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, 2001
                                       -----------------------------------------

                                       OR

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

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

                         Commission file number 0-23367

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

                          COLORADO                           84-1307044
------------------------------------------------------- ------------------------
      (State or other jurisdiction of incorporation 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 any amendment to this
Form 10-K. [ ___ ]


<PAGE>


The aggregate market value of the Registrant's voting stock held as of March 13,
2002 by  non-affiliates  of the  Registrant  was  $5,020,675.  This  calculation
assumes that  certain  parties may be  affiliates  of the  Registrant  and that,
therefore,  788,175  shares of voting  stock are held by  non-affiliates.  As of
March 13, 2002, the Registrant had 1,506,705 shares of its common stock, without
par value ("Common Stock") outstanding.

On  February  22,  2001 a special  shareholder's  meeting was held to consider a
proposal to effect a reverse split of the issued and  outstanding  shares of the
Registrant's  Common Stock,  whereby the Registrant would issue one new share of
its Common Stock for between three and five shares of its presently  outstanding
stock. The proposal was approved by a majority of the shareholders. The Board of
Directors  in a meeting that same day  determined  that the ratio of the reverse
stock split would be  one-for-four  and that the effective  date for the reverse
split would be February 26, 2001. 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.


                           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  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>                                                                                               <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                                                                    13
                          Insurance                                                                                16
                          Trademark                                                                                16
                          Facilities and Employees                                                                 16
          3.          Legal Proceedings                                                                            16
          4.          Submission of Matters to a Vote of Security Holders                                          16
II.       5.          Market for Registrant's Common Equity and Related Stockholder Matters
                                                                                                                   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                                   33
          8.          Financial Statements and Supplementary Data                                                  34
          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                                                                       60
          12.         Security Ownership of Certain Beneficial Owners and Management                               64
          13.         Certain Relationships and Related Transactions                                               65
IV.       14.         Exhibits, Financial Statement Schedules, and Reports on Form 8-K                             66

</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 U.S.  Health Care  Financing  Administration  ("HCFA"),  dental
expenditures  in the U.S.  increased from $31.5 billion in 1990 to $60.0 billion
in 2000. HCFA also projects that dental  expenditures  will reach  approximately
$104.6 billion by 2011,  representing  an increase of  approximately  74.3% over
2000 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.   These
third-party payment arrangements include indemnity insurance, preferred provider
plans and capitated managed dental care plans. 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
Colorado
<S>                                                <C>                                    <C>             <C>
   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*               1
    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        2,3,4
     Perfect Teeth/Arapahoe                7600 East Arapahoe Road, #311            October 1995            1
     Perfect Teeth/Bowmar                  5151 South Federal Boulevard, #G-2       October 1995            1
     Perfect Teeth/Buckley and Quincy      4321 South Buckley Road                  September 1997          1
     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                1
     Perfect Teeth/Parker                  11005 South Parker Road                  December 1998*          1
     Perfect Teeth/Sheridan and 64th Avenue5169 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, #B6March 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        6345 East Bell Road, Suite 1             July 1998             1,2,3
Street
     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 7,400 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  several  offices  in certain of 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 protocol,  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 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  Office
profitability  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 three dental assistants, one to
three  hygienists,  one to two hygiene  assistants  and two to four 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 six regional  directors in Colorado and one regional director for
New Mexico and Arizona. These regional directors,  who are each responsible from
four to 14 Offices or 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 Office operating performance. 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  Office
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 limits storage of unused  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, 1999, 2000, and 2001 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 8.9%, 9.1% and 7.4%,  respectively,  CIGNA Dental
Health was responsible for 7.8%, 5.9% and 6.0%,  respectively and Delta Care was
responsible for 5.0%, 8.6% and 8.0%, 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 31.2% of
gross  revenues in 2001,  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 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  into 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 17 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  which 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, 1997 through December 31, 2001.

<TABLE>
<CAPTION>

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

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 incremental  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, none of the Company's four Northern Colorado 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  $210,000,  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 density in that
market by making  further  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

Colorado:  During 2000,  the Company  acquired the remaining 50% interest in two
existing Offices in Colorado.  During 1999, the Company acquired one practice in
the Denver market. In addition to this acquisition,  the Company opened three de
novo Offices in 1999, one in Colorado Springs and two in the Denver metropolitan
area, which included Highlands Ranch and Golden.

New Mexico:  During 2001 the Company  acquired the remaining 50% interest in one
existing Office in New Mexico. During 1999 the Company opened one de novo Office
in Rio Rancho, a suburb of Albuquerque.

Arizona:  In March 2000, the Company  opened one de novo Office in Goodyear.  In
October 2000, the Company  opened one de novo Office in Mesa.  Both Goodyear and
Mesa are suburbs of Phoenix.  During 1999 the Company  opened one de novo Office
in Tempe, a suburb of Phoenix.


Affiliation Model

Relationship with Professional Corporations (P.C.s)

Each  Office is operated  by a P.C.,  which are owned by one of eight  different
licensed  dentists  practicing  within the  Company's  network.  The Company has
entered into  agreements  with owners of 51 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 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.

In the remaining  two Colorado  P.C.s the Company has the right of first refusal
to  purchase  100% of the P.C.s  shares and the right to elect  one-half  of the
directors and vote one-half of the shares in such P.C.s.

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.


                                       11
<PAGE>



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.

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 Monarch Dental Corporation,  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.


                                       12
<PAGE>



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.

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 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.


                                       13
<PAGE>



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  and billing  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.

The federal fraud and abuse statute prohibits,  subject to certain safe harbors,
the  payment,  offer,  solicitation  or receipt of any form of  remuneration  in
return for,  or in order to induce:  (i) the  referral of a person for  service,
(ii) the  furnishing  or  arranging to furnish  items or services,  or (iii) the
purchase,  lease or order or the  arrangement or  recommendation  of a purchase,
lease or order of any item or service which is, in each case, reimbursable under
Medicare or Medicaid.  The statute reflects the federal  government's  policy of
increased  scrutiny of joint ventures and other  transactions  among  healthcare
providers in an effort to reduce  potential  fraud and abuse related to Medicare
and Medicaid costs. Because dental services are covered under various government
programs,  including Medicare and Medicaid, this federal law applies to dentists
and the provision of dental services.

Significant  prohibitions against dentist self-referrals for services covered by
Medicare and Medicaid programs were enacted,  subject to certain exceptions,  by
Congress in the Omnibus Budget  Reconciliation Act of 1993. These  prohibitions,
commonly  known as Stark II, amended prior  physician and dentist  self-referral
legislation  known  as  Stark  I  (which  applied  only to  clinical  laboratory
referrals)  by  dramatically  enlarging  the  list of  services  and  investment
interest to which the  self-referral  prohibitions  apply.  Effective January 1,
1995,  Stark II  prohibits  a physician  or  dentist,  or a member of his or her
immediate family, from making referrals for certain "designated health services"
to entities in which the  physician or dentist has an  ownership  or  investment
interest, or with which the physician or dentist has a compensation arrangement.
"Designated health services" include,  among other things,  clinical  laboratory
services,  radiology and other diagnostic services,  radiation therapy services,
durable medical  equipment,  prosthetics,  outpatient  prescription  drugs, home
health  services  and  inpatient  and  outpatient  hospital  services.  Stark II
prohibitions  include  referrals  within the  physician's or dentist's own group
practice  (unless such practice  satisfies the "group  practice"  exception) and
referrals  in  connection   with  the   physician's   or  dentist's   employment
arrangements  with the P.C.  (unless the  arrangement  satisfies the  employment
exception).  Stark II also prohibits  billing the Medicare or Medicaid  programs
for services rendered  following  prohibited  referrals.  Noncompliance  with or
violation  of Stark II can result in  exclusion  from the  Medicare and Medicaid
programs  and  civil and  criminal  penalties.  The  Company  believes  that its
operations  as presently  conducted do not pose a material  risk under Stark II,
primarily  because the Company does not provide  "designated  health  services."
Nevertheless, there can be no assurance that Stark II will not be interpreted or
hereafter  amended  in a  manner  that  has a  material  adverse  effect  on the
Company's operations as presently conducted.



                                       14
<PAGE>




Proposed federal  regulations  also govern physician  incentive plans associated
with  certain  managed  care  organizations  that offer  risk-based  Medicare or
Medicaid  contracts.  These  regulations  define  physician  incentive  plans to
include any compensation arrangement (such as capitation  arrangements,  bonuses
and  withholds)  that may directly or indirectly  have the effect of reducing or
limiting  services  furnished  to patients  covered by the  Medicare or Medicaid
programs.  Direct  monetary  compensation  which is paid by a managed care plan,
dental group or intermediary  to a dentist for services  rendered to individuals
covered by the Medicare or Medicaid programs is subject to these regulations, if
the compensation  arrangement places the dentist at substantial  financial risk.
When applicable,  the regulations  generally  require  disclosure to the federal
government or, upon request,  to a Medicare  beneficiary  or Medicaid  recipient
regarding such financial incentives, and require the dentist to obtain stop-loss
insurance  to  limit  the  dentist's   exposure  to  such  financial  risk.  The
regulations  specifically  prohibit  physician  incentive  plans,  which involve
payments  made to directly  induce the  limitation  or  reduction  of  medically
necessary covered services.  A recently enacted federal law specifically exempts
managed care  arrangements  from the  application  of the federal  anti-kickback
statute (the principal  federal health care fraud and abuse law), but there is a
risk this  exemption  may be  repealed.  It is unclear how the  Company  will be
affected in the future by the interplay of these laws and regulations.

The Company may be subject to Medicare rules  governing  billing  agents.  These
rules  prohibit a billing  agent from  receiving a fee based on a percentage  of
Medicare  collections  and may require  Medicare  payments  for the  services of
dentists to be made directly to the dentist  providing the services or to a lock
box account opened in the name of the applicable P.C.

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,  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.


                                       15
<PAGE>




Commencing in March 2003,  health care  providers,  including the Company,  will
have 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 intends to comply with all  requirements,  the Company 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.

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 2003.  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, 2001, the Company had 73 general dentists, 13 specialists and
65 affiliated hygienists that were employed by the P.C.s, and 323 non-dental
employees.

ITEM 3.   LEGAL PROCEEDINGS.

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


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

None


                                       16
<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 has been quoted on the Nasdaq SmallCap Market under the symbol
"BDMS" since February 26, 2001. 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 up to February 26, 2001 and The Nasdaq
SmallCap Market thereafter:
<TABLE>
<CAPTION>


                                                                           HIGH               LOW
   2000

   <S>                                                                  <C>                <C>
   First Quarter                                                        $    7.50          $  4.50
   Second Quarter                                                            7.50             4.00
   Third Quarter                                                             7.50             3.50
   Fourth Quarter                                                            4.50             1.50

   2001

   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 (January 1, 2002 through March 13, 2002)               $    6.37          $  4.33
</TABLE>

At March 13, 2002 the last reported sale price of the Company's Common Stock was
$6.37 per share. As of the same date, there were 1,506,705 shares of Common
Stock outstanding held by 79 holders of record and approximately 590 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.




