================
</TABLE>

* Includes three dental Offices acquired from one of the Company's founders.

The Company's  operations and expansion strategy are dependent,  in part, on the
availability of dentists,  hygienists and other  professional  personnel and the
ability to hire and  assimilate  additional  management  and other  employees to
accommodate expanded operations.

(2)     SIGNIFICANT ACCOUNTING POLICIES

       Basis of Presentation/Basis of Consolidation

The  accompanying  consolidated  financial  statements have been prepared on the
accrual basis of accounting.  These financial  statements  present the financial
position and results of  operations  of the Company and the  Offices,  which are
under the control of the Company.  All  intercompany  accounts and  transactions
have been eliminated in the consolidation.  Certain prior year amounts have been
reclassified to conform to the presentation used in 2001.

The Company treats Offices as consolidated subsidiaries where it has a long-term
and unilateral  controlling financial interest over the assets and operations of
the  Offices.  The  Company has  obtained  control of  substantially  all of the
Offices via long-term contractual management arrangements.  Certain key features
of these  arrangements  either  enable  the  Company at any time and in its sole
discretion  to cause a change in the  shareholder  of the P.C.  (i.e.,  "nominee
shareholder") or allow the Company to vote the shares of stock held by the owner
of the P.C.  and to elect a majority of the board of  directors  of the P.C. The
accompanying  statements of operations reflect net revenue,  which is the amount
billed to patients, less dentists' and hygienists' compensation. Direct expenses
consist of all the expenses  incurred in  operating  the Offices and paid by the
Company.  Under the Management Agreements the Company assumes responsibility for
the  management  of most  aspects  of the  Offices'  business  (other  than  the
provision of dental  services)  including  personnel  recruitment  and training,
comprehensive  administrative  business and  marketing  support and advice,  and
facilities,  equipment,  and  support  personnel  as  required  to  operate  the
practice.  The  accompanying  consolidated  financial  statements  are presented
without  regard to where the costs are incurred  since under the  management and
other  agreements the Company  believes it has long-term and unilateral  control
over the assets and operations of substantially all of the Offices.



                                       43
<PAGE>


The Emerging  Issues Task Force ("EITF") Issue 97-2 of the Financial  Accounting
Standards  Board ("FASB") covers  financial  reporting  matters  relating to the
physician  practice   management   industry,   including  the  consolidation  of
professional  corporation  revenue and  expenses,  the  accounting  for business
combinations  and the  treatment  of stock  options  for  dentists  as  employee
options.  The Company's  accounting  policies in these areas are consistent with
the provisions of EITF Issue 97-2.

A summary of the components of net revenue for the years ended December 31,
2000, 2001, and 2002 follows:
<TABLE>
<CAPTION>


                                                                                Years Ended December 31,
                                                                        2000                   2001                2002

<S>                                                            <C>                   <C>                <C>
    Total dental group practice revenue, net                   $    41,232,288       $   41,388,573     $    42,679,654
    Less - revenue from managed offices, net                         4,979,535            3,941,061                   -
                                                               ---------------       --------------     ---------------

    Dental office revenue, net                                      36,252,753           37,447,512          42,679,654
    Less - amounts retained by dental offices                       10,261,702           10,904,069          12,424,905
                                                               ---------------       --------------     ---------------

    Net revenue from consolidated dental offices                    25,991,051           26,543,443          30,254,749
    Management service fee revenue                                   3,427,721            2,705,890                   -
                                                               ---------------       --------------     ---------------

    Net revenue                                                $    29,418,772       $   29,249,333     $    30,254,749
                                                               ================      ==============     ===============

</TABLE>

       Total Dental Group Practice Revenue, Net

"Total  dental  group  practice  revenue,  net"  represents  the  revenue of the
consolidated  and managed Offices reported at the estimated  realizable  amounts
from   insurance   companies,   preferred   provider   and  health   maintenance
organizations (i.e., third-party payors) and patients for services rendered, net
of contractual and other  adjustments.  Dental services are billed and collected
by the Company in the name of the Offices.

Revenue  under  certain  third-party  payor  agreements  is subject to audit and
retroactive  adjustments.  There  are no  material  claims,  disputes  or  other
unsettled matters that exist to management's  knowledge  concerning  third-party
reimbursements.

During 2000,  2001, and 2002,  18.5%,  15.4%,  and 13.0%,  respectively,  of the
Company's  gross  revenue  was  derived  from  capitated   managed  dental  care
contracts. Under these contracts the Offices receive a fixed monthly payment for
each covered plan member for a specific  schedule of services  regardless of the
quantity or cost of services provided by the Offices.  Additionally, the Offices
may receive a co-pay from the patient  for certain  services  provided.  Revenue
from the  Company's  capitated  managed  dental care  contracts is recognized as
earned on a monthly basis.

During the years ended December 31, 2000, 2001 and 2002, the following companies
were responsible for the corresponding percentages of the Company's total dental
group practice revenue (includes  capitation  premiums and  co-payments):  Aetna
Healthcare was responsible for 9.1%, 7.4% and 6.6%,  respectively,  CIGNA Dental
Health was responsible for 5.9%, 6.0% and 6.3%,  respectively and Delta Care was
responsible for 8.6%, 8.0% and 6.6%, respectively.

       Net Revenue from Consolidated Dental Offices

"Net revenue from  consolidated  dental  offices"  represents  the "Total dental
group practice revenue,  net" less amounts retained by the Offices primarily for
compensation  paid by the professional  corporations to dentists and hygienists.
Dentists receive compensation based upon a specified amount per hour worked or a
percentage of revenue or  collections  attributable  to their work,  and a bonus
based upon the operating performance of the Office.



                                       44
<PAGE>



     Management Service Fee Revenue

During  2000 and 2001 for the  Offices  for which  the  Company  has  Management
Agreements,  but did not have control,  the Company received  management service
fee  revenue  included  with  net  revenue  in the  accompanying  statements  of
operations.  "Management  service fee  revenue" is equal to gross  revenue  less
compensation  for  dentists and  hygienists  for the  Offices.  Direct  expenses
associated  with the  operations  of these  Offices  are  also  included  in the
accompanying statements of operations.

       Contribution From Dental Offices

The "Contribution from dental offices" represents the excess of net revenue from
the operations of the Offices over direct expenses associated with operating the
Offices.  The revenue and direct expense amounts relate  exclusively to business
activities  associated with the Offices.  The  contribution  from dental offices
provides an indication of the level of earnings  generated from the operation of
the Offices to cover  corporate  expenses,  interest  expense charges and income
taxes.

       Advertising and Marketing

The costs of advertising, promotion and marketing are expensed as incurred.

       Cash and Cash Equivalents

For purposes of the  consolidated  balance  sheets and statements of cash flows,
cash and cash  equivalents  include money market  accounts and all highly liquid
investments with original maturities of three months or less.

       Accounts Receivable

Accounts receivable  represents  receivables from patients and other third-party
payors  for  dental  services  provided.   Such  amounts  are  recorded  net  of
contractual  allowances and other  adjustments at time of billing.  In addition,
the  Company has  estimated  allowances  for  uncollectible  accounts.  In those
instances  when  payment is not  received  at the time of  service,  the Offices
record receivables from their patients,  most of who are local residents and are
insured under third-party payor agreements.  Management continually monitors and
periodically adjusts the allowances associated with these receivables.

       Property and Equipment

Property  and  equipment  are stated at cost or fair market value at the date of
acquisition,  net  of  accumulated  depreciation.  Property  and  equipment  are
depreciated using the straight-line method over their useful lives of five years
and leasehold  improvements are amortized over the remaining life of the leases.
Depreciation  was  $2,114,446,  $2,125,756,  and  $1,979,506 for the years ended
December 31, 2000, 2001 and 2002, respectively.

