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

                                   FORM 10-K/A

                                  ANNUAL REPORT

                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998       COMMISSION FILE NUMBER 0-12050

                       SAFEGUARD HEALTH ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)

                      DELAWARE                       52-1528581
           (State or other jurisdiction of        (I.R.S. Employer
            incorporation or organization)      Identification Number)

                                  95 ENTERPRISE
                          ALISO VIEJO, CALIFORNIA 92656
                   (Address of principal offices)  (Zip Code)

                                  949.425.4300
              (Registrant's telephone number, including area code)
                                  949.425.4586
            (Registrant's fax telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

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

                          COMMON STOCK, $0.01 PAR VALUE

                                      NONE
                       (Name of exchange on which listed)

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

                                YES [X]  NO [ ]

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

The  aggregate  market  value  of the voting stock held by non-affiliates of the
registrant  as  of  March  15,  2000,  was  $5,033,804.

The  number  of  shares of the registrant's common stock outstanding as of March
31,  2000,  was  4,747,498  (not  including  3,247,788 shares held in treasury).


<PAGE>
<TABLE>
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                                     SAFEGUARD HEALTH ENTERPRISES, INC.

                                      1998 ANNUAL REPORT ON FORM 10-K/A

                                              TABLE OF CONTENTS


                                                                                                        Page
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . .  19
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . .  19
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . .  28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . . . . . . . . . . . . . . .  29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  29
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
ITEM 10. DIRECTORS AND/OR EXECUTIVE OFFICERS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . .  29
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . .  33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . .  35
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . .  35
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
</TABLE>


                                      (i)
<PAGE>
                                     PART I

ITEM  1.     BUSINESS

In  addition  to  historical  information,  the  description  of  business below
includes  certain  forward-looking  statements,  including  those  related  to
SafeGuard  Health Enterprises, Inc., a Delaware corporation (the "Company"), its
growth  plans  and  business  strategies,  and  its future operating results and
financial  position,  as  well  as  those related to general economic and market
events  and  trends.  The  Company's actual results and financial position could
differ  materially from those anticipated in the forward-looking statements as a
result  of  various  factors,  including  competition,  changes  in  health care
regulations,  levels  of  utilization  of  dental  health  care  services,  new
technologies,  rising  dental  care  costs,  risks  of  acquisitions and sale of
assets,  ability  to  resell  assets  or notes of dental offices, waivers and/or
extensions  from  lenders,  and other risks and uncertainties as described below
under  "RISK  FACTORS."  The  following  should  be read in conjunction with the
Consolidated  Financial  Statements  of  the  Company  and  Notes  thereto.

RESTATEMENT  OF  FINANCIAL  STATEMENTS

This Amendment on Form 10-K/A amends the Registrant's Annual Report on Form 10-K
for  the period ended December 31, 1998, as filed by the Registrant on April 15,
1998,  and  is  being  filed  to  reflect  the  restatement  of the Registrant's
consolidated financial statements (the "Restatement").  A summary and the impact
of  the  Restatement  is  presented  below  and  in  Note  15  of  Notes  to the
Consolidated  Financial  Statements.

BACKGROUND  INFORMATION  AND  ORIGINAL  ACCOUNTING

In  September 1997, the Company sold several general dental practices to Pacific
Coast  Dental,  Inc.,  Associated Dental Services, Inc., and affiliated dentists
(the  "Purchasers"  or  "PCD")  in exchange for consideration consisting of $8.0
million  of  long-term  promissory  notes.  In  the  Company's  1997  financial
statements, the Company recorded a gain on sale of discontinued dental practices
of  $3.3 million (net of income taxes of $2.1 million) on this sale transaction.
In  April 1998, the Company sold several orthodontic practices to the Purchasers
in  exchange  for  consideration  consisting  of  $15.0  million  of  long-term
promissory  notes.  In  the  Company's  1998  financial  statements, the Company
recorded  a  gain  of  $2.1  million  (net of income taxes of $1.3) on this sale
transaction.

The Company also sold four other general dental practices to other purchasers in
exchange for consideration consisting of long-term promissory notes. During 1997
and  1998,  the  purchasers  of  these  practices  conveyed the practices to the
Purchasers in exchange for the assumption of the promissory notes payable to the
Company.  At  the  time of the conveyances of these practices to the Purchasers,
the  related promissory notes had an aggregate carrying value of $1.9 million on
the  Company's  balance  sheet,  which  exceeded  the historical cost of the net
assets  of  the  related  dental  practices  by  $1.4  million.

In  connection  with the sale of the general dental and orthodontic practices to
the Purchasers, the Company committed to lend the Purchasers certain amounts for
working  capital.  As of December 31, 1997 and 1998 the working capital loans to
the  Purchasers amounted to $850,000 and $1.6 million, respectively. During 1997
and  1998,  the  Company  originally  recorded  an aggregate of $192,000 (net of
income  taxes  of  $124,000) and $1.0 million (net of income taxes of $670,000),
respectively,  of  interest  income relating to all the various notes receivable
from  the  Purchasers.