                                       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, 1999, 2000, and
2001 should be read in  conjunction  with the Company's  consolidated  financial
statements  included  elsewhere  in this  document.  The  selected  consolidated
financial  data for the 1997 and 1998  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 $000's except per share data, number of
offices and number of dentists:

<TABLE>
<CAPTION>

                                                                                          Years Ended December 31,
                                                                                          -----------------------
                                                                   1997          1998         1999          2000          2001
                                                                   ----          ----         ----          ----          ----
<S>                                                             <C>            <C>           <C>            <C>           <C>
Statements of Operations Data: (1)
Net revenue                                                     $ 12,742       $ 21,741      $ 28,553       $ 29,419      $ 29,249


Direct expenses                                                   10,151         17,287        24,425         25,475        25,158
Contribution from dental offices                                   2,591          4,454         4,128          3,944         4,092
Corporate expenses                                                 1,714          3,182         4,038          3,747         3,270
Operating income                                                     877          1,272            90            197           822
Income (loss) before income taxes                                     34            843          (389)          (434)          371
Income tax (expense) benefit                                           -          (128)           111            113          (121)
Income (loss) before change in accounting                             34            715          (278)          (321)          250
principle
Cumulative effect of change in accounting                              -            (39)            -              -             -
principle
Net income (loss)                                                     34            675          (278)          (321)          250

Basic earnings per share of Common Stock:
Income (loss) before cumulative effect of change                     .04            .46          (.18)          (.21)          .17
in accounting principle
Cumulative effect of change in accounting                              -           (.03)            -              -             -
principle
Net income (loss)(2)                                                 .04            .43          (.18)          (.21)          .17

Diluted earnings per share of Common Stock:
Income (loss) before cumulative effect of change                     .04            .44          (.18)          (.21)          .16
in accounting principle
Cumulative effect of change in accounting                              -           (.02)            -              -             -
principle
Net income (loss)(2)                                                 .04            .42          (.18)          (.21)          .16

Balance Sheet Data (3):
Cash and cash equivalents                                       $    977       $  2,170         $ 807       $    691      $    949
Working capital (deficit)                                           (458)         2,309         1,467          2,043           301
Total assets                                                      15,564         25,543        27,949         26,333        24,762
Long-term debt, less current maturities                           10,198          3,240         6,771          6,682         3,296
Total shareholders' equity                                         1,388         18,746        16,905         16,471        16,721
Dividends declared per share of Common Stock                           -              -             -              -             -

Operating Data:
Number of offices (3)                                                 34             49            54             56            54
Number of dentists (3)(4)                                             53             73            90             91            86
Total net revenue per office                                    $    375       $    444      $    529       $    525      $    542
</TABLE>

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

(1)      Acquisitions  of Offices and  development of de novo Offices affect the
         comparability   of  the  data.   During  1997  15   additional   Office
         acquisitions and one de novo Office increased the Company's operations.
         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, 2001.  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 73 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 in to two Offices and acquired the
remaining 50% interest in one existing Office.

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, 2001,  net revenue  increased
from $28.6  million in 1999 to $29.4  million for 2000,  and  decreased to $29.2
million for 2001.  During the three years ended December 31, 2001,  contribution
from dental  offices  decreased  from $4.1  million in 1999 to $3.9  million for
2000,  and  increased  to $4.1  million  for 2001.  During the three years ended
December 31, 2001,  operating income increased from $89,000 for 1999 to $197,000
in 2000 and $822,000 in 2001.


                                       19
<PAGE>



At December 31, 2001, the Company's total assets of $24.8 million included $13.9
million of identifiable  intangible assets related to Management Agreements.  At
that date,  the Company's  total  shareholders'  equity was $16.7  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, 2001 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 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 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 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,  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.

For the year ended  December 31, 2000,  Revenue  increased to $41.2 million from
$39.1 million for the year ended  December 31, 1999, an increase of $2.1 million
or 5.4%.  The Company  opened two de novo  Offices  during  2000  which,  in the
aggregate,  contributed  $483,000  and $1.6 million was  attributable  to the 54
Offices that existed at the beginning of 2000.

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 31.2%
of Revenue in 2001,  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,
                                           -------------------------------------------------------------------
                                                 1999                      2000                    2001
                                                 ----                      ----                    ----

<S>                                               <C>                       <C>                    <C>
Net revenue                                       100.0 %                   100.0 %                100.0 %
Direct expenses:
     Clinical salaries and benefits                39.2                      40.9                   40.4
     Dental supplies                                6.2                       6.4                    6.0
     Laboratory fees                               10.0                       8.9                    8.4
     Occupancy                                     10.8                      11.0                   11.2
     Advertising and marketing                      1.7                       1.1                    1.1
     Depreciation and amortization                  6.7                       8.2                    8.4
     General and administrative                    10.9                      10.1                   10.5
                                                   -----                    -------                 ----

                                                   85.5                      86.6                   86.0
                                                   -----                    -------                 ----
Contribution from dental offices                   14.5                      13.4                   14.0
Corporate expenses:
     General and administrative                    13.3                      11.6                   10.1
     Depreciation and amortization                  0.9                       1.1                    1.1

                                                   -----                    -------                 ----
Operating income                                    0.3                       0.7                    2.8
Interest expense, net
                                                   (1.7)                     (2.2)                  (1.5)

                                                   -----                    -------                 ----
Income (loss) before income taxes                  (1.4)                     (1.5)                   1.3
Income tax (expense) benefit                        0.4                       0.4                   (0.4)

Net income (loss)                                  (1.0)%                    (1.1)%                  0.9 %
                                                   ======                   =======                 =====
</TABLE>


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.

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.


                                       22
<PAGE>


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.



                                       23
<PAGE>



Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net  revenue.  Net  revenue  increased  from  $28.6  million  for the year ended
December 31, 1999 to $29.4  million for the year ended  December  31, 2000.  The
Company opened two de novo Offices during 2000, which contributed  approximately
$444,000  to the  increase.  The  remainder  of the  increase  in net revenue of
approximately  $356,000 was  attributable to the 54 practices the Company had at
the beginning of the 2000 year.

Clinical salaries and benefits.  Clinical  salaries and benefits  increased from
$11.2 million for the year ended December 31, 1999 to $12.0 million for the year
ended December 31, 2000, an increase of $815,000 or 7.3%.  This increase was due
primarily to the increased number of Offices and the  corresponding  addition of
non-dental  personnel and because of annual wage  increases.  As a percentage of
net revenue,  clinical  salaries and  benefits  increased  from 39.2% in 1999 to
40.9% in 2000.

Dental supplies.  Dental supplies increased from $1.8 million for the year ended
December  31, 1999 to $1.9  million for the year ended  December  31,  2000,  an
increase of $97,000 or 5.5%.  This  increase was due  primarily to the increased
number of Offices and to normal price increases from suppliers.  As a percentage
of net revenue, dental supplies increased from 6.2% in 1999 to 6.4% in 2000.

Laboratory fees.  Laboratory fees decreased from $2.8 million for the year ended
December  31,  1999 to $2.6  million for the year ended  December  31,  2000,  a
decrease of $211,000 or 7.4%.  The  decrease  was  primarily  due to the Company
contracting  with a single  laboratory and receiving the benefits of lower costs
due to  volume  discounts.  Laboratory  fees  as a  percentage  of net  revenues
decreased from 10.0% in 1999 to 8.9% in 2000.

Occupancy. Occupancy increased from $3.1 million for the year ended December 31,
1999 to $3.3  million  for the year ended  December  31,  2000,  an  increase of
$155,000 or 5.3%.  This increase was due to the two new Offices  opened in 2000,
as well as  certain  Offices  which  were only  open for part of the year  ended
December  31,  1999 and a full year in 2000.  As a  percentage  of net  revenue,
occupancy expense increased from 10.8% in 1999 to 11.0% in 2000.

Advertising and marketing. Advertising and marketing decreased from $484,000 for
the twelve  months ended  December  31, 1999 to $328,000  for the twelve  months
ended  December  31, 2000,  a decrease of $156,000 or 32.1%.  This  decrease was
primarily  due to the  opening of two Offices in 2000 as compared to six Offices
in 1999 and the  corresponding  savings of the initial  expense of promoting new
Offices.  Advertising  and  marketing  expense,  as a percentage of net revenue,
decreased from 1.7% in 1999 to 1.1% in 2000.

Depreciation and amortization.  Depreciation and amortization, which consists of
depreciation  and amortization  expense incurred at the Offices,  increased from
$1.9 million for the twelve  months ended  December 31, 1999 to $2.4 million for
the twelve  months ended  December  31, 2000,  an increase of $484,000 or 25.2%.
This  increase was  primarily  due to the number of Offices  which were open for
part of the year ended  December  31,  1999,  and because of the two new Offices
opened in 2000.  Depreciation  and  amortization  as a percentage of net revenue
increased from 6.7% in 1999 to 8.2% in 2000.

General and administrative.  General and administrative  costs,  attributable to
the Offices,  decreased  from $3.1 million for the twelve months ended  December
31, 1999 to $3.0  million for the twelve  months  ended  December  31,  2000,  a
decrease of $143,000 or 4.6%. The reduction is primarily the result of a Company
initiative in 2000 to manage controllable costs. As a percentage of net revenue,
general and  administrative  expenses  decreased  from 10.9% in 1999 to 10.1% in
2000.

Contribution from dental offices. As a result of the above changes, contribution
from dental  offices  decreased  from $4.1  million for the twelve  months ended
December 31, 1999 to $3.9 million for the twelve months ended December 31, 2000,
a decrease of $184,000 or 4.5%.  As a percentage  of net  revenue,  contribution
from dental offices decreased from 14.5% in 1999 to 13.4% in 2000.

Corporate  expenses - general and  administrative.  Corporate expenses - general
and  administrative  decreased  from $3.8  million for the twelve  months  ended
December 31, 1999 to $3.4 million for the twelve months ended December 31, 2000,
a decrease of $382,000 or 10.1%.  The  reduction  is  primarily  the result of a
Company initiative in 2000 to manage  controllable costs. As a percentage of net
revenue, corporate expenses - general and administrative decreased from 13.3% in
1999 to 11.6% in 2000.