       Intangible Assets

The Company's dental practice  acquisitions involve the purchase of tangible and
intangible  assets and the  assumption  of certain  liabilities  of the acquired
Offices.  As part of the purchase price  allocation,  the Company  allocates the
purchase price to the tangible and identifiable  intangible  assets acquired and
liabilities assumed, based on estimated fair market values. Costs of acquisition
in  excess  of the  net  estimated  fair  value  of  tangible  and  identifiable
intangible  assets  acquired  and  liabilities  assumed  are  allocated  to  the
Management Agreement. The Management Agreement represents the Company's right to
manage the Offices during the 40-year term of the agreement.  The assigned value
of the Management  Agreement is amortized using the straight-line  method over a
period of 25 years.  Amortization  was  $626,515,  $658,538 and $736,929 for the
years ended December 31, 2000, 2001, and 2002, respectively.

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




                                       45
<PAGE>


     Impairment of Long-Lived and Intangible Assets

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.

           Concentrations of Credit Risk

Financial  instruments which potentially subject the Company to concentration of
credit risk are primarily cash and cash equivalents and accounts receivable. The
Company  maintains  its cash  balances in the form of bank demand  deposits  and
money market accounts with financial  institutions that management  believes are
creditworthy.  The Company may be exposed to credit  risk  generally  associated
with healthcare and retail companies.  The Company  established an allowance for
uncollectible  accounts  based  upon  factors  surrounding  the  credit  risk of
specific customers,  historical trends and other information. The Company has no
significant  financial  instruments  with  off-balance  sheet risk of accounting
loss,  such as foreign  exchange  contracts,  option  contracts or other foreign
currency hedging arrangements.

       Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period.

The  application  of  accounting  policies  requires  the  use of  judgment  and
estimates. As it relates to the Company, estimates and forecasts are required to
determine any impairment of assets, allowances for bad debts, deferred tax asset
valuation  reserves,  if any,  deferred  revenue  and  employee  benefit-related
liabilities.

These  matters  that are subject to  judgments  and  estimation  are  inherently
uncertain,  and different amounts could be reported using different  assumptions
and estimates.  Management  uses its best estimates and judgments in determining
the appropriate amount to reflect in the financial statements,  using historical
experience and all available information.  The Company also uses outside experts
where  appropriate.  The Company applies estimation  methodologies  consistently
from year to year.

       Income Taxes

The Company accounts for income taxes (Note 11) pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the asset and liability method of computing deferred
income taxes. The objective of the asset and liability method is to establish
deferred tax assets and liabilities for the temporary differences between the
book basis and the tax basis of the Company's assets and liabilities at enacted
tax rates expected to be in effect when such amounts are realized or settled.



                                       46
<PAGE>


       Earnings Per Share

The Company has adopted SFAS No. 128 which  establishes  standards for computing
and presenting earnings per share ("EPS") for entities with publicly held common
stock. The standard  requires  presentation of two categories of EPS - basic EPS
and diluted EPS. Basic EPS excludes  dilution and is computed by dividing income
available to common stockholders by the weighed-average  number of common shares
outstanding for the year. Diluted EPS reflects the potential dilution that could
occur if securities or other  contracts to issue common stock were  exercised or
converted  into common  stock or resulted in the  issuance of common  stock that
then shared in the earnings of the Company.
<TABLE>
<CAPTION>

                                                          Years Ended December 31,
                                   2000                              2001                           2002
                                  Weighted    Per                 Weighted    Per                 Weighted    Per
                                  Average     Share               Average     Share               Average    Share
                        Loss       Shares     Amount     Income    Shares     Amount     Income    Shares   Amount
                        ----      --------    ------     ------   --------    ------     ------   --------  ------

Basic EPS:

<S>                    <C>           <C>         <C>         <C>        <C>       <C>         <C>        <C>        <C>
   Net income (loss)   $ (320,902)   1,523,594$  (.21)     $250,256   1,506,705 $ .17       $933,686   1,480,490  $.63
                       ==========    ==========  ====      ========   ========= =====       ========   =========  ====


Diluted EPS:

   Net income (loss)   $ (320,902)   1,523,594$  (.21)     $250,256   1,529,549 $ .16       $933,686   1,614,315  $.58
                       ==========    ==========  ====      ========   ========= =====       ========   =========  ====


</TABLE>

All options and warrants to purchase  shares of Common Stock were  excluded from
the  computation of diluted  earnings for the year ended December 31, 2000 since
they were  anti-dilutive as a result of the Company's net loss for the year. The
number of options and warrants  excluded from the earnings per share calculation
because they are anti-dilutive, using the treasury stock method were 511 for the
year December 31, 2000.  The  difference  between  basic  earnings per share and
diluted  earnings  per share  for the years  ended  December  31,  2001 and 2002
relates to the effect of 22,844 and 133,825, respectively, of dilutive shares of
Common Stock from stock options and warrants  which are included in total shares
for the diluted  calculation.  All shares,  share  prices and earnings per share
calculations  have been restated to reflect a  one-for-four  reverse stock split
that was effective February 26, 2001.

       Comprehensive Income

The FASB issued  SFAS 130  "Reporting  Comprehensive  Income" in June 1997 which
established standards for reporting and displaying  comprehensive income and its
components in a full set of general purpose financial statements. In addition to
net income (loss),  comprehensive income includes all changes in equity during a
period,  except those resulting from investments by and distributions to owners.
For 2000, 2001 and 2002 net income and comprehensive income were the same.

     Costs of Start-up Activities

Start-up costs and organization costs are expensed as they are incurred.

            Segment Reporting

The  Company  operates  in one  business  segment,  which  is to  manage  dental
practices.  The  Company  currently  manages  Offices in the states of  Arizona,
Colorado and New Mexico. All aspects of the Company's business are structured on
a  practice-by-practice  basis. Financial analysis and operational decisions are
made at the individual  Office level. The Company does not evaluate  performance
criteria based upon  geographic  location,  type of service offered or source of
revenue.

       Stock-Based Compensation Plans

As permitted under the SFAS 123,  Accounting for Stock-Based  Compensation,  the
Company  accounts  for its  stock-based  compensation  in  accordance  with  the
provisions of Accounting  Principles Board (APB) Opinion No. 25,  Accounting for
Stock Issued to Employees. As such, compensation expense is recorded on the date
of  grant if the  current  market  price of the  underlying  stock  exceeds  the
exercise price.  Certain pro forma net income and earnings per share disclosures
for employee stock option grants are also included in the notes to the financial
statements  as if the fair  value  method as  defined  in SFAS No.  123 had been
applied.



                                       47
<PAGE>



       Recent Accounting Pronouncements

In June  2001,  the FASB  approved  for  issuance  SFAS  143,  Asset  Retirement
Obligations.   SFAS  143  establishes  accounting  requirements  for  retirement
obligations associated with tangible long-lived assets, including (1) the timing
of the liability  recognition,  (2) initial  measurement of the  liability,  (3)
allocation of asset  retirement cost to expense,  (4) subsequent  measurement of
the liability and (5) financial statement disclosures. SFAS 143 requires that an
asset  retirement  cost should be capitalized as part of the cost of the related
long-lived  asset and  subsequently  allocated to expense using a systematic and
rational method. The statement is effective for the financial  statements issued
for fiscal years  beginning  after June 15,  2002.  The Company does not believe
that the adoption of this statement will have a material effect on its financial
position, results of operations, or cash flows.

In April 2002, the FASB approved for issuance Statements of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
SFAS 13, and Technical  Corrections"  ("SFAS 145").  SFAS 145 rescinds  previous
accounting guidance,  which required all gains and losses from extinguishment of
debt be classified as an extraordinary  item. Under SFAS 145  classification  of
debt  extinguishment  depends on the facts and circumstances of the transaction.
SFAS 145 is effective for fiscal years beginning after May 15, 2002 and adoption
is not expected to have a material effect on the Company's financial position or
results of its operations.