The  Company  previously recorded various reserves against the promissory notes,
the working capital loans, and the accrued interest on these obligations, during
1997  and  1998,  in  an  aggregate  amount  of  $1.9 million and $14.4 million,
respectively.  The  Company  also  received  during  1997 and 1998, $227,000 and
$38,000,  respectively,  of  interest payments from the Purchasers. As a result,
the total carrying value of all the amounts receivable from the Purchasers as of
December  31,  1998  was  $12.2  million in the previously reported consolidated
balance  sheet.  Of  the  $16.3  million  of total reserves that were previously
recorded,  $4.8  million  were  included in the calculation of the gains on sale
discussed  above,  and $7.0 million were charged to expense (net of income taxes
of  $4.5  million)  subsequent to the dates of the respective sale transactions.

RESTATEMENT

Subsequent to these transactions, the Purchasers defaulted on the amounts due to
the  Company.  In  a subsequent review of the facts and circumstances related to
this  matter, and based upon no new information that was not otherwise available
to  the  Company  at  the  time  when  it  entered  into these transactions, the
Company's  management  has  concluded that as of the dates of the initial sales,
the Purchasers did not have sufficient resources to repay the notes from sources
other  than  the  operations  of  the  purchased  practices.  As  a  result, the
accompanying  1998 and 1997 financial statements have been restated from amounts
previously  reported  to  reverse the sales transactions to PCD discussed above,
and  the  related  promissory  notes and the working capital loans have not been
recognized in the restated financial statements.  The historical cost of the net
assets  of  the  related  general  dental  and  orthodontic  practices have been
recorded  on  the  Company's restated balance sheet under the caption "Assets of
discontinued  operations  transferred  under  contractual  arrangements."  The
restated  financial  statements  do  not  reflect  any  gains  on  these  sale
transactions,  and  do not reflect any interest income on the related promissory
notes.  In  addition,  the carrying value of the promissory notes related to the


                                      -1-
<PAGE>
four  practices  that were also transferred to the Purchasers was reduced to the
historical  cost  of the net assets of the related dental practices, at the time
of  the  transfers. The working capital loans are fully reserved at the time the
loans  were  made  and  the  Company  has  no further obligation to provide such
working  capital  loans.  Interest payments received have been applied to reduce
the  historical  cost  of the net assets transferred.  This accounting treatment
more  appropriately  reflects  the  economic  substance  of the transactions, as
distinct  from  the  legal  form  of  the  transactions.

The  effects  of  the restatement have been presented in Note 15 of the Notes to
the  consolidated  financial  statements  and  have  been  reflected  herein.

(a)     GENERAL  DEVELOPMENT  OF  BUSINESS.

The Company owns and operates one of the largest publicly traded dental benefits
companies  in  the  United States. The Company was founded in California in 1974
and  is  licensed  to  operate managed care dental plans in Arizona, California,
Colorado, Florida, Illinois, Kansas, Kentucky, Missouri, Nevada, Ohio, Oklahoma,
Oregon,  Texas,  Utah  and  Washington  D.C.,  with  significant  operations  in
California,  Colorado,  Florida,  Missouri  and  Texas.

The  Company's  predecessor,  SafeGuard  Health  Plans,  Inc.,  a  California
corporation (the "California Plan"), commenced operations in 1974 as a nonprofit
corporation.  The  California  Plan  converted from nonprofit status in December
1982  and is currently a wholly-owned subsidiary of the Company. The Company was
incorporated  in California in November 1982 and acquired the California Plan in
December  of  that  year.  Wholly-owned  subsidiaries  conduct business in other
states.  On  August  24,  1987,  the  Company  reincorporated  in  Delaware.

In  September  1992,  the Company acquired a California domiciled life insurance
company and renamed it SafeHealth Life Insurance Company ("SafeHealth Life"). In
August  1996,  the  Company  acquired a Texas based managed dental care company,
named  First  American Dental Benefits, Inc. In May 1997, the Company acquired a
Florida based managed dental care company and renamed it SafeGuard Health Plans,
Inc.,  which company also operates in Georgia, Illinois, Kansas, Missouri, Ohio,
and  Washington,  D.C.  In  August  1997,  the Company acquired a North Carolina
domiciled  life and health indemnity insurance company, redomesticated it to the
State  of  Texas  and  renamed  it  SafeHealth Life Insurance Company, Inc. This
Company  is  licensed  to  operate  in the states of Alabama, Arizona, Arkansas,
Delaware,  Florida,  Georgia,  Indiana,  Kentucky, Louisiana, Mississippi, North
Carolina,  Oklahoma,  South Carolina, Tennessee, Texas, and Virginia. Unless the
context  otherwise requires, all references to the "Company" or "SafeGuard" mean
SafeGuard  Health  Enterprises,  Inc.,  a  Delaware corporation, its predecessor
California  corporation,  and  its  subsidiaries.