                                       24
<PAGE>


Corporate  expenses  -  depreciation  and  amortization.  Corporate  expenses  -
depreciation  and  amortization  increased  from  $242,000 for the twelve months
ended  December  31, 1999 to $332,000 for the twelve  months ended  December 31,
2000,  an increase of $90,000 or 37.4%.  This  increase was primarily due to the
acquisition  of new payroll  software  in 2000 to manage new and future  growth.
Corporate  expenses -  depreciation  and  amortization  as a  percentage  of net
revenue increased from 0.9% in 1999 to 1.1% in 2000.

Operating  income.  As a result of the change described above,  operating income
increased from $90,000 for the twelve months ended December 31, 1999 to $197,000
for the twelve months ended December 31, 2000, an increase of 107,000 or 119.9%.
As a percentage of net revenue,  operating income increased from 0.3% in 1999 to
0.7% in 2000.

Interest  expense,  net.  Interest expense - net increased from $478,000 for the
twelve  months ended  December 31, 1999 to $630,000 for the twelve  months ended
December 31, 2000, an increase of $152,000 or 31.8%. This increase was primarily
the result of higher rates of interest charged the Company on its line of credit
and a higher  average  balance  outstanding on this line of credit that was used
for capital  expenditures  and the open-market  purchases of Common Stock of the
Company.  As a percentage of net revenue,  interest expense - net increased from
1.7% in 1999 to 2.2% in 2000.

Net loss. As a result of the changes described above, the Company reported a net
loss of $(321,000)  for the twelve months ended December 31, 2000 as compared to
a net loss of $(278,000)  for the twelve months ended  December 31, 1999, net of
tax benefits of $113,000 and $111,000 for 2000 and 1999, respectively.


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 $1.3 million,  $1.7 million,  and
$4.0 million for the years ended December 31, 1999, 2000 and 2001, respectively.
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 of approximately  $342,000 offset, in
part, by an increase in prepaid expenses of approximately  $267,000.  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 of approximately $705,000
offset,  in part, by a decrease in prepaid expenses of  approximately  $146,000.
During the year ended  December  31,  1999 after  adding back  depreciation  and
amortization and other non-cash  expenses,  the Company's cash used in operating
activities  consisted  primarily  of  an  increase  in  accounts  receivable  of
approximately  $1.1 million offset,  in part, by an increase in accounts payable
of approximately $500,000.

Net cash used in investing  activities was $4.4 million,  $1.5 million, and $1.1
million for the years ended  December  31,  1999,  2000 and 2001,  respectively.
During the year ended  December 31, 2001,  $547,000 was invested in the purchase
of  additional  property and  equipment and $435,000 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.  During the year ended December
31, 1999,  $3.7 million was invested in the purchase of additional  property and
equipment,  including  $1.1  million for the de novo Offices and $697,000 for an
acquisition.

For the year ended  December 31, 1999 net cash provided by financing  activities
was $1.8 million.  For the years ended  December 31, 2000 and 2001 net cash used
in financing activities was $401,000,  and $2.7 million,  respectively.  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.  For the year ended  December 31,
1999, net cash provided by financing  activities was comprised of net borrowings
under the  Company's  line of credit of  approximately  $3.7  million  which was
partially offset by the purchase and retirement of Common Stock of approximately
$1.6 million and approximately $310,000 for the repayment of long-term debt.


                                       25
<PAGE>


Under the  Company's  Credit  Facility  (as amended on December 17,  2001),  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 base rate (prime plus a rate
margin of 2.0%).  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  quarter.  Borrowings  are  limited to an  availability
formula based on the Company's  eligible accounts  receivable.  As amended,  the
revolving loan matures on April 30, 2002 and the  non-revolving  note matures on
April 30, 2003. At December 31, 2001, the Company had $168,000  outstanding  and
approximately  $1.8 million  available for borrowing under the revolving line of
credit and $3.875 million  outstanding  under the term 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, 2001 the Company was in full  compliance with
all of its covenants under this agreement.

As of December 31, 2001, the Company had approximately $585,000 in notes payable
issued in connection  with various Office  acquisitions,  which bear interest at
rates  varying from 8.0% to 9.0%. At December 31, 2001,  the Company's  material
commitments for capital  expenditures  totaled  approximately  $1.2 million that
includes the acquisition of controlling  interest in two existing  Offices.  The
Company  anticipates that these capital  expenditures  will be funded by cash on
hand,  cash generated by operations,  or borrowings  under the Company's  Credit
Facility.  The  Company's  accumulated  deficit  as of  December  31,  2001  was
approximately  $(134,000)  and the Company  had working  capital on that date of
approximately $301,000.

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.

On September 5, 2000, the Company's Board of Directors  unanimously approved the
purchase of shares of the Company's Common Stock on the open market, total value
not to exceed $150,000.  During 2000 the Company,  in 18 separate  transactions,
purchased approximately 26,300 shares of Common Stock for total consideration of
approximately  $113,000  at prices  ranging  from $3.80 to $6.68 per share.  The
Company's  current Credit  Facility (as amended on December 17, 2001)  prohibits
the  Company  from  purchasing  its Common  Stock on the open market even though
approximately  $37,000 remains  available under the Board of Directors  approved
plan.

In July 2001 the Financial  Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") 141,  "Business  Combinations," and
SFAS 142,  "Goodwill and Other  Intangible  Assets,"  which  replace  Accounting
Principle Board Opinion Nos. 16 ("APB 16"), "Business Combinations," and APB 17,
"Intangible Assets," respectively. SFAS 141 requires that the purchase method of
accounting be used for all business combinations  initiated after June 30, 2001,
and that the use of the  pooling-of-interests  method  be  prohibited.  SFAS 142
changes  the  accounting  for  goodwill  from  an  amortization   method  to  an
impairment-only-method. Amortization of goodwill, including goodwill recorded in
past  business  combinations,  will cease upon  adoption of SFAS 142,  which the
Company will be required to adopt on January 1, 2002.  After  December 31, 2001,
goodwill can only be written down upon impairment discovered during annual tests
for fair value, or discovered during tests taken when certain  triggering events
occur.  Prior  to the  adoption  of SFAS  142,  impairment  of  intangibles  was
recognized   according  to  the  undiscounted  cash  flow  test  per  SFAS  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed  Of." The Company  does not expect the adoption of SFAS 141 and SFAS
142 to have a material impact on the Company's financial condition or results of
operations.


                                       26
<PAGE>


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 the statement will have a material  effect on its financial
position, results of operations, or cash flows.


In August 2001,  the FASB issued SFAS 144,  "Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets"  which  addresses  financial   accounting  and
reporting  for the  impairment  or disposal of  long-lived  assets.  SFAS 144 is
effective for fiscal years  beginning after December 15, 2001. The provisions of
this statement are generally to be applied  prospectively.  Management  believes
the  adoption  of SFAS  144 will not have a  material  impact  on the  Company's
financial statements.


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;  Limited Operating  History.  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 individual Office profitability,  individual Office operations 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."

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.

                                       27
<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 $210,000. Future de novo 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."

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."

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  auxiliaries.  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.

                                       28
<PAGE>

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.  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 in March 2003,  health care  providers,  including the Company,  will
have 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 intends to comply with all  requirements,  the Company 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 Acquisition Strategy.  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
success of the  Company's  acquisition  strategy  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.


                                       29
<PAGE>



         * 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. As
         the Company pursues its acquisition strategy, there 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 the Company's acquisition
         strategy  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.

         * Availability  of Funds for  Acquisitions.  The Company's  acquisition
         strategy will require that substantial  capital investment and adequate
         financing is  available  to the  Company.  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 acquisition  strategy,  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.

                                       30
<PAGE>

In 2001, the Company derived  approximately 15.4% of its revenues from capitated
managed  dental  care  contracts,  and  15.8% 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."

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, 2001, intangible assets
on the Company's  consolidated  balance sheet were $13.9  million,  representing
56.2% 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.

                                       31
<PAGE>


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.  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 seasonality
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."

                                       32
<PAGE>

Volatility of Stock Price. The market price of the Common Stock could be subject
to wide fluctuations in response to  quarter-by-quarter  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.


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, 2001, the Company has not used derivative  instruments or
engaged in hedging activities.

Interest Rate Risk.  The interest  payable on the Company's  line-of-credit  and
term-loan  is  variable  based upon the prime rate and,  therefore,  affected by
changes in market  interest  rates.  At December  31, 2001,  approximately  $4.0
million was  outstanding  with an interest rate of 6.75% (prime plus 2.0%).  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  $58,000 for the twelve
months ended December 31, 2001.


                                       33
<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,  2000 and 2001 and for the  three  years  ended
December 31, 2001:

                                                           Page

    Report of Independent Public Accountants                35
    Consolidated Balance Sheets                             37
    Consolidated Statements of Operations                   38
    Consolidated Statements of Shareholders' Equity         39
    Consolidated Statements of Cash Flows                   40
    Notes to Consolidated Financial Statements              42






                                       34
<PAGE>




                    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,  2001  and the  related  consolidated  statements  of  operations,
shareholders'  equity and cash flows for the year ended December 31, 2001. 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 audit.

We conducted our audit 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 audit  provides 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, 2001 and the results of their
operations and their cash flows for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.




Hein + Associates LLP



Denver, Colorado,
March 2, 2002



                                       35
<PAGE>





                    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.