In July 2002, the FASB issued Statements of Financial  Accounting  Standards No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities"  (SFAS
146).  SFAS 146 requires  companies to recognize  costs  associated with exit or
disposal  activities  when  they  are  incurred  rather  than  at the  date of a
commitment  to an exit or disposal  plan.  Examples of costs covered by SFAS 146
include lease  termination  costs and certain employee  severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal  activity.  SFAS 146 is to be applied  prospectively to exit or
disposal activities  initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations

In August 2002, the FASB issued Statements of Financial Accounting Standards No.
147,  "Acquisitions  of Certain  Financial  Institutions"  (SFAS 147).  SFAS 147
requires financial  institutions to follow the guidance in SFAS 141 and SFAS 142
for business  combinations and goodwill and intangible assets, as opposed to the
previously applied accounting literature. This statement also amends SFAS 144 to
include  in its  scope  long-term  customer  relationship  intangible  assets of
financial institutions. The provisions of SFAS 147 do not apply to the Company.

In December 2002, the FASB issued Statements of Financial  Accounting  Standards
No.148,  "Accounting for Stock-Based  compensation - Transition and Disclosure -
an amendment of FASB  Statement  123" (SFAS 123). For entities that change their
accounting for stock-based  compensation  from the intrinsic  method to the fair
value   method  under  SFAS  123,  the  fair  value  method  is  to  be  applied
prospectively  to those  awards  granted  after the  beginning  of the period of
adoption  (the  prospective   method).  The  amendment  permits  two  additional
transition  methods for  adoption of the fair value  method.  In addition to the
prospective  method,  the entity can choose to either (i)  restate  all  periods
presented  (retroactive  restatement method) or (ii) recognize compensation cost
from the  beginning  of the fiscal year of adoption as if the fair value  method
had been used to account for awards (modified  prospective  method).  For fiscal
years  beginning  December 15, 2003,  the  prospective  method will no longer be
allowed.  The Company currently accounts for its stock-based  compensation using
the intrinsic value method as proscribed by Accounting  Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options, therefore, it does not intend to adopt
the transition requirements as specified in SFAS 148. The company will adopt the
new SFAS 148 disclosure requirements in the first quarter of fiscal 2003.

 (3)   ACQUISITIONS

During 2000, 2001 and 2002, the Company  acquired various dental  practices.  In
connection with each Office  acquisition,  the Company entered into  contractual
arrangements,  including Management  Agreements,  which have a term of 40 years.
Pursuant to these  contractual  arrangements  the Company manages all aspects of
the Offices,  other than the provision of dental  services,  and believes it has
long-term and unilateral control over the assets and business  operations of the
Offices.  Accordingly,  these acquisitions are considered business  combinations
and treated under the purchase method of accounting.



                                       48
<PAGE>


                  2000 Acquisitions

During 2000,  the Company did not acquire any  additional  dental  practices but
did,  however,  acquire  the  remaining  50%  interest  in two  existing  dental
practices in Colorado. On March 13, 2000, the Company acquired the remaining 50%
interest in Perfect  Teeth/East  Cornell for a total purchase price of $108,728.
The consideration consisted of $68,228 in cash and a $40,500 note payable with a
term of 60 months and an interest  rate of 8.0%.  On June 30, 2000,  the Company
acquired the remaining 50% interest in Perfect  Teeth/Yale  for a total purchase
price  of  $276,670.  The  consideration  consisted  of  $141,670  in cash and a
$135,000 note 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 both Offices.

                  2001 Acquisitions

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

                  2002 Acquisitions

On January  31,  2002 the  Company  acquired  two-thirds  of the  remaining  50%
interest in Mississippi Dental Group for a total purchase price of $798,654. The
consideration consisted of $398,654 in cash and $400,000 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 33% interest in this
Office.  On April 1, 2002 the company  acquired  the  remaining  50% interest in
Glendale   Dental  Group  for  a  total  purchase   price  of  $1,119,496.   The
consideration consisted of $560,496 in cash and $559,000 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.  On October 1, 2002 the Company acquired the remaining  interest
in  Mississippi  Dental  Group  for a total  purchase  price  of  $399,327.  The
consideration consisted of $199,327 in cash and $200,000 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 17% interest
in this Office.

(4)      NOTES RECEIVABLE  - RELATED PARTIES

Notes receivable from related parties consist of the following:
<TABLE>
<CAPTION>


                                                                                           December 31,
                                                                                     2001                 2002
                                                                                     ----                 ----


      Note receivable from Chief Executive Officer, Director and shareholder,
<S>                                                                                <C>                    <C>
         unsecured, principal and interest due December 31, 2002,                  $ 112,134            $  -
         interest rate of 7% per annum.
      Note receivable from President, Director and shareholder, unsecured,
         principal and interest due December 31, 2002,                                 94,065              -
         interest rate of 7% per annum.
      Note receivable from Chief Financial Officer, Director and shareholder,
         unsecured, principal and interest due December 31, 2002,                      78,280              -
         interest rate of 7% per annum.


                                                                                   ----------           ----------
Notes receivable - related parties                                                 $  284,479           $  -
                                                                                   ==========           ==========

</TABLE>


                                       49
<PAGE>



(5)    PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                      December 31,
                                                                                2001              2002
                                                                                ----              ----
<S>                                                                            <C>             <C>
         Dental equipment                                                      $ 4,334,655     $ 4,473,626
         Furniture and fixtures                                                    939,301         998,469
         Leasehold improvements                                                  4,126,082       4,185,162
         Computer equipment, software and related items                          2,433,578       2,614,112
         Instruments                                                               681,714         753,815
                                                                                ----------      ----------
                                                                                12,515,330      13,025,184

         Less - accumulated depreciation                                        (7,146,132)     (9,098,762)
                                                                                ----------     -----------
         Property and equipment, net                                           $ 5,369,198     $ 3,926,422
                                                                               ===========     ===========

(6)      DEFERRED CHARGES AND OTHER ASSETS

Deferred charges and other assets consist of the following:
                                                                                       December 31,
                                                                                2001              2002
                                                                                ----              ----
         Deferred financing costs, net                                         $    67,256     $    16,989
         Deposits                                                                  149,029         150,109
                                                                                ----------     -----------

                                                                               $   216,285     $   167,098
                                                                                ==========     ===========
</TABLE>

Deferred financing costs are related to the acquisition and amendment of the
revolving credit agreement and term loan and are being amortized over the life
of the credit agreement, which expires on April 30, 2003. (Note 8).


(7)  INTANGIBLE ASSETS

Intangible assets consist of Management Agreements:
<TABLE>
<CAPTION>


                                                           Amortization               December 31,
                                                              Period              2001            2002
                                                           ------------           ----            ----
<S>                                                           <C>              <C>             <C>
         Management agreements                                25 years         $16,668,966     $18,986,442
         Less - accumulated amortization                                        (2,753,604)     (3,490,171)
                                                                               -----------     -----------
         Intangible assets, net                                                $13,915,362     $15,496,271
                                                                               ===========     ===========


</TABLE>


                                       50
<PAGE>




(8)  DEBT

Debt consists of the following:
<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                             2001              2002
                                                                                             ----              ----
<S>                                                                                   <C>                  <C>


       Term-loan with a bank for $4.0 million, interest payable
          monthly at lender's prime rate (4.25% at December 31, 2002), principal
          payments of $250,000 due quarterly, collateralized by the Company's
          account receivables and Management Agreements, due in April 2003.            $     3,875,000     $ 1,825,000

       Revolving credit agreement with a bank not to exceed $2.0 million,
          interest payable monthly at the lender's prime rate (4.25% at December
          31, 2002), collateralized by the Company's account receivables and
          Management
          Agreements, due in April 2003.                                                      168,000                -