                                       36
<PAGE>

<TABLE>
<CAPTION>



                  BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                                                                 December 31,
                                      ASSETS                                               2000                2001
                                                                                           ----                ----
<S>                                                                                <C>                  <C>
CURRENT ASSETS:

    Cash and cash equivalents                                                      $    691,417         $    949,236
    Accounts receivable, net of allowance for doubtful
       accounts of $201,047 and $201,795, respectively                                3,871,818            3,086,648
    Deferred tax asset                                                                  104,429              112,214
    Prepaid expenses and other assets                                                   426,938              724,429
                                                                                   ------------         ------------
              Total current assets                                                    5,094,602            4,872,527

PROPERTY AND EQUIPMENT, net                                                           6,967,914            5,369,198

OTHER NONCURRENT ASSETS:
    Intangible assets, net                                                           13,693,092           13,915,362
    Deferred charges and other assets                                                   179,156              216,285
    Notes receivable - related parties                                                  214,112              284,479
    Deferred tax asset, net                                                             184,192              104,074
                                                                                   ------------         ------------

              Total assets                                                         $ 26,333,068         $ 24,761,925
                                                                                   ============         ============

                       LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                          $  2,897,043         $  3,239,202
    Current maturities of long-term debt                                                154,666            1,332,158
                                                                                   ------------         ------------
              Total current liabilities                                               3,051,709            4,571,360

LONG-TERM LIABILITIES:
    Long-term debt, net of current maturities                                         6,681,623            3,296,304
    Other long-term obligations                                                         128,820              173,089
                                                                                   ------------         ------------

              Total liabilities                                                       9,862,152            8,040,753
                                                                                   ------------         ------------
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 shares issued and
       outstanding at December 31, 2000 and 2001                                     16,855,661           16,855,661
    Accumulated deficit                                                                (384,745)            (134,489)
                                                                                   ------------         ------------
              Total shareholders' equity                                             16,470,916           16,721,172

              Total liabilities and shareholders' equity                           $ 26,333,068         $ 24,761,925
                                                                                   ============         ============


</TABLE>

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


                                       37
<PAGE>




            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>



                                                                            Years Ended December 31,
                                                                1999                   2000                  2001
                                                                -----                  ------                ----
<S>                                                          <C>                    <C>                   <C>
NET REVENUE:                                                 $28,553,114            $29,418,772           $29,249,333

DIRECT EXPENSES:
    Clinical salaries and benefits                            11,204,988             12,020,083            11,803,291
    Dental supplies                                            1,773,229              1,870,396             1,754,923
    Laboratory fees                                            2,845,896              2,634,975             2,471,087
    Occupancy                                                  3,088,530              3,250,974             3,289,937
    Advertising and marketing                                    483,615                328,149               315,083
    Depreciation and amortization                              1,924,790              2,409,223             2,462,604
    General and administrative                                 3,104,388              2,961,451             3,060,699
                                                             ------------           -----------           -----------
                                                              24,425,436             25,475,251            25,157,624
                                                             ------------           -----------           -----------
    Contribution from dental offices                           4,127,678              3,943,521             4,091,709

CORPORATE EXPENSES:
       General and administrative                              3,796,696              3,415,031             2,948,082
       Depreciation and amortization                             241,496                331,738               321,690
                                                             ------------           -----------           -----------
    Operating income                                              89,486                196,752               821,937
    Interest expense, net                                       (478,285)              (630,410)             (450,869)
                                                             ------------           -----------           -----------
    Income (loss) before income taxes                           (388,799)              (433,658)              371,068
    Income tax (expense) benefit                                 111,187                112,756              (120,812)
                                                             ------------           -----------           -----------

    Net income (loss)                                        $  (277,612)           $  (320,902)          $   250,256
                                                             ============           ===========           ===========


Net income (loss) per share of Common Stock:
     Basic                                                   $      (.18)           $      (.21)          $       .17
                                                             ============           ===========           ===========

    Diluted                                                  $      (.18)           $      (.21)          $       .16
                                                             ============           ===========           ===========


Weighted average number of shares of Common Stock and dilutive securities:
       Basic                                                   1,558,553              1,523,594             1,506,705
                                                             ============           ===========           ===========

       Diluted                                                 1,558,553              1,523,594             1,529,549
                                                             ============           ===========           ===========

</TABLE>


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



                                       38
<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, 1998                          $ 1,659,278      $18,531,738          $ 213,769      $18,745,507
    Purchase and retirement of Common Stock             (133,775)      (1,638,416)                -        (1,638,416)
    Exercise of stock options                              1,376           12,132                 -            12,132
      Issuance of Common Stock for dental
          office acquisition                               3,158           35,000                 -            35,000
      Issuance of Common Stock to Profit
         Sharing Plan                                      2,950           28,000                 -            28,000
    Net loss, FYE 1999                                                          -           (277,612)        (277,612)
                                                     -----------      -----------          ---------      ----------

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
                                                     ===========      ===========          =========      ===========

</TABLE>




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



                                       39
<PAGE>


                                                     Page 1 of 2
            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                                Years Ended December 31,
                                                                                -----------------------
                                                                        1999                 2000                2001
                                                                        ----                 ----                ----
<S>                                                                 <C>               <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                               $   (277,612)     $  (320,902)         $  250,256
   Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
          Depreciation and amortization                                2,166,286        2,740,961           2,784,294
          Stock issued for profit sharing plan                            28,000                -                   -
          Provision for doubtful accounts                                 42,261            2,963                 748
          Provision for (benefit from) deferred income taxes            (219,805)        (112,756)             72,333
          Loss on disposition of property                                      -                -               7,956
    Changes in assets and liabilities, net of effects from acquisitions:
          Accounts receivable                                         (1,106,624)         (49,852)            784,422
          Prepaid expense, income tax receivable
              and other assets                                            90,832          146,084            (267,363)
          Accounts payable and accrued expenses                          500,109         (705,196)            342,159
          Other long-term obligations                                     91,257           37,563              44,269
                                                                    ------------     ------------         ----------
    Net cash provided by operating activities                          1,314,704        1,738,865           4,019,074
                                                                    ------------      ------------         ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Notes receivable - related parties, net                              (45,324)        (140,042)            (70,367)
    Capital expenditures                                              (2,634,600)        (688,930)           (546,798)
    Development of new dental offices                                 (1,071,191)        (427,731)                  -
    Acquisition of dental offices                                       (697,321)        (197,163)           (435,006)
                                                                    ------------      ------------         ----------
    Net cash used in investing activities                             (4,448,436)      (1,453,866)         (1,052,171)
                                                                    ------------      ------------         ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from exercise of Common Stock options                        12,132                -                   -
    Net borrowings from line of credit and long-term debt              3,707,144          (93,000)         (2,439,000)
    Repayment of long-term debt                                         (309,861)        (194,743)           (202,827)
    Payment of debenture issuance and other
       financing costs                                                         -                -             (67,257)
    Purchase and retirement of Common Stock                           (1,638,416)        (112,793)                  -
                                                                    ------------      ------------         ----------
    Net cash provided by (used in) financing activities                1,770,999         (400,536)         (2,709,084)
                                                                    ------------      ------------         ----------
NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                              (1,362,733)        (115,537)            257,819
CASH AND CASH EQUIVALENTS, beginning of year                           2,169,687          806,954             691,417
                                                                    ------------      ------------         ----------

CASH AND CASH EQUIVALENTS, end of year                              $    806,954      $   691,417          $  949,236
                                                                    ============      ============        ============

</TABLE>


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



                                       40
<PAGE>



                                                                   Page 2 of 2
            BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                            Years Ended December 31,
                                                                 1999                   2000                  2001
                                                                -----                   -----                 -----
<S>                                                       <C>                    <C>                <C>
SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:
       Cash paid during the year for interest             $       445,784        $     630,570      $    503,979
                                                          ===============        =============      ============
       Cash paid during the year for income taxes         $        87,000        $           -
                                                          ===============        =============      ============

SUPPLEMENTAL DISCLOSURES OF NONCASH
   INVESTING AND FINANCING ACTIVITIES:
       Common Stock issued for:
              Acquisition of dental offices               $        35,000        $           -      $          -
                                                          ===============        =============      ============

       Liabilities assumed or incurred through acquisitions:
              Accounts payable and accrued liabilities    $        59,596        $           -      $          -
                                                          ===============        =============      ============

       Accounts receivable acquired through
          acquisitions                                    $        40,000        $           -      $          -
                                                          ===============        =============      ============

       Other assets acquired through acquisitions         $        30,000        $           -      $          -
                                                          ===============        =============      ============

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




</TABLE>



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



                                       41
<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,  1999,  2000 and 2001 the  Company  managed  54, 56, 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, 2001 as
follows:
<TABLE>
<CAPTION>

                                                                                  De novo                   Office
                                                    Acquisitions              Developments              Consolidations
                    <S>                                   <C>                       <C>                      <C>
                    1997 and Prior *                      31                         6                       (3)
                    1998                                  10                         5                        -
                    1999                                   1                         5                       (1)
                    2000                                   -                         2                        -
                    2001                                   -                         -                       (2)
                                                    -------------             ---------------           ---------------

                    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.


                                       42
<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,
1999, 2000, and 2001 follows:

<TABLE>
<CAPTION>

                                                                                       Years Ended December 31,
                                                                        1999                   2000                2001
                                                                        ----                  -----                ----
<S>                                                             <C>                  <C>                <C>
    Total dental group practice revenue, net                    $   39,109,357       $   41,232,288     $    41,388,573
    Less - revenue from managed offices, net                         6,927,865            4,979,535           3,941,061
                                                                    ----------           ----------          ----------

    Dental office revenue, net                                      32,181,492           36,252,753          37,447,512
    Less - amounts retained by dental offices                        8,444,706           10,261,702          10,904,069
                                                                    ----------           ----------          ----------
    Net revenue from consolidated dental offices                    23,736,786           25,991,051          26,543,443
    Management service fee revenue                                   4,816,328            3,427,721           2,705,890
                                                                    ----------           ----------          ----------

    Net revenue                                                 $   28,553,114       $   29,418,772     $    29,249,333
                                                                ==============       ==============     ===============
</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 1999,  2000, and 2001,  20.7%,  18.5%,  and 15.4%,  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, 1999, 2000 and 2001, 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 8.9%, 9.1% and 7.4%, respectively, CIGNA Dental
Health was responsible for 7.8%, 5.9% and 6.0%, respectively and Delta Care was
responsible for 5.0%, 8.6% and 8.0%, 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.


                                       43
<PAGE>



     Management Service Fee Revenue

For two of the Offices for which the Company has Management Agreements, but does
not have control,  the Company receives  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  $1,550,363,  $2,114,446,  and  $2,125,756 for the years ended
December 31, 1999, 2000 and 2001, 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 $615,923,  $626,515,  and $658,538 for the
years ended December 31, 1999, 2000, and 2001, respectively.

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

                                       44
<PAGE>



     Impairment of Long-Lived and Intangible Assets

In the event that facts and  circumstances  indicate that the cost 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. Actual results could differ from those estimates.

       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.

       Earnings Per Share

The  Company  calculates  earnings  per share in  accordance  with SFAS No.  128
"Earnings per Share".
<TABLE>
<CAPTION>

                                                            Years Ended December 31,
                                                            -----------------------
                                         1999                            2000                             2001
                                         ----                            ----                             ----
                                        Weighted    Per                 Weighted    Per                 Weighted       Per
                                        Average     Share               Average     Share                Average      Share
                        Loss             Shares     Amount      Loss     Shares     Amount     Income     Shares     Amount
                        -----            -------     ------     -----   --------    -------    ------   ---------    ------
<S>                    <C>           <C>          <C>         <C>        <C>        <C>        <C>         <C>        <C>
Basic EPS:
   Net income (loss)   $ (277,612)   1,558,553    $ (.18)     $(320,902) 1,523,594  $ (.21)    $ 250,256   1,506,705  $.17
                       ===========   =========    =======     ========== =========  =======    =========   =========  ====


Diluted EPS:
   Net income (loss)   $ (277,612)   1,558,553    $ (.18)     $(320,902) 1,523,594  $ (.21)    $ 250,256   1,529,549  $.16
                       ===========   =========    =======     ========== =========  =======    =========   =========  ====
</TABLE>



All options and warrants to purchase  shares of Common Stock were  excluded from
the  computation  of diluted  earnings for the years ended December 31, 1999 and
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
2,447 and 511 for the years ended December 31, 1999 and 2000, respectively.  The
difference  between basic earnings per share and diluted  earnings per share for
2001  relates to the effect of 22,844 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 which was effective
February 26, 2001.


                                       45
<PAGE>


       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.
The Company  adopted  SFAS 130,  which is effective  for fiscal years  beginning
after December 15, 1997, in the first quarter of 1998.  For 1999,  2000 and 2001
net income and comprehensive income were the same.

     Costs of Start-up Activities

The  Accounting  Standards  Executive  Committee  of the  American  Institute of
Certified  Public   Accountants   issued  Statement  of  Position  ("SOP")  98-5
"Reporting on the Costs of Start-Up Activities" in April 1998. This SOP provides
guidance on the reporting of start-up costs and organization  costs and requires
the Company to expense these costs (as defined by the SOP) as they are incurred.
The Company adopted SOP 98-5 in the first quarter of 1998.

            Segment Reporting

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information"  that  establishes  standards for reporting
information about operating segments in annual and interim financial statements.
SFAS 131 also establishes  standards for related  disclosures about products and
services, geographic areas and major customers. SFAS 131 is effective for fiscal
years beginning after December 15, 1997 and was adopted by the Company in 1998.

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.

       Recent Accounting Pronouncements

In July 2001 the FASB issued SFAS 141,  "Business  Combinations,"  and SFAS 142,
"Goodwill  and  Other  Intangible  Assets,"  which  replace  APB  16,  "Business
Combinations," and APB 17, "Intangible Assets," respectively.  SFAS 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated  after  June 30,  2001,  and that the use of the  pooling-of-interests
method be  prohibited.  SFAS 142 changes the  accounting  for  goodwill  from an
amortization  method to an  impairment-only-method.  Amortization  of  goodwill,
including  goodwill  recorded  in past  business  combinations,  will cease upon
adoption of SFAS 142,  which the Company will be required to adopt on January 1,
2002. After December 31, 2001, goodwill can only be written down upon impairment
discovered  during annual tests for fair value, or discovered during tests taken
when  certain  triggering  events  occur.  Prior to the  adoption  of SFAS  142,
impairment of intangibles was recognized according to the undiscounted cash flow
test per SFAS 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to be Disposed  Of." The Company does not expect the adoption
of SFAS 141 and SFAS 142 to have a material  impact on the  Company's  financial
position or results of operations.


                                       46
<PAGE>


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-loved 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 the statement will have a material  effect on its financial
position, results of operations, or cash flows.


In August 2001,  the FASB issued SFAS 144,  "Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets"  which  addresses  financial   accounting  and
reporting  for the  impairment  or disposal of  long-lived  assets.  SFAS 144 is
effective for fiscal years  beginning after December 15, 2001. The provisions of
this statement are generally to be applied  prospectively.  The Company does not
believe the  adoption of SFAS 144 will have a material  impact on its  financial
position, results of operations or cash flows..

 (3)   ACQUISITIONS

During 1999, 2000 and 2001, 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.

                  1999 Acquisitions

On February 11, 1999, the Company  acquired all of the assets of a Colorado sole
proprietorship (Glendale Dental Group) and obtained certain rights to manage the
practice for a total purchase price of approximately $760,000. The consideration
consisted of $665,000  payable in cash,  $35,000  payable in Common Stock of the
Company and the assumption of certain obligations of approximately $60,000.

                  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.  Operating  results for Perfect
Teeth/East  Cornell  and Perfect  Teeth/Yale  are  included in the  accompanying
statements of operations beginning with the acquisition dates identified above.

                  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.

In connection with the agreements with the dentists  associated with Mississippi
Dental Group and Glendale Dental Group, whereby the Company acquired an interest
in the  practices and obtained the rights to manage the  practices,  the Company
recorded  intangible assets of $1,701,014  related to the Management  Agreements
obtained in these  transactions.  In each case, the dentist has an option to put
the remaining  interest in the Office to the Company at an exercise price, which
is calculated based upon the performance of the Office (the "put option price").
The option is exercisable  contingent upon certain conditions as outlined in the
agreement. The option exercise periods generally begin three years


                                       47
<PAGE>


after the date of  acquisition  and run for seven  years.  The  option  exercise
period began on September  30, 2001 for  Mississippi  Dental Group and begins on
February 28, 2002 for Glendale  Dental Group.  The Company expects these options
to be exercised  at, or shortly  after,  the start of the exercise  period.  The
excess of the put option price over the fair value of the remaining interest (if
any) will be charged to earnings or, if the put option is exercised,  the amount
paid will be recorded as an additional cost of acquisition.


(4)    NOTES RECEIVABLE  - RELATED PARTIES

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


                                                                                           December 31,
                                                                                           ------------
                                                                                     2000                 2001
                                                                                     ----                 ----
<S>                                                                                 <C>                  <C>
      Note receivable from Chief Executive Officer, Director and shareholder,       $ 100,115            $ 112,134
         unsecured, principal and interest due December 31, 2002,
         interest rate of 7% per annum.
      Note receivable from President, Director and shareholder, unsecured,
         principal and interest due December 31, 2002,                                 50,000               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,                      51,123               78,280
         interest rate of 7% per annum.
      Note receivable from employee, unsecured, annual principal and interest
         payments, due March 15, 2001,
         interest rate of  6% per annum.                                                3,000                    -
      Note receivable from affiliated dentist, unsecured,
         monthly principal and interest payments of $1,028,
         interest rate of 9% per annum, due July 25, 2001.                              9,874                    -
                                                                                    ---------            ---------

Notes receivable - related parties                                                  $ 214,112            $ 284,479
                                                                                    =========            =========
</TABLE>



(5)    PROPERTY AND EQUIPMENT

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

                                                                                         December 31,
                                                                                         -----------
                                                                                  2000              2001
                                                                                 -----             ------
<S>                                                                            <C>             <C>
         Dental equipment                                                      $ 4,273,903     $ 4,334,655
         Furniture and fixtures                                                    999,812         939,301
         Leasehold improvements                                                  3,923,770       4,126,082
         Computer equipment, software and related items                          2,264,253       2,433,578
         Instruments                                                               665,646         681,714
                                                                                ----------     -----------

                                                                                12,127,384      12,515,330

         Less - accumulated depreciation                                        (5,159,470)     (7,146,132)
                                                                                ----------     -----------

         Property and equipment, net                                           $ 6,967,914     $ 5,369,198
                                                                               ===========     ===========


</TABLE>


                                       48
<PAGE>




(6)    DEFERRED CHARGES AND OTHER ASSETS

Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                                    -----------
                                                                                2000              2001
                                                                                -----             -----
<S>                                                                           <C>             <C>
         Deferred financing costs, net                                        $   21,824       $   67,256
         Deposits                                                                157,332          149,029


                                                                              $  179,156       $  216,285
                                                                               =========        ==========
</TABLE>

Deferred  financing  costs are related to the  acquisition  and amendment of the
revolving  credit agreement and term loan and will be amortized over the life of
the credit agreement of between four and sixteen months (Note 8).


(7)  INTANGIBLE ASSETS

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

                                                           Amortization               December 31,
                                                                                      -----------
                                                              Period              2000            2001
                                                           ------------           ----            -----

<S>                                                           <C>              <C>             <C>
         Management agreements                                25 years         $15,773,223     $16,668,966
         Less - accumulated amortization                                        (2,080,131)     (2,753,604)
                                                                               -----------     -----------

         Intangible assets, net                                                $13,693,092     $13,915,362
                                                                               ===========     ===========
</TABLE>



                                       49
<PAGE>

<TABLE>
<CAPTION>


(8)  DEBT

Debt consists of the following:
                                                                                                December 31,
                                                                                          2000                 2001
                                                                                          ----                 ----
    <S>                                                                                   <C>              <C>
       Term-loan with a bank for $4.0 million, interest payable monthly                   $         -      $ 3,875,000
          at lender's base rate (4.75% at December 31, 2001) plus 2.00%,
          principal payments of $250,000 due quarterly, collateralized by the
          Company's account receivables and Management Agreements, due in April 2003.


       Revolving credit agreement with a bank not to exceed $2.0 million,
          interest payable monthly at the lender's base rate (4.75% at December
          31, 2001) plus 2.00%, collateralized by the Company's account
          receivables and Management Agreements, due April 2002.                                    -          168,000

       Revolving credit agreement with a bank not to exceed $10.0 million,
          interest payable quarterly at the lender's
          base rate (10.5% at December 31, 2000) or
          applicable LIBOR rate (6.6254%) plus 2.25%,
          due in April 2002.                                                                6,482,000                -

    Acquisition notes payable:

       Due in September 2001; interest at 8%; no collateral; monthly principal
          and interest payments of $6,267.                                                     53,690                -
       Due in May 2002; interest at 8%; no collateral; monthly principal
          and interest payments of $2,247.                                                     35,901           11,014
       Due in September 2002; interest at 9%; no collateral; monthly principal and
          interest payments of $2,325.                                                         45,017           20,161
       Due in October 2003; interest at 8%; no collateral; monthly principal
          and interest payments of $2,028.                                                     61,549           41,412
       Due in February 2005; interest at 8%; no collateral; monthly principal
          and interest payments of $809.                                                       34,328           27,097
       Due in June 2005; interest at 8%; no collateral; monthly principal and
          interest payments of $2,737.                                                        123,804           99,994
       Due in April, 2006; interest at 8.00%; no collateral; monthly principal and
          interest payments of $4,400.                                                              -          192,892
       Due in April, 2006; interest at 8.00%; no collateral; monthly principal and
          interest payments of $4,400.                                                              -          192,892
                                                                                          ------------     -----------

                                                                                          $ 6,836,289      $ 4,628,462
    Less - current maturities                                                                (154,666)      (1,332,158)
                                                                                          ------------     -----------

    Long-term debt, net of current maturities                                             $ 6,681,623      $ 3,296,304
                                                                                          ============     ===========
</TABLE>



                                       50
<PAGE>




       Credit Facility

Under the  Company's  Credit  Facility  (as amended on December 17,  2001),  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 base rate (prime plus a rate
margin of 2.0%).  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 quarter.  Borrowings on the revolving loan are limited to
an availability formula based on the Company's eligible accounts receivable.  As
amended, the revolving loan matures on April 30, 2002 and the non-revolving note
matures on April 30,  2003.  At December  31,  2001,  the  Company had  $168,000
outstanding  and  approximately  $1.8 million  available for borrowing under the
revolving loan and $3.875 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, 2001 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,
2002                                                       $    1,332,158
2003                                                            3,015,006
2004                                                              130,332
2005                                                              116,167
Thereafter                                                         34,799
                                                           --------------
                                                           $    4,628,462
                                                           ==============


(9)  SHAREHOLDERS'  EQUITY

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 has
been quoted on the Nasdaq SmallCap Market under the symbol "BDMS" since February
26, 2001.