    Acquisition notes payable:

       Due in May 2002; interest at 8%; no collateral; monthly principal
          and interest payments of $2,247.                                                     11,014                -
       Due in September 2002; interest at 9%; no collateral; monthly principal and
          interest payments of $2,325.                                                         20,161                -
       Due in October 2003; interest at 8%; no collateral; monthly principal
          and interest payments of $2,028.                                                     41,412           19,604
       Due in February 2005; interest at 8%; no collateral; monthly principal
          and interest payments of $809.                                                       27,097           11,616
       Due in June 2005; interest at 8%; no collateral; monthly principal and
          interest payments of $2,737.                                                         99,994           74,210
       Due in April, 2006; interest at 8%; no collateral; monthly principal and
          interest payments of $4,400.                                                        192,892          154,112
       Due in April, 2006; interest at 8%; no collateral; monthly principal and
          interest payments of $4,400.                                                        192,892          154,112
       Due in January, 2007, interest at 8%, no collateral, monthly principal and
          interest payments of $4,055.                                                              -          169,012
       Due in January, 2007, interest at 8% no collateral, monthly principal and
          interest payments of $4,055.                                                              -          169,012
       Due in March, 2007, interest at 8%, no collateral, monthly principal and
          interest payments of $11,335.                                                             -          488,688
       Due in September, 2007, interest at 8%, no collateral, monthly principal and
          interest payments of  $4,055.                                                             -          191,769
                                                                                       --------------      -----------

                                                                                       $    4,628,462      $ 3,257,135
    Less - current maturities                                                              (1,332,158)      (2,169,713)
                                                                                       --------------      -----------

    Long-term debt, net of current maturities                                          $    3,296,304      $ 1,087,422
                                                                                       ==============      ===========

</TABLE>


                                       51
<PAGE>


       Credit Facility

Under the  Company's  Credit  Facility (as amended on  September  9, 2002),  the
Company  may  borrow on a  revolving  basis up to the  lesser  of an  applicable
Borrowing  Base  (calculated in accordance  with the most recent  Borrowing Base
Certificate  delivered  to the Lender) or $2.0  million  and on a  non-revolving
basis, an aggregate  principal  amount not in excess of $4.0 million for working
capital,  for restructuring of the Original Loan and for other general corporate
purposes. Balances bear interest at the lender's prime rate. The Company is also
obligated to pay an annual  facility fee of .50% on the average unused amount of
the revolving line of credit during the previous full calendar month. Borrowings
on the  revolving  loan are  limited  to an  availability  formula  based on the
Company's eligible accounts receivable.  As amended, both the revolving loan and
the  non-revolving  note mature on April 30, 2003.  At December  31,  2002,  the
Company had no borrowings  outstanding and approximately  $2.0 million available
for borrowing under the revolving loan and $1.825 million  outstanding under the
non-revolving  loan.  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. At December 31, 2002 the
Company was in full compliance with all of its covenants under this agreement.

The scheduled maturities of debt are as follows:


Years ending December 31,
     2003                                             $    2,169,713
     2004                                                    351,846
     2005                                                    359,561
     2006                                                    299,085
     Thereafter                                               76,930
                                                      --------------

                                                      $    3,257,135
                                                      ==============


(9)   SHAREHOLDERS'  EQUITY

During 2000 the Company receivednotice fromthe NasdaqStockMarket thatthe Company
did not  comply  with the  requirements  for  continued  listing  on the  Nasdaq
National Market System. In order to satisfyNasdaq'slisting  requirements for the
Nasdaq SmallCap Market,  effective February 26, 2001, the Company's shareholders
approved a one-for-four  reverse stock split. The SmallCap Market's  maintenance
standards,  among other  things,require  theCompany  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 shareholderswho own 100 shares of
Common Stock or more;  and 4) a minimum bid price of atleast $1.00 per share.All
shares, share prices and earningsper share calculationsfor  allperiods have been
restated toreflect this reverse stock split. The Common Stock has been quoted on
the Nasdaq SmallCap Market under the symbol "BDMS" since February 26, 2001.

Treasury Stock

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.  On May 8,  2002  the  Company's  Board  of  Directors
unanimously approved the purchase of shares of the Company's Common Stock on the
open  market up to $1.0  million.  On October 24,  2002 the  Company's  Board of
Directors unanimously approved an incremental increase of $500,000 in the amount
that could be used to purchase shares of the Company's  Common Stock on the open
market to $1.5 million.  During 2000, the Company, in 18 separate  transactions,
purchased  26,282  shares  of  its  Common  Stock  for  total  consideration  of
approximately  $113,000 at prices ranging from $3.80 to $6.68 per share.  During
2002, the Company, in 93 separate transactions,  purchased 117,236 shares of its
Common Stock for total  consideration  of  approximately  $1.2 million at prices
ranging  from $7.35 to $11.25  per share,  of which  approximately  $60,000  was
recorded  as  compensation  expense  in  accordance  with  Financial  Accounting
Standards Board Interpretation Number 44.

                                       52
<PAGE>


Stock Option Plans

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
and February 28, 2002, has 329,250 shares of Common Stock reserved for issuance.
The Employee Plan provides 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 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, has 160,475 shares of Common Stock reserved for issuance. The Dental
Center Plan provides for the grant of non-statutory stock options to P.C.s that
are parties to Management Agreements with the Company, and to dentists or dental
hygienists who are either employed by or an owner of the P.C.s. The Employee
Plan and Dental Center Plan are administered by a committee ("the Committee")
appointed by the Board of Directors, which determines recipients and types of
options to be granted, including the exercise price, the number of shares, the
grant dates, and the exercisability thereof. The term of any stock option
granted may not exceed ten years. The exercise price of options granted under
the Employee Plan and the Dental Center Plan is determined by the Committee,
provided that the exercise price of a stock option cannot be less than 100% of
the fair market value of the shares subject to the option on the date of grant,
or 110% of the fair market value for awards to more than 10% shareholders.
Options granted under the plans vest at the rate specified in the option
agreements, which generally provide that options vest in three equal annual
installments.

A summary of stock option activity under both the Employee Plan and the Dental
Center Plan as of December 31, 2000, 2001 and 2002 and changes during the years
then ended is presented below:


<TABLE>
<CAPTION>


                                          2000                                2001                               2002
                                          ----                                ----                               ----
                                                       Weighted                    Weighted                    Weighted
                                                       Average                     Average                     Average
                                                       Exercise                    Exercise                    Exercise
                                        Shares          Price        Shares         Price         Shares        Price
                                        ------         --------      -------       --------       ------
<S>                                     <C>            <C>          <C>            <C>          <C>
Outstanding at beginning of year        146,134        $ 19.84      147,552        $ 16.23      282,899
        Granted                          31,500        $  4.66      180,750        $  2.01        5,000        $   4.60
        Canceled                        (30,082)       $ 21.69      (45,403)       $ 12.06      (21,463)       $  20.20
        Exercised                             -        $     -            -        $     -      (45,348)       $   2.46

Outstanding at end of year              147,552        $ 16.23      282,899        $  7.81      221,088        $   7.64
                                        =======        =======      =======        =======      =======        ========


Exercisable at end of year               92,197        $ 20.23       92,003        $ 19.41      107,675        $  13.43
                                        =======        =======      =======        =======      =======        ========

Weighted average remaining
    contractual life at end of year                       2.20                        3.60                         2.60
                                                       =======                     =======                     ========


</TABLE>




                                       53
<PAGE>



The following table summarizes information about the options outstanding at
December 31, 2002:
<TABLE>
<CAPTION>


                                                    Options Outstanding                        Options Exercisable
                                                    -------------------                        -------------------
                                        Number of          Weighted                         Number of
                                         Options           Average          Weighted         Options         Weighted
                                     Outstanding at       Remaining         Average       Exercisable at      Average
                                      December 31,       Contractual        Exercise       December 31,      Exercise
     Range of Exercise Prices             2002               Life            Price             2002            Price
     ------------------------        --------------      -----------        --------      --------------     --------

<S>                                          <C>               <C>          <C>               <C>            <C>
                 $0.00-- 7.80                147,164           3.50          $ 2.28           33,751         $  2.74
                $7.81-- 15.84                 36,385            .50          $10.54           36,385         $ 10.54
               $15.85-- 23.76                 16,038            .80          $18.96           16,038         $ 18.96
               $23.77-- 31.68                 10,251           1.60          $26.88           10,251         $ 26.88
               $31.69-- 39.60                 11,250            .90          $34.66           11,250         $ 34.66

                                            --------          -----        --------          -------         -------
                $0.00-- 39.60                221,088           2.60        $   7.64          107,675         $ 13.43
                                            ========          =====        ========          =======         =======

</TABLE>

       Warrants

At  December  31,  2000,  2001 and 2002,  there  were  outstanding  warrants  or
contractual  obligations  to issue  warrants to purchase  approximately  72,723,
7,338 and 30,000, respectively, of shares of the Company's Common Stock.

A summary of warrants as of December 31, 2000, 2001 and 2002, and changes during
the years then ended is presented below:
<TABLE>
<CAPTION>

                                                2000                          2001                        2002
                                                ----                          ----                        ----
                                                        Weighted                    Weighted                    Weighted
                                                        Average                     Average                     Average
                                                        Exercise                    Exercise                    Exercise
                                        Shares          Price         Shares        Price         Shares        Price
                                        ------          --------      ------        --------      ------        -------
<S>                                      <C>            <C>          <C>           <C>             <C>         <C>
Outstanding at beginning of year         95,266         $15.24       72,723        $ 17.53         7,338       $ 24.14
       Granted                                -             -             -             -          30,000      $  5.06
       Cancelled                        (22,543)            -       (65,385)            -         (7,338)      $ 24.14


Outstanding at end of year               72,723        $ 17.53        7,338        $ 24.14         30,000      $  5.06
                                         ======        =======       ======        =======         ======      =======

Exercisable at end of year               72,723        $ 17.53        7,338        $ 24.14              -      $     -
                                         ======        =======       ======        =======         ======      =======


Weighted average remaining
    contractual life at end of year                        .70                         .50                        4.10
                                                       =======                     =======                     =======
</TABLE>



                                       54
<PAGE>


The Company uses the intrinsic value method to account for options granted to
employees and directors. For purposes of the pro forma disclosures under SFAS
No. 123 presented below, the Company has computed the fair values of all
non-compensatory options and warrants granted to employees, directors and
dentists using the Black-Scholes pricing model and the following weighted
average assumptions:
<TABLE>
<CAPTION>

                                                              2000              2001             2002
                                                              ----              ----             ----
<S>                                                           <C>                  <C>             <C>
                  Risk-free interest rate                     6.27%                3.79%           3.49%
                  Expected dividend yield                        0%                   0%              0%
                  Expected lives                          3.6 years            3.5 years       3.4 years
                  Expected volatility                          106%                  77%             63%
</TABLE>

To estimate lives of options for this valuation,  it was assumed options will be
exercised  one year after  becoming  fully  vested.  All options  are  initially
assumed to vest. Cumulative compensation cost recognized in pro forma net income
or loss with respect to options that are forfeited  prior to vesting is adjusted
as a reduction of pro forma  compensation  expense in the period of  forfeiture.
Fair value  computations are highly sensitive to the volatility  factor assumed;
the  greater  the  volatility,  the  higher the  computed  fair value of options
granted.

The total  fair  value of  options  and  warrants  granted  was  computed  to be
approximately  $103,000,  $203,000, and $72,000 for the years ended December 31,
2000, 2001, and 2002, respectively. These amounts are amortized ratably over the
vesting  periods of the options or recognized at the date of grant if no vesting
period is required.  Pro forma  stock-based  compensation,  net of the effect of
forfeitures,  was $264,058,  $177,772 and $109,382 for the years ended  December
31, 2000, 2001 and 2002, respectively.

If  the  Company  had  accounted  for  its  stock-based  compensation  plans  in
accordance  with SFAS No. 123, the  Company's  net income  (loss) and net income
(loss) per common share would have been reported as follows:
<TABLE>
<CAPTION>


                                                                    2000              2001            2002
                                                                    ----              ----            ----
     Net income (loss):

<S>                                                             <C>                <C>              <C>
         As reported                                            $ (320,902)        $  250,526       $933,686
                                                                ==========         ==========       ========

         Pro forma                                              $ (516,305)        $  130,438       $865,651
                                                                ==========         ==========       ========

Net income (loss) per share, basic:

         As reported                                            $     (.21)        $      .17       $    .63
                                                                ==========         ==========       ========

         Pro forma                                              $     (.34)        $      .09       $    .58
                                                                ==========         ==========       ========
</TABLE>

Weighted  average shares used to calculate pro forma net income (loss) per share
were  determined  as described in Note 2, except in applying the treasury  stock
method to outstanding  options, net proceeds assumed received upon exercise were
increased by the amount of  compensation  cost  attributable  to future  service
periods and not yet recognized as pro forma expense.



                                       55
<PAGE>



(10)   COMMITMENTS AND CONTINGENCIES

       Operating Lease Obligations

The Company leases office space under leases accounted for as operating  leases.
The original  lease terms are  generally one to five years with options to renew
the leases for specific periods subsequent to their original terms. Rent expense
for these leases  totaled  $2,516,275,  $2,596,248  and $2,660,821 for the years
ended December 31, 2000,  2001, and 2002  respectively.  Rent expense for leases
with related  parties  (affiliated  dentists)  for the years ended  December 31,
2000, 2001, and 2002 totaled $46,442, $27,600, and $27,600, respectively.

Future minimum lease commitments for operating leases with remaining terms of
one or more years are as follows:

                  Years ending December 31,
                     2003                          $ 2,065,576
                     2004                            1,617,630
                     2005                            1,299,713
                     2006                              911,712
                     2007                              449,375
                     Thereafter                        139,415
                                                   -----------

                                                   $ 6,483,421
                                                   ===========

Certain of the Company's office space leases are structured to include scheduled
and specified rent increases over the lease term. The Company has recognized the
effects of these rent escalations on a straight-line basis over the lease terms.

       Litigation

From  time to time the  Company  is  subject  to  litigation  incidental  to its
business,  which could  include  litigation  as a result of the dental  services
provided at the Offices, although the Company does not engage in the practice of
dentistry or control the practice of dentistry.  The Company  maintains  general
liability insurance for itself and provides for professional liability insurance
to the  dentists,  dental  hygienists  and  dental  assistants  at the  Offices.
Management  believes  the  Company  is not  presently  a party  to any  material
litigation.

(11)   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.