Treasury Stock

On February 9, 1999, the Company's  Board of Directors  unanimously  approved an
increase of 75,000 shares, to 150,000 shares, of the Company's Common Stock that
could be purchased  on the open market on such terms,  as the Board of Directors
deems  acceptable.  On  September  5, 2000,  the  Company's  Board of  Directors
unanimously approved the purchase of shares of the Company's Common Stock on the
open market, total value not to exceed $150,000. During 1999, the Company, in 58
separate  transactions,  purchased  approximately 133,800 shares of Common Stock
for total  consideration  of  approximately  $1.6 million at prices ranging from
$7.12  to  $15.00  per  share.   During  2000,  the  Company,   in  18  separate
transactions,  purchased  approximately  26,300  shares of its Common  Stock for
total  consideration of  approximately  $113,000 at prices ranging from $3.80 to
$6.68 per share.  The Company's  current Credit Facility (as amended on December
17, 2001)  prohibits  the Company from  purchasing  its Common Stock on the open
market even though  approximately  $37,000 remains  available under the Board of
Directors approved plan.


                                       51
<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,  has 229,250  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, 1999,  2000 and 2001 and changes during the years
then ended is presented below:
<TABLE>
<CAPTION>

                                                  1999                      2000                             2001
                                        ------------------------  --------------------------    ------------------------
                                                        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        146,178        $ 23.94      146,134        $ 19.84      147,552        $  16.23

        Granted                          44,250        $  9.55       31,500        $  4.66      180,750        $   2.01
        Canceled                        (42,918)       $ 23.53      (30,082)       $ 21.69      (45,403)       $  12.06
        Exercised                        (1,376)       $  8.82            -        $     -            -        $    -
                                        -------        -------      -------        -------      -------
Outstanding at end of year              146,134        $ 19.84      147,552        $ 16.23      282,899        $   7.81
                                        =======        =======      =======        =======      =======        =========

Exercisable at end of year               80,391        $ 22.76       92,197        $ 20.23       92,003        $  19.41
                                        =======        =======      =======        =======      =======        =========

Weighted average fair value
    of options granted during the year  $  5.96                     $  3.26                     $  1.45
                                        =======                     =======                     =======

</TABLE>



                                       52
<PAGE>


The following table summarizes information about the options outstanding at
December 31, 2001:
<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             2001               Life            Price             2001          Price
     ------------------------           -----------      -----------        --------      --------------   --------
       <S>                              <C>                 <C>              <C>            <C>            <C>
         $0.00-- 7.80                   195,625             4.50             $ 2.23          7,062         $ 5.08
        $7.81-- 15.84                    38,562             1.60             $10.41         36,562         $10.48
       $15.85-- 23.76                    17,291             1.80             $18.86         16,958         $18.92
       $23.77-- 31.68                    11,168             3.10             $26.82         11,168         $26.82
       $31.69-- 39.60                    20,253             1.40             $36.85         20,253         $36.85
       --------------                   -----------      -----------        --------      --------------   --------

        $0.00-- 39.60                   282,899             3.70            $  7.81         92,003         $19.41
       ==============                   ===========      ===========        ========      ==============   ========
</TABLE>

       Warrants

At  December  31,  1999,  2000 and 2001,  there  were  outstanding  warrants  or
contractual  obligations  to issue  warrants to purchase  approximately  95,266,
72,723  and  7,338,  respectively,  of shares  of the  Company's  Common  Stock.
Warrants were issued in connection  with the private  placement of the Company's
Common  Stock,  the  issuance of  convertible  subordinated  debentures  and for
personal guarantees provided for certain Company bank debt.

A summary of warrants as of December 31, 1999, 2000 and 2001, and changes during
the years then ended is presented below:
<TABLE>
<CAPTION>

                                                  1999                        2000                   2001
                                                  ----                        ----                   ----
                                                        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       95,266         $15.24        72,723       $17.53
       Cancelled                              -              -      (22,543)             -       (65,385)      $16.79

Outstanding at end of year               95,266                      72,723                       7,338
                                         ======                     =======                       ======

Warrants exercisable at end of year      95,266                      72,723                       7,338
                                         ======                     =======                       ======

Weighted average exercise
    price of warrants outstanding                       $15.24                      $17.53                     $24.14
                                                        ======                      ======                     ======

Weighted average remaining
    contractual life at end of year                       1.49                         .70                       0.50
                                                        ======                      ======                     ======

</TABLE>


                                       53
<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>


                                                              1999              2000             2001
                                                              ----              ----             ----

                  <S>                                     <C>                  <C>             <C>
                  Risk-free interest rate                     5.62%                6.27%           3.79%
                  Expected dividend yield                        0%                   0%              0%
                  Expected lives                          3.7 years            3.6 years       3.5 years
                  Expected volatility                           88%                 106%             77%
</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 $264,000,  $103,000, and $203,000 for the years ended December 31,
1999, 2000, and 2001, 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 $344,006,  $264,058 and $177,772 for the years ended  December
31, 1999, 2000 and 2001, 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>


                                                                    1999              2000            2001
                                                                    -----             -----          ------
Net income (loss):

<S>                                                              <C>              <C>               <C>
         As reported                                             $ (277,612)      $  (320,902)     $  250,256
                                                                 ===========      ============     ==========

         Pro forma                                               $ (523,232)      $  (516,305)     $  130,438
                                                                 ===========      ============     ==========

Net income (loss) per share, basic:

         As reported                                             $     (.18)      $      (.21)      $     .17
                                                                 ===========      ============     ==========

         Pro forma                                               $     (.34)      $      (.34)      $     .09
                                                                 ===========      ============     ==========
</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.


                                       54
<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  $2,293,927,  $2,516,275  and $2,596,248 for the years
ended December 31, 1999,  2000, and 2001  respectively.  Rent expense for leases
with related  parties  (affiliated  dentists)  for the years ended  December 31,
1999, 2000, and 2001 totaled $172,100, $46,442, 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,
                     2002                                  $ 2,018,465
                     2003                                    1,358,240
                     2004                                      881,953
                     2005                                      576,444
                     2006                                      330,191
                     Thereafter                                277,518
                                                           -----------
                                                           $ 5,442,811
                                                           ===========
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.  At December  31,  2001,  the Company has
available tax net operating loss carryforwards of approximately $753,000,  which
expire beginning in 2012.

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

                                                                      1999               2000             2001
                                                                      -----              -----            -----
               <S>                                               <C>               <C>               <C>
               Current:
                  Federal                                        $             -   $           -     $      48,479
                  State                                                        -               -                 -
                                                                 ---------------   -------------     -------------
                                                                               -               -            48,479
                                                                 ---------------   -------------     -------------
               Deferred:
                  Federal                                                (98,357)        (98,445)           67,863
                  State                                                  (12,830)        (14,311)            4,470
                                                                 ---------------   -------------     -------------
                                                                        (111,187)       (112,756)           72,333
                                                                 ---------------   -------------     -------------
               Total income expense (benefit)                    $      (111,187)  $    (112,756)    $     120,812
                                                                 ===============   =============    ==============

</TABLE>


                                       55
<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):
<TABLE>
<CAPTION>

                                                                        1999            2000             2001
                                                                        -----           -----            -----

                  <S>                                                  <C>              <C>              <C>
                  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                   8.7             13.3             (4.7)
                  Other                                                   -              (2.0)              -
                                                                       -------          -------          -----
                                                                       (28.6)%          (26.0)%           32.6%
                                                                       =======          =======          =====
</TABLE>

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


                                                                                      December 31,
                                                                                      ------------
                                                                                 2000              2001
                                                                                 ----              ----
         <S>                                                                    <C>              <C>
         Deferred tax assets current:
             Accruals not currently deductible                                  $  29,437        $  36,944
             Allowance for doubtful accounts                                       74,992           75,270
                                                                                ---------        ---------
                                                                                  104,429          112,214

         Deferred tax assets long-term:
             Tax loss carryforwards                                               467,808          280,924
             Benefit of AMT tax credit                                            117,289          165,768
             Depreciation for tax under books                                     150,433          374,840
                                                                                ---------        ---------
                                                                                  735,530          821,532
         Deferred tax liabilities long-term:
             Intangible asset amortization for tax
                over books                                                       (551,338)        (717,458)
             Depreciation for tax over books                                            -                -
                                                                                ---------        ---------

                                                                                 (551,338)        (717,458)
                                                                                --------         ---------


         Net deferred tax asset                                                 $ 288,621        $ 216,288
                                                                                =========        =========
</TABLE>

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 2% of each employee's compensation.  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, 2000
and 2001 the Company did not make any contributions to the plan.


                                       56
<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, 2000 and
2001.

(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)
                                  -------             -------           ------       ---------------
<S>                            <C>                  <C>                <C>             <C>
1999 quarter ended:
    March 31, 1999             $   7,022,728        $ 1,597,851        $  298,639      $       .19
    June 30, 1999                  7,166,534          1,050,817           (61,222)            (.04)
    September 30, 1999             7,406,488          1,123,541           (24,944)            (.01)
    December 31, 1999              6,957,364            355,469          (490,085)            (.32)
                               -------------        -----------        ----------      -----------

                               $  28,553,114        $ 4,127,678        $ (277,612)     $      (.18)
                               =============        ===========        ==========      ===========


2000 quarter ended:
    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)            (.23)
                               -------------        -----------        ----------      -----------

                               $  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
                               =============        ===========        ==========      ===========

</TABLE>

(15)     SUBSEQUENT EVENTS

On January 31, 2002 the Company  acquired 2/3 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.



                                       57
<PAGE>




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

On November 14, 2001, the Company dismissed Arthur Andersen LLP as the Company's
principal accountant.  The decision to change accountants was recommended by the
Audit  Committee  of the  Board  of  Directors  and  approved  by the  Board  of
Directors.