Income tax expense (benefit) for the years ended December 31, consists of the
following:

                                     2000               2001           2002
                                     ----               ----           ----
Current:
   Federal                      $             -   $      48,479   $     360,115
   State                                      -               -          34,322
                                ---------------   -------------   -------------
                                              -          48,479         394,437
                                ---------------   -------------   -------------
Deferred:
   Federal                              (98,445)         67,863         184,540
   State                                (14,311)          4,470         (11,616)
                                ---------------   -------------   -------------
                                       (112,756)         72,333         172,924
                                ---------------   -------------   -------------

Total income expense (benefit)  $      (112,756)  $     120,812   $     567,361
                                ===============   =============   =============



                                       56
<PAGE>


The Company's effective tax rate differs from the statutory rate due to the
impact of the following (expressed as a percentage of income (loss) before
income taxes):

                                            2000          2001        2002
                                            ----          ----        ----
   Statutory federal income tax
      expense (benefit)                     (34.0)%        34.0%      34.0%
   State income tax expense (benefit)        (3.3)          3.3        3.3
   Effect of permanent differences -
      travel and entertainment expenses      13.3          (4.7)       1.2
   Other                                     (2.0)                     (.7)
                                            --------      -----       -----
                                            (26.0)%       32.6%      37.8%
                                            ========      =====       =====

Temporary differences comprise the deferred tax assets and liabilities in the
consolidated balance sheet as follows:

                                                           December 31,
                                                      2001              2002
                                                      ----              ----

  Deferred tax assets current:
      Accruals not currently deductible            $    36,944      $    41,246
      Allowance for doubtful accounts                   75,270           79,376
                                                   -----------      -----------
                                                       112,214          120,622

  Deferred tax assets long-term:
      Tax loss carryforwards                           280,924                -
      Benefit of AMT tax credit                        165,768          174,666
      Depreciation for tax under books                 374,840          651,715
                                                   -----------      -----------
                                                       821,532          826,381
  Deferred tax liabilities long-term:
      Intangible asset amortization for tax
         over books                                   (717,458)        (903,638)
      Deferred equity tax asset                              -           52,999
                                                   -----------      -----------
                                                      (717,458)        (850,639)

                                                   -----------      -----------
  Net deferred tax asset                           $   216,288      $    96,364
                                                   ===========      ===========

The tax benefits associated with the exercise of non-qualified options in 2002
reduced the taxes payable at December 31, 2002 by approximately $42,000 and
created a $52,999 deferred tax equity benefit.

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   over  the  period  of  years  that  the  temporary
differences are expected to become tax  deductions.  It believes that sufficient
book and taxable  income will be  generated  to realize the benefit of these tax
assets.

(12)   BENEFIT PLANS

       Profit Sharing 401(k)/Stock Bonus Plan

The Company has a 401(k)/stock bonus plan. Eligible employees may make voluntary
contributions  to  the  plan,  which  may be  matched  by  the  Company,  at its
discretion,  up to 50% of the  first  6% of  each  employee's  contribution.  In
addition,  the Company  may make profit  sharing  contributions  during  certain
years,  which may be made,  at the  Company's  discretion,  in cash or in Common
Stock of the Company. The plan was established  effective April 1, 1997. For the
years  ended   December  31,  2001  and  2002  the  Company  did  not  make  any
contributions to the plan.


                                       57
<PAGE>



         Other Company Benefits

The Company provides a health and welfare benefit plan to all regular full-time
employees. The plan includes health and life insurance, and a cafeteria plan. In
addition, regular full-time and regular part-time employees are entitled to
certain dental benefits.

(13)     DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments included in current assets and current liabilities
approximate estimated fair values due to the short maturity of those
instruments. The fair values of the Company's note payable are based on similar
rates currently available to the Company. The carrying values and estimated fair
values were estimated to be substantially the same at December 31, 2001 and
2002.

(14)     QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following summarizes certain quarterly results of operations:
<TABLE>
<CAPTION>

                                                                                       Net Income
                                                   Contribution                        (Loss) Per
                                                       From              Net            Share of
                                    Net               Dental            Income           Common
                                  Revenue             Offices           (Loss)       Stock (Diluted)
                                  -------             -------           ------       ---------------

2000 quarter ended:
<S>                             <C>                 <C>                <C>               <C>
    March 31, 2000             $   7,802,571        $ 1,232,713        $   62,155        $     .04
    June 30, 2000                  7,810,220          1,329,177           128,898              .09
    September 30, 2000             6,998,659            756,847          (168,935)            (.11)
    December 31, 2000              6,807,322            624,784          (343,020)            (.21)
                               -------------        -----------        ----------        ---------

                               $  29,418,772        $ 3,943,521        $ (320,902)       $    (.21)
                               =============        ===========        ==========        =========


2001 quarter ended:
    March 31, 2001             $   7,714,671        $ 1,038,462        $ (175,243)       $    (.12)
    June 30, 2001                  7,518,664          1,040,640           118,338              .08
    September 30, 2001             7,049,075            924,001           125,725              .08
    December 31, 2001              6,966,923          1,088,606           181,436              .12
                                ------------        -----------        ----------        ---------

                               $  29,249,333        $ 4,091,709        $  250,256        $     .16
                               =============        ===========        ==========        =========

2002 quarter ended:
   March 31, 2002              $   7,767,614        $ 1,474,771        $  237,546        $     .15
   June 30, 2002                   7,633,596          1,244,791           242,053              .15
   September 30, 2002              7,558,588          1,279,631           263,946              .16
   December 31, 2002               7,294,951          1,150,567           190,141              .12
                               -------------        -----------           -------        ---------

                               $  30,254,749        $ 5,149,760        $  933,686        $     .58
                               =============        ===========        ==========        =========

</TABLE>

(15)     SUBSEQUENT EVENTS

On February 19, 2003 the Company's Board of Directors unanimously approved an
increase, to $2.4 million from $1.5 million, in the amount that could be used to
purchase shares of the Company's Common Stock on the open market.




                                       58
<PAGE>




ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

None.


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

ITEM 11.  EXECUTIVE COMPENSATION.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Pursuant to instruction G (3) to Form 10-K,  Items 10, 11, 12 and 13 are omitted
because  the  Company  will  file  a  definitive  proxy  statement  (the  "Proxy
Statement") pursuant to Regulation 14A under the Securities Exchange Act of 1934
not later  than 120 days  after the close of the fiscal  year.  The  information
required by such items will be included  in the Proxy  Statement  to be so filed
for the Company's  annual meeting of shareholders to be held on or about June 3,
2003 and is hereby incorporated by reference.

ITEM 14.  CONTROLS AND PROCEDURES

As of February 19, 2003, an evaluation was completed  under the  supervision and
with the  participation  of the  Company's  management,  including the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures.  Based
on that  evaluation,  the Company's  management  including  the Chief  Executive
Officer and Chief  Financial  Officer,  concluded that the Company's  disclosure
controls and procedures were effective as of February 19, 2003.  There have been
no significant  changes to the Company's internal controls or other factors that
could significantly affect internal controls subsequent to February 19, 2003.






                                       59
<PAGE>



                                     PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements:

                  Report of Independent Public Accountants

                  Consolidated Balance Sheets -
                           December 31, 2001 and 2002

                  Consolidated Statements of Operations -
                           Years ended December 31, 2000, 2001 and 2002

                  Consolidated Statements of Shareholders' Equity - Years ended
                           December 31, 2000, 2001 and 2002

                  Consolidated Statements of Cash Flows - Years ended December
                           31, 2000, 2001 and 2002

                  Notes to Consolidated Financial Statements


    (2) Financial Statement Schedules:

                  Report of Independent Public Accountants on Schedule

                  II - Valuation and Qualifying Accounts -
                           Three Years Ended December 31, 2002

Inasmuch as Registrant is primarily a holding company and all  subsidiaries  are
wholly owned, only consolidated statements are being filed. Schedules other than
those listed above are omitted  because of the absence of the  conditions  under
which they are required or because the  information is included in the financial
statements or notes to the financial statements.

(b)      Reports on Form 8-K:

         None.



                                       60
<PAGE>




(c)      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 on 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.
 10.1     Form of Indemnification Agreement entered into between the
          Registrant and its Directors and Executive Officers, incorporated
          herein by reference to Exhibit 10.1 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.
 10.2     Warrant Agreement dated December 27, 1996, between the
          Registrant and Cohig & Associates, Inc., incorporated herein by
          reference to Exhibit 10.2 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.
 10.3     Warrant Agreement dated May 29, 1996, between the Registrant and
          Cohig, incorporated herein by reference to Exhibit 10.3 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.
 10.4     Warrant Agreement dated October 3, 1995, between the Registrant
          and Cohig, incorporated herein by reference to Exhibit 10.4 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.
10.5      Warrant Certificate dated June 30, 1997, issued to Fred Birner,
          incorporated herein by reference to Exhibit 10.5 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.
10.6      Warrant Certificate dated November 1, 1996, issued to Fred
          Birner, incorporated herein by reference to Exhibit 10.6 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.
10.7      Warrant Certificate dated June 30, 1997, issued to Mark Birner,
          incorporated herein by reference to Exhibit 10.7 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.
10.8      Warrant Certificate dated November 1, 1996, issued to Mark
          Birner, incorporated herein by reference to Exhibit 10.8 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.
10.9      Warrant Certificate dated June 30, 1997, issued to Dennis
          Genty, incorporated herein by reference to Exhibit 10.9 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.
10.10     Warrant Certificate dated November 1, 1996, issued to Dennis
          Genty, incorporated herein by reference to Exhibit 10.10 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.
10.11     Warrant Certificate dated August 1, 1996, issued to James
          Ciccarelli, incorporated herein by reference to Exhibit 10.11 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.
10.12     Warrant Certificate dated July 15, 1997 issued to James
          Ciccarelli, incorporated herein by reference to Exhibit 10.12 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.
10.13     Credit Agreement, dated October 31, 1996, between the Registrant
          and Key Bank of Colorado, as amended by First Amendment to Loan
          Documents, dated as of September 3, 1997, incorporated herein by
          reference to Exhibit 10.13 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.
10.14     Form of Managed Care Contract with Prudential, incorporated
          herein by reference to Exhibit 10.14 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.

                                       61
<PAGE>

10.15    Form of Managed Care Contract with PacifiCare, incorporated
         herein by reference to Exhibit 10.15 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.
10.16    Letter Agreement dated October 17, 1996, between the Registrant
         and James Ciccarelli, as amended by letter agreement dated September
         24, 1997 between the Registrant and James Ciccarelli, incorporated
         herein by reference to Exhibit 10.16 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.
10.17    Agreement, dated August 21, 1997, between the Registrant and
         James Abramowitz, D.D.S., and Equity Resources Limited Partnership, a
         Colorado limited partnership, incorporated herein by reference to
         Exhibit 10.17 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.
10.18    Form of Management Agreement, incorporated herein by reference
         to Exhibit 10.18 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.
10.19    Employment Agreement dated September 8, 1997 between the
         Registrant and James Abramowitz, D.D.S., incorporated herein by
         reference to Exhibit 10.19 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.
10.20    Form of Stock Transfer and Pledge Agreement, incorporated herein
         by reference to Exhibit 10.20 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.
10.21    Indenture, dated as of December 27, 1996, between the Registrant
         and Colorado National Bank, a national banking association, as
         Trustee, incorporated herein by reference to Exhibit 10.21 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.
10.22    Indenture, dated as of May 15, 1996, between the Registrant and
         Colorado National Bank, a national banking association, as Trustee,
         incorporated herein by reference to Exhibit 10.22 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.
10.23    Birner Dental  Management  Services,  Inc.  1995 Employee  Stock Option
         Plan,   including  forms  of  Incentive  Stock  Option   Agreement  and
         Non-statutory   Stock  Option   Agreement   under  the  Employee  Plan,
         incorporated  herein by  reference  to Exhibit  10.23 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.
10.24    Birner  Dental  Management  Services,  Inc.  1995 Stock Option Plan for
         Managed Dental Centers,  including form of  Non-statutory  Stock Option
         Agreement  under  the  Dental  Center  Plan,   incorporated  herein  by
         reference to Exhibit 10.24 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.
10.25    Profit Sharing 401(k)/Stock Bonus Plan of the Registrant,  incorporated
         herein by  reference  to Exhibit  10.25 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.
10.26    Form of Stock Transfer and Pledge  Agreement with Mark Birner,  D.D.S.,
         incorporated  herein by  reference  to Exhibit  10.26 of  Pre-Effective
         Amendment  No. 1 to the  Company's  Registration  Statement on Form S-1
         (SEC File No.  333-36391),  as filed with the  Securities  and Exchange
         Commission on November 7, 1997.
10.27    Stock Purchase, Pledge and Security Agreement,  dated October 27, 1997,
         between the Company and William Bolton, D.D.S.,  incorporated herein by
         reference  to Exhibit  10.27 of  Pre-Effective  Amendment  No. 1 to the
         Company's  Registration Statement on Form S-1 (SEC File No. 333-36391),
         as filed with the  Securities  and Exchange  Commission  on November 7,
         1997.
10.28    Stock Purchase, Pledge and Security Agreement,  dated October 27, 1997,
         between the Company and Scott Kissinger, D.D.S., incorporated herein by
         reference  to Exhibit  10.28 of  Pre-Effective  Amendment  No. 1 to the
         Company's  Registration Statement on Form S-1 (SEC File No. 333-36391),
         as filed with the  Securities  and Exchange  Commission  on November 7,
         1997.
10.29    Second Amendment to Loan Documents dated November 19, 1997
         between the Registrant and Key Bank of Colorado, incorporated herein
         by reference to Exhibit 10.29 of Pre-Effective Amendment No. 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 November 25,
         1997.

                                       62
<PAGE>

10.30    Form of Financial  Consulting  Agreement between the Company and Joseph
         Charles & Associates, Inc., incorporated herein by reference to Exhibit
         10.30 of Post-Effective  Amendment No. 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 January 14, 1998.
10.31    Form of  Purchase  Option for the  Purchase  of Shares of Common  Stock
         granted to Joseph Charles & Associates,  Inc.,  incorporated  herein by
         reference to Exhibit  10.31 of  Post-Effective  Amendment  No. 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 January 14,
         1998.
10.32    Third  Amendment to Loan  Documents date September 31, 1998 between the
         Registrant and Key Bank of Colorado,  incorporated  herein by reference
         to Exhibit  10.32 of the Company's  Form 10-Q for the quarterly  period
         ended  September  30,  1998  filed  with the  Securities  and  Exchange
         Commission on November 16, 1998.
10.33    Fourth Amendment to Loan Document dated December 31, 1998
         between the Registrant and Key Bank of Colorado, incorporated herein
         by reference to Exhibit 10.33 of the Company's Form 10-K for the
         annual period ended December 31, 1998 filed with the Securities and
         Exchange Commission on March 31, 1999.
10.34    Fifth Amendment to Loan Document dated May 28, 1999 between the
         Registrant and Key Bank of Colorado, incorporated herein by reference
         to Exhibit 10.34 of the Company's Form 10-Q for the quarterly period
         ended June 30, 1999 filed with the Securities and Exchange Commission
         on August 12, 1999.
10.35    Sixth Amendment to Loan Document dated September 20, 1999
         between the Registrant and Key Bank of Colorado, incorporated herein
         by reference to Exhibit 10.35 of the Company's Form 10-Q for the
         quarterly period ended September 30, 1999 filed with the Securities
         and Exchange Commission on November 15, 1999.
10.36    Seventh Amendment to Loan Document dated March 24, 2000 between
         the Registrant and Key Bank of Colorado, incorporated herein by
         reference to Exhibit 10.36 of the Company's Form 10-K for the annual
         period ended December 31, 1999 filed with the Securities and Exchange
         Commission on March 30, 2000.
10.37    Eighth Amendment to Loan Document dated September 29, 2000
         between Registrant and Key Bank of Colorado, incorporated herein by
         reference to Exhibit 10.37 of the Company's Form 10-Q for the
         quarterly period ended September 30, 2000 filed with the Securities
         and Exchange Commission on November 13, 2000.
10.38    Amended and Restated Credit Agreement dated December 17, 2001
         between Registrant and Key Bank of Colorado, incorporated herein as
         Exhibit 10.38 of the Company's Form 10-K for the annual period ended
         December 31, 2001.
10.39    First Amendment to Amended and Restated Credit Agreement dated
         April 30, 2002 between Registrant and Key Bank of Colorado,
         incorporated herein as Exhibit 10.39 of the Company's Form 10-Q for
         the quarterly period ended March 31, 2002 filed with the Securities
         and Exchange Commission on May 6, 2002.
10.40    Second Amendment to Amended and Restated Credit Agreement dated
         September 9, 2002 between Registrant and Key Bank of Colorado,
         incorporated herein as Exhibit 10.40 of the Company's Form 10-Q for
         the quarterly period ended September 30. 2002 filed with the
         Securities and Exchange Commission on November 8, 2002.