The Report of Arthur Andersen LLP on the financial statements of the Company for
either of the past two fiscal  years  ended  December  31, 1999 and 2000 did not
contain an adverse  opinion or  disclaimer  of opinion nor was it  qualified  or
modified as to uncertainty,  audit scope or accounting  principles.  The Company
does not believe that there were any  disagreements  with Arthur Andersen LLP on
any  matter  of  accounting   principles  or  practices,   financial   statement
disclosure,  or auditing  scope or  procedure,  during the past two fiscal years
ended  December  31,  1999 and 2000 and during  the  subsequent  interim  period
through  November 14, 2001,  which,  if not  resolved to Arthur  Andersen  LLP's
satisfaction,  would have caused  Arthur  Andersen LLP to make  reference to the
subject matter of the disagreement(s) in connection with its Reports.


The Company engaged Hein + Associates LLP as its new principal independent
accountant as of November 14, 2001.





                                       58
<PAGE>



                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth information  concerning each of the directors and
executive  officers  of the  Company.  All  directors  shall  serve  until their
successors are duly elected and  qualified,  subject,  however,  to prior death,
resignation,  retirement,  disqualification or removal from office. Officers are
appointed by and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>

                Name                     Age                                  Position
<S>                                      <C>    <C>
Frederic W.J. Birner                     44     Chairman of the Board, Chief Executive Officer and Director
Mark A. Birner, D.D.S.                   42     President and Director
Dennis N. Genty                          44     Chief Financial Officer, Secretary, Treasurer and Director
James M. Ciccarelli                      49     Director
Steven M. Bathgate                       47     Director
Paul E. Valuck, D.D.S.                   45     Director
</TABLE>


Business Biographies

Frederic  W.J.  Birner is a founder of the Company and has served as Chairman of
the Board and Chief Executive Officer since the Company's inception in May 1995.
From May 1992 to September  1995, he was employed as a Senior Vice  President in
the Corporate  Finance  Department  at Cohig &  Associates,  Inc., an investment
banking firm. From 1983 to February 1992, Mr. Birner held various positions with
Hanifen,  Imhoff, Inc., an investment banking firm, most recently as Senior Vice
President in the Corporate  Finance  Department.  Mr.  Birner  received his M.S.
degree from Columbia  University and his B.A. degree from The Colorado  College.
Mr. Birner is the brother of Mark A. Birner, D.D.S.

Mark A. Birner,  D.D.S. is a founder of the Company and has served as President,
and as a director, since the Company's inception in May 1995. From February 1994
to October  1995,  Dr.  Birner was the owner and  operator  of three  individual
dental  practices.  From 1986 to February 1994, he was an associate dentist with
the Family Dental Group.  Dr. Birner received his D.D.S.  and B.A.  degrees from
the University of Colorado and completed his general  practice  residency at the
University  of Minnesota in  Minneapolis.  Dr. Birner is the brother of Frederic
W.J. Birner.

Dennis N. Genty is a founder of the  Company and has served as  Secretary  since
May 1995, and as Chief Financial Officer,  Treasurer,  and as a director,  since
September  1995.  From October 1992 to September 1995, he was employed as a Vice
President in the Corporate  Finance  Department at Cohig & Associates,  Inc., an
investment  banking firm. From May 1990 to October 1992, he was a Vice President
in the  Corporate  Finance  Department at Hanifen,  Imhoff,  Inc., an investment
banking firm. Mr. Genty received his M.B.A.  degree from Columbia University and
his B.S. degree from the Colorado School of Mines.

James M.  Ciccarelli  joined the Company as a consultant  in August 1996 and has
served as a director since  November  1996. Mr.  Ciccarelli has been Chairman of
the Board of TeleConnex Solutions,  LLC (formerly ActiveLink  Communications and
CommWorld  International)  since October 1998. Mr. Ciccarelli served as Chairman
of the Board of Wireless  Telecom,  Inc.,  a wireless  data and network  service
provider from March 1993 to January 2000. In addition Mr.  Ciccarelli  served as
their Chief  Executive  Officer from March 1993 to October 1998.  From September
1990  to  March  1993,  Mr.  Ciccarelli  was a  Vice  President  of  Intelligent
Electronics,  a high  technology  distribution  and  services  company,  and the
President  and CEO of its  Reseller  Network  Division.  From  November  1988 to
September 1990, Mr. Ciccarelli was the President of Connecting Point of America,
a franchisor of retail computer stores.

Steven M. Bathgate became a director of the Company  effective upon consummation
of the Company's  initial public  offering in February  1998.  Mr.  Bathgate has
served as a principal of Bathgate  McColley  Capital  Corp.  LLC, an  investment
banking firm, since its formation in January 1996. Mr. Bathgate held a number of
positions from 1985 to 1996 at Cohig & Associates,  Inc., an investment  banking
firm, including Chairman and Chief Executive Officer.

Paul E. Valuck,  D.D.S.  was in private dental practice in Denver from September
1985 until  November  1995.  From November 1995 until  December 1997, Dr. Valuck
practiced as an  affiliated  dentist with the  Company.  Since  January 1998 Dr.
Valuck has been in private dental  practice in Denver.  Dr. Valuck  received his
D.D.S. and his B.S. Pharmacy degree from the University of Colorado.


                                       59
<PAGE>




                               Section 16 reports

Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended,  requires
directors,  executive  officers  and  beneficial  owners of more than 10% of the
outstanding  shares of the  Company  to file with the  Securities  and  Exchange
Commission reports regarding changes in their beneficial  ownership of shares in
the  Company.  To the  Company's  knowledge  and based solely on a review of the
Section 16(a) reports furnished to the Company, Mr. Ciccarelli, Mr. Bathgate and
Mr.  Valuck  were late in filing  their  Statements  of  Changes  in  Beneficial
Ownership on Form 4 for the month of June 2001.  All other Section 16(a) reports
were filed on a timely basis.


ITEM 11.  EXECUTIVE COMPENSATION.

Director Compensation

Directors  currently do not receive any cash  compensation  from the Company for
their  services as directors  and are not presently  reimbursed  for expenses in
connection with attendance at Board of Directors and committee meetings.

Executive Compensation

Summary Compensation

The following table sets forth the compensation paid by the Company to the Chief
Executive  Officer  and each of the  executive  officers of the Company who were
paid total  salary and bonus  exceeding  $100,000  during the fiscal  year ended
December 31, 2001 (the "Named Executive Officers").


                           Summary Compensation Table
<TABLE>
<CAPTION>

                                                                                      Long-Term
                                                         Annual Compensation        Compensation
                                                         -------------------        ------------
                                                                                     Securities
                                                                                     Underlying         All Other
Name and Principal Position              Fiscal Year    Salary        Bonus       Options/Warrants    Compensation
---------------------------              -----------    -------       -----       ----------------    ------------
<S>                                         <C>           <C>        <C>                 <C>            <C>    <C>
Frederic W.J. Birner                        1999          $210,691   $     -             $ -            $2,528 (1)
    Chairman of the Board and               2000          $223,413   $     -             $ -            $2,006 (1)
    Chief Executive Officer                 2001          $225,000   $10,000             $ -            $1,125 (1)



Mark A. Birner, D.D.S.                      1999          $140,897   $     -             $ -            $2,536 (1)
    President and Director                  2000          $148,942   $     -             $ -            $1,893 (1)
                                            2001          $150,000   $10,000             $ -            $1,125 (1)



Dennis N. Genty                             1999          $141,382   $     -             $ -            $2,121 (1)
    Chief Financial Officer                 2000          $148,942   $     -             $ -            $2,681 (1)
    Treasurer, Secretary and                2001          $150,000   $10,000             $ -            $1,125 (1)
    Director

</TABLE>


(1)  401(k)  contributions  paid for by the  Company  on  behalf  of each  named
executive officer.



                                       60
<PAGE>
Option Grants

No stock options were granted  during the fiscal year ended December 31, 2001 to
any Named Executive Officer.

Option Exercises and Holdings

The following table sets forth for the Named  Executive  Officers the number and
value of  securities  underlying  unexercised  in-the-money  options  held as of
December 31, 2001.  None of the Named Executive  Officers  exercised any options
during the fiscal year ended December 31, 2001.

                 Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year End Option Values
<TABLE>
<CAPTION>

                                               Number of Securities
                                              Underlying Unexercised              Value of Unexercised,
                                                 Options Held at                 In-the-Money Options at
                                                December 31, 2001                 December 31, 2001 (1)
                                       ----------------------------------     ----------------------------
Name                                   Exercisable          Unexercisable     Exercisable    Unexercisable
----                                   ------------         -------------     -----------    -------------
<S>                                     <C>                       <C>         <C>               <C>
Frederic W.J. Birner                    14,880                    -           $        -        $       -
Mark A. Birner, D.D.S.                  14,527                    -           $        -        $       -
Dennis N. Genty                         12,235                    -           $        -        $       -
</TABLE>

(1)      Value is based on the  difference  between  the stock  option  exercise
         price and the closing price of the Common Stock on the Nasdaq  SmallCap
         Market on  December  31,  2001 of $4.45 per share.  The stock  price on
         December 31, 2001 was less than the exercise  price of all  outstanding
         options.

Compensation Committee Interlocks and Insider Participation

No executive officer of the Company currently serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers  serving  as a member  of the  Board of  Directors  or as an  executive
officer of the Company.  See "Director and Executive  Compensation" and "Certain
Transactions" for a description of transactions  between the Company and members
of the Board of Directors.

Compensation Committee Report on Executive Compensation

Currently,  the entire Board of Directors makes all determinations  with respect
to executive  officer  compensation.  The  following  report is submitted by the
Board of Directors of the Company,  in its capacity as  Compensation  Committee,
pursuant to rules  established by the Securities  and Exchange  Commission,  and
provides certain information  regarding  compensation of the Company's executive
officers.

The Compensation  Committee is responsible for establishing and  administering a
general  compensation  policy and  program  for the  Company.  The  Compensation
Committee also possesses all of the powers of administration under the Company's
employee  benefit  plans,  including  all stock option plans and other  employee
benefit  plans.  Subject to the  provisions  of those  plans,  the  Compensation
Committee must determine the  individuals  eligible to participate in the plans,
the  extent  of such  participation  and the terms and  conditions  under  which
benefits may be vested, received or exercised.


                                       61
<PAGE>

Compensation   Policies.  The  Company's  executive  compensation  policies  are
designed to complement  the  Company's  business  objectives  by motivating  and
retaining  quality  members  of  senior  management,  by  aligning  management's
interests  with  those  of  the  Company's  shareholders  and by  linking  total
compensation  to  the  performance  of  the  Company.  The  Company's  executive
compensation  policies generally consist of equity-based  long-term  incentives,
short-term incentives and competitive base salaries.  The Compensation Committee
will  continue to monitor  the  performance  of the  Company  and its  executive
officers in reassessing executive compensation.