                                       63
<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
<TABLE>
<CAPTION>



<S>                                                                                                      <C>
/s/ Frederic W.J. Birner                  Chairman of the Board, Chief Executive                         March 21, 2003
-------------------------------------
Frederic W.J. Birner                      Officer and Director (Principal Executive
                                          Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


/s/ Frederic W.J. Birner                  Chairman of the Board, Chief Executive                         March 21, 2003
-------------------------------------
Frederic W.J. Birner                      Officer and Director (Principal Executive
                                          Officer)



/s/ Mark A. Birner                        President and Director                                         March 21, 2003
-------------------------------------
Mark A. Birner, D.D.S.



/s/ Dennis N. Genty                       Chief Financial Officer, Secretary,                            March 21, 2003
-------------------------------------
Dennis N. Genty                           Treasurer and Director (Principal
                                          Financial and Accounting Officer)



/s/ James M. Ciccarelli                   Director                                                       March 21, 2003
-------------------------------------
James M. Ciccarelli



/s/ Brooks G. O'Neil                      Director                                                       March 21, 2003
-------------------------------------
Brooks G. O'Neil



/s/ Paul E. Valuck                        Director                                                       March 21, 2003
-------------------------------------
Paul E. Valuck D.D.S.


</TABLE>


                                       64
<PAGE>



                                  CERTIFICATION


I, Frederic W.J. Birner, Chief Executive Officer, certify that:

1. I have reviewed  this annual report on Form 10-K of Birner Dental  Management
Services, Inc.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of material fact or omit to state a material  fact  necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  Registrant as of, and for, the periods  presented in
         this annual report;

4.   The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:

         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   Registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         b)       evaluated the  effectiveness  of the  Registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The Registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  Registrant's  auditors and the
         audit  committee  of  Registrant's   board  of  directors  (or  persons
         performing the equivalent functions):

         a)       all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  Registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  Registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  Registrant's internal controls; and

         6.       The  Registrant's   other  certifying   officers  and  I  have
                  indicated  in this  annual  report  whether  or not there were
                  significant  changes in internal  controls or in other factors
                  that could  significantly  affect internal controls subsequent
                  to the  date  of my  most  recent  evaluation,  including  any
                  corrective actions with regard to significant deficiencies and
                  material weaknesses.


March 21, 2003    By: /s/   Frederic W.J. Birner
                      ----------------------------------------
                      Name:    Frederic W.J. Birner
                      Title:   Chairman of the Board, Chief Executive Officer
                               and Director
                               (Principal Executive Officer)



                                       65
<PAGE>



                                  CERTIFICATION


I, Dennis N. Genty, Chief Financial Officer, certify that:

1.       I have  reviewed  this  annual  report on Form  10-K of  Birner  Dental
         Management Services, Inc.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of material fact or omit to state a material  fact  necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  Registrant as of, and for, the periods  presented in
         this annual report;

4.       The  Registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
         have:

         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   Registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         b)       evaluated the  effectiveness  of the  Registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The Registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  Registrant's  auditors and the
         audit  committee  of  Registrant's   board  of  directors  (or  persons
         performing the equivalent functions):

         a)       all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  Registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  Registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  Registrant's internal controls; and

6.       The Registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls subsequent to the date of my most recent evaluation, including
         any  corrective  actions with regard to  significant  deficiencies  and
         material weaknesses.


March 21, 2003    By: /s/   Dennis N. Genty
                      -------------------------------
                      Name:    Dennis N. Genty
                      Title:   Chief Financial Officer, Secretary, Treasurer
                               and Director
                              (Principal Financial Officer)





                                       66
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with auditing standards  generally accepted in the
United States, the consolidated financial statements of Birner Dental Management
Services,  Inc. for the years ended  December 31, 2001 and 2002 included in this
Form 10-K and have issued our report thereon dated February 11, 2003. Our audits
were  made  for the  purpose  of  forming  an  opinion  on the  basic  financial
statements  taken  as a whole.  This  Schedule  II -  Valuation  and  Qualifying
Accounts is the responsibility of the Company's  management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial  statements.  The  information  included in this
schedule for the years ended  December 31, 2001 and 2002 have been  subjected to
the auditing procedures applied in the audits of the basic financial  statements
and, in our opinion,  fairly states in all material  respects the financial data
required to be set forth therein in relation to the basic  financial  statements
taken as a whole.


Hein + Associates LLP

Denver, Colorado,
February 11, 2003.




                                       67
<PAGE>



The following report of independent public accountants is a copy of a previously
issued Arthur Andersen LLP report and has not been reissued by Arthur Andersen
LLP.


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Birner Dental Management
Services, Inc. for the years ended December 31, 1999 and 2000 included in this
Form 10-K and have issued our report thereon dated March 2, 2001. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. This Schedule II - Valuation and Qualifying Accounts is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The information included in this schedule for
the years ended December 31, 1999 and 2000 has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

                                            ARTHUR ANDERSEN LLP

Denver, Colorado,
March 2, 2001.





                                       68
<PAGE>



            Birner Dental Management Services, Inc. and Subsidiaries
                          Financial Statement Schedule
                     II - Valuation and Qualifying Accounts
                         Allowance for Doubtful Accounts

                                             Column C - Additions
                                             --------------------
<TABLE>
<CAPTION>

                      Column B
                     Balance at       Charged to     Charged to                        Column E
    Column A        beginning of      costs and         other         Column D      Balance at end
  Description          period          expenses      accounts *     Deductions**       of period
  -----------          ------          --------      ----------     ------------       ---------

<S>   <C>                <C>              <C>              <C>         <C>               <C>
      2002               $ 201,795        $ 11,008         $    -      $        -        $  212,803
      2001               $ 201,047          $  748         $    -      $        -        $  201,795
      2000               $ 306,469         $ 2,963         $    -      $ (108,385)       $  201,047
</TABLE>


* Allowance recorded,  as the result of accounts receivable acquired.  **Charges
to the account are for the purpose for which the reserves were created.




                                       69
<PAGE>




                          CERTIFICATION OF 10-K REPORT
                                       OF
                     BIRNER DENTAL MANAGEMENT SERVICES, INC.
                      FOR THE YEAR ENDED DECEMBER 31, 2002


1.       The undersigned are the Chief Executive Officer and the Chief Financial
         Officer of Birner Dental Management  Services,  Inc. This Certification
         is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This
         Certification  accompanies the 10-K Report of Birner Dental  Management
         Services, Inc. for the year ended December 31, 2002.

2.       We certify that such 10-K Report fully  complies with the  requirements
         of Section  13(a) or 15(d) of the  Securities  Exchange Act of 1934 and
         that the information  contained in such 10-K Report fairly presents, in
         all  material  respects,   the  financial   condition  and  results  of
         operations of Birner Dental Management Services, Inc.

                  This Certification is executed as of March 21, 2003.



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



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



                                       70