Base  Salary.  The  Compensation  Committee  reviews  the base  salaries  of the
Company's  executive  officers on an annual basis.  Base salaries are determined
based upon a subjective  assessment  of the nature and  responsibilities  of the
position involved, the performance of the particular officer and of the Company,
the officer's  experience  and tenure with the Company and base salaries paid to
persons in similar positions with companies comparable to the Company.

Annual Bonus.  Annual bonuses may be paid to the Company's executive officers at
the discretion of the Compensation Committee. The Compensation Committee granted
bonuses of $10,000 each to three executive officers during 2001.

Long-Term Incentives.  The Company's long-term  compensation strategy is focused
on the grant of stock options  under the stock option plans and warrants,  which
the Compensation Committee believes rewards executive officers for their efforts
in improving  long-term  performance  of the Common Stock and creating value for
the Company's shareholders, and which the Compensation Committee believes aligns
the financial interests of management with those of the Company's  shareholders.
During  2001,  the  Compensation  Committee  did not grant stock  options to the
executive officers.

Chief Executive Officer  Compensation for Fiscal Year 2001. The compensation for
Frederic W.J. Birner during 2001 consisted of his base salary, the rate of which
was  established in 1999, and a cash bonus of $10,000.  Mr. Birner's base salary
was not increased in 2001.

                                     COMPENSATION COMMITTEE

                                     Frederic W.J. Birner
                                     Mark A. Birner, D.D.S.
                                     Dennis N. Genty
                                     James M. Ciccarelli
                                     Steven M. Bathgate
                                     Paul E. Valuck D.D.S.



                                       62
<PAGE>

PERFORMANCE GRAPH

The  following  line graph  compares the  percentage  change from date of public
offering (February 11, 1998) through December 31, 2001 for (i) the Common Stock,
(ii) a peer group (the "Peer  Group") of companies  selected by the Company that
are  predominantly  dental  management  companies  located in the United States,
(iii) Nasdaq  Composite Index and (iv) S&P 500 Composite Index. The companies in
the Peer Group are American Dental Partners,  Inc., Castle Dental Centers, Inc.,
Coast Dental Services, Inc., Interdent, Inc. and Monarch Dental Corporation.

<TABLE>
<CAPTION>


                                                [THE FOLLOWING TABLE WAS REPRESENTED BY
                                                 A LINE GRAPH IN THE PRINTED MATERIAL]

                                                                         Comparison of Total Returns*

                                          2/11/98           12/31/98            12/31/99       12/31/00      12/31/01
                                          -------           --------            --------       --------      --------
<S>                                       <C>                <C>              <C>              <C>             <C>
Description
Birner Dental Management
  Services, Inc.                          $100.00            $ 50.00          $  19.64         $  6.70         $ 15.89
Peer Group                                 100.00              57.57             32.58           11.16            6.69
Nasdaq Composite Index                     100.00             136.69            254.02          152.85          120.79
S&P 500 Composite Index                    100.00             127.17            153.93          139.92          123.29

</TABLE>

*Total return based on $100 initial investment and reinvestment of dividends





















                                       63
<PAGE>




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

The  following  table  sets  forth  certain  information  with  respect  to  the
beneficial  ownership of the Company's Common Stock as of March 13, 2002, by (i)
all persons  known by the Company to be the  beneficial  owners of 5% or more of
the Common Stock, (ii) each director,  (iii) each director nominee, (iv) each of
the executive officers,  and (v) all executive officers,  directors and director
nominee  as a group.  Unless  otherwise  indicated,  the  address of each of the
persons named below is in care of the Company,  3801 East Florida Avenue,  Suite
508, Denver, Colorado 80210.

<TABLE>
<CAPTION>
                                                            Number of Shares
                 Name of Beneficial Owner                 Beneficially Owned         Percent of Class (1)(2)
                 ------------------------                 ------------------         -----------------------

    <S>                                                          <C>                          <C>
    Frederic W.J. Birner (3)....................                 200,786                      13.2%
    Mark A. Birner, D.D.S. (4)..................                 197,492                      13.0%
    Dennis N. Genty (5).........................                 134,946                       8.9%
    Lee Schlessman (6).........................                  131,785                       8.7%
    Steven M. Bathgate (7)......................                 103,019                       6.8%
    Paul E. Valuck, D.D.S..........................                5,273                        *
    James M. Ciccarelli (8).....................                   4,209                        *
    All executive officers and directors
       (six persons) (9)........................                 645,725                      41.2%
</TABLE>


* Less than 1%

(1)      Beneficial  ownership is determined in accordance with the rules of the
         Securities  and Exchange  Commission and generally  includes  voting or
         investment  power with  respect to  securities.  Shares of Common Stock
         subject to  options,  warrants  and  convertible  debentures  currently
         exercisable or  convertible,  or  exercisable or convertible  within 60
         days of March 13,  2002,  are  deemed  outstanding  for  computing  the
         percentage of the person or entity holding such  securities but are not
         outstanding for computing the percentage of any other person or entity.
         Except as indicated by footnote, and subject to community property laws
         where applicable, the persons named in the table above have sole voting
         and  investment  power with respect to all shares of Common Stock shown
         as beneficially owned by them.

(2)      Percentage  of ownership  is based on 1,506,705  shares of Common Stock
         outstanding at March 13, 2002.

(3)      Includes  14,880  shares of Common  Stock  that are  issuable  upon the
         exercise of options that are currently  exercisable and 2,293 shares of
         Common Stock that are issuable  upon the exercise of warrants  that are
         currently  exercisable.  Includes 2,125 shares of Common Stock owned by
         his wife. Mr. Birner disclaims  beneficial ownership of all shares held
         by his wife.

(4)      Includes  14,527  shares of Common  Stock  that are  issuable  upon the
         exercise of options that are currently  exercisable and 2,293 shares of
         Common Stock that are issuable  upon the exercise of warrants  that are
         currently exercisable.

(5)      Includes  12,235  shares of Common  Stock  that are  issuable  upon the
         exercise of options that are currently  exercisable and 2,293 shares of
         Common Stock that are issuable  upon the exercise of warrants  that are
         currently exercisable. Includes 118,443 shares of Common Stock owned by
         his wife. Mr. Genty disclaims  beneficial  ownership of all shares held
         by his wife.

(6)      Includes  61,753 shares of Common Stock over which Mr.  Schlessman  has
         sole voting power pursuant to certain powers of attorney, but for which
         he disclaims  beneficial  ownership.  The address for Mr. Schlessman is
         1301 Pennsylvania Street, Suite 800, Denver, CO 80203.

(7)      Includes  6,250  shares  of Common  Stock  that are  issuable  upon the
         exercise of options that are  currently  exercisable.  Includes  37,625
         shares  of  Common  Stock  owned by his wife.  Mr.  Bathgate  disclaims
         beneficial  ownership of all shares held by his wife.  Includes  23,500
         shares of Common Stock owned by Bathgate Family  Partnership  Ltd.. Mr.
         Bathgate disclaims  beneficial  ownership of these securities except to
         the extent of his pecuniary interest therein.

(8)      Includes  3,750  shares  of Common  Stock  that are  issuable  upon the
         exercise of options that are  currently  exercisable  and 459 shares of
         Common Stock that are issuable  upon the exercise of warrants  that are
         currently exercisable.

(9)      Includes  58,980  shares of Common Stock  issuable upon the exercise of
         options and warrants held by all executive  officers and directors as a
         group that are currently exercisable or are exercisable within 60 days.

There has been no change in control of the Company  since the  beginning  of its
last fiscal year, and there are no arrangements known to the Company,  including
any  pledge  of  securities  of the  Company,  the  operation  of which may at a
subsequent date result in a change in control of the Company.



                                       64
<PAGE>



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

CERTAIN TRANSACTIONS

The Company's Chief Executive Officer,  Frederic W.J. Birner, is indebted to the
Company on an unsecured basis in the amount of $112,134.  Principal and interest
(at 7% per annum) are due December 31, 2002.  The Company's  President,  Mark A.
Birner,  is  indebted  to the  Company  on an  unsecured  basis in the amount of
$94,065. Principal and interest (at 7% per annum) are due December 31, 2002. The
Company's Chief Financial  Officer,  Dennis N. Genty, is indebted to the Company
on an unsecured  basis in the amount of $78,280.  Principal  and interest (at 7%
per annum) are due December 31, 2002.





                                       65
<PAGE>


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements:

                  Report of Independent Public Accountants

                  Consolidated Balance Sheets -
                           December 31, 2000 and 2001

                  Consolidated Statements of Operations -
                           Years ended December 31, 1999, 2000 and 2001

                  Consolidated Statements of Shareholders' Equity - Years ended
                           December 31, 1999, 2000 and 2001

                  Consolidated Statements of Cash Flows - Years ended December
                           31, 1999, 2000 and 2001

                  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, 2001

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:

         On November 17, 2001 the Company filed a report of Form 8-K related to
         a change in Auditors. On November 27, 2001 the Company filed a report
         on Form 8-K (a) related to a change in Auditors.



                                       66
<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.
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.

                                       67
<PAGE>

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.
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.



                                       68
<PAGE>

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.



                                       69
<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> <C>
/s/ Frederic W.J. Birner                  Chairman of the Board, Chief Executive                         March 18, 2002
-------------------------------------
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 18, 2002
-------------------------------------
Frederic W.J. Birner                      Officer and Director (Principal Executive
                                          Officer)



/s/ Mark A. Birner                        President and Director                                         March 18, 2002
-------------------------------------
Mark A. Birner, D.D.S.



/s/ Dennis N. Genty                       Chief Financial Officer, Secretary,                            March 18, 2002
-------------------------------------
Dennis N. Genty                           Treasurer and Director (Principal
                                          Financial and Accounting Officer)



/s/ James M. Ciccarelli                   Director                                                       March 18, 2002
-------------------------------------
James M. Ciccarelli



/s/ Steven M. Bathgate                    Director                                                       March 18, 2002
-------------------------------------
Steven M. Bathgate



/s/ Paul E. Valuck                        Director                                                       March 18, 2002
-------------------------------------
Paul E. Valuck D.D.S.

</TABLE>


                                       70
<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 year ended  December 31, 2001 included in this Form 10-K
and have issued our report  thereon dated March 2, 2002.  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 year ended December 31, 2001 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.


Hein + Associates LLP

Denver, Colorado,
March 2, 2002.










































                                       71
<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 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.





































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<PAGE>




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


<TABLE>
<CAPTION>

                      Column B          Column C - Additions
                     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>
      2001            $ 201,047        $    748       $      -      $        -        $  201,795
      2000            $ 306,469        $  2,963       $      -      $ (108,385)       $  201,047
      1999            $ 296,911        $ 42,261       $158,114      $ (190,817)       $  306,469

</TABLE>

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




























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