In  September  1996,  the Company initiated a strategic plan to sell the general
dental  practices of the Company's dental office subsidiary, Guards Dental, Inc.
("Guards").  Guards  dental  offices  were  primarily  formed for the purpose of
supplementing,  in  geographic  areas  where  needed,  plan coverage provided by
independent  contracting  dental  offices.  All  of the general dental practices
owned  by  Guards  were  sold  during the period from September 30, 1996 through
September  30,  1997.

Effective as of April 1, 1998, the Company sold all of the orthodontic practices
operated  by  Guards  to the Purchasers.  The total consideration received was a
$15  million, 8 1/2%, 30-year Promissory Note, secured by all current and future
assets  of  the  Purchasers, including those assets transferred by Guards. Among
other  provisions,  the sale agreement details the sale of various assets of the
practices and a long term commitment to continue to provide orthodontic services
to the members of SafeGuard Health Plans, Inc., a subsidiary of the Company.  In
addition to this transaction, the Purchasers had previously purchased certain of
the general dental practices from the Company in September 1997, in exchange for
an  $8  million  Promissory  Note.

Due  to  the uncertainty of the Purchaser's ability to meet it obligations under
these  Promissory  Notes  ("Notes"),  the  Company  has  not  recognized  these
transactions  as  sales for accounting purposes and accordingly has not recorded
the Notes in its financial statements. The historical cost of the underlying net
assets  of  the orthodontic and general dental practices have been segregated on
the  Company's  balance  sheet as "Assets of discontinued operations transferred
under contractual arrangements" in order to appropriately convey the distinction
between  the legal form of the transactions and their accounting treatment.  The
Company  is  carrying  the net assets of these businesses at their estimated net
realizable  value,  and  accordingly,  has  not  recognized  any  gain  on these
transactions,  including  recognition  of  interest  income  on  the Notes.  The
discontinued  assets  have  also been reduced by the amount of interest payments
received  from  the  Purchasers.

As  part  of  an  ongoing  review  process, the Company ascertained that, in the
fourth  quarter of 1998, the Notes granted to the Company by the Purchasers were
not  performing  pursuant  to  the terms and conditions thereof. Rather than the
Company  exercising  its  right to foreclose on the Notes, Guards entered into a
Default  Forbearance  Agreement  and  an  Irrevocable Power of Attorney with the
Purchasers,  which  will enable the Company to either resell the assets or Notes
relating  to  the  practices.  That  agreement expired in July 1999, however the
Company,  rather  than electing to exercise its rights to foreclose on the notes
under  the Agreement, is cooperating with the Purchasers to effect a sale of the
assets  related  to  those  practices.


                                      -2-
<PAGE>
The  Company's  executive  offices  are  located  at 95 Enterprise, Aliso Viejo,
California  92656;  its  telephone  number is 949.425.4300 and its fax number is
949.425.4586.

DENTAL  CARE  MARKETPLACE

According  to  the United States Office of National Health Statistics, the total
expenditures  for  dental  care in the United States grew from approximately $14
billion  in  1980  to an estimated $48 billion in 1996. The United States Health
Care  Financing  Administration  reports  that  expenditures for dental services
account  for  approximately  5%  of  total  national  health  care expenditures.
According  to  the United States Department of Labor ("DOL"), the cost of dental
services  has been rising at a rate higher than that for consumer goods. The DOL
statistics  reported  that,  from 1982 to 1998, the consumer price index for all
urban  consumers  for dental services increased 136%, whereas this index for all
items  increased  63%.  As a result, the Company believes that there has been an
increased  interest  by  employers  in  managing  dental  care  costs.

Employer-sponsored  dental  benefits are one of the most common employee welfare
benefits.  The  National  Association  of  Dental  Plans ("NADP") estimates that
approximately  147  million persons, representing approximately 55% of the total
United States population, are covered by some form of dental benefit coverage at
the  end of 1997. The NADP estimates that managed care enrollment has grown from
18  million  covered lives in 1994, to approximately 26 million covered lives by
the end of 1997. This compares to over 50 million Americans who were enrolled in
medical  HMOs in 1997, according to the Group Health Association of America. The
Company  believes  that the relatively high growth rate for Dental HMO plans, is
attributable  to  (i)  the  greater  acceptance of managed care by employers and
employees;  (ii)  the  significant  price  advantage  relative  to  traditional
fully-insured  open panel fee-for-service or reimbursement plans; (iii) the cost
effectiveness  to employers of Dental HMO plans as an employee benefit; and (iv)
the  growing acceptance of dental health maintenance organization ("Dental HMO")
plans  by  dentists  throughout the country, resulting in improved accessibility
and  convenience  for  members.  At the end of 1997, members of Dental HMO plans
represent  approximately  18%  of  the population with dental care coverage, and
approximately  10%  of  the total United States population. As a result of these
factors,  the Company believes that there will continue to be significant growth
opportunity  in  the  Dental  HMO  benefits  industry.

It has been the Company's experience that larger employers have been more likely
to  offer dental benefit coverage to their employees. Additionally, according to
the  1995  Foster Higgins Survey of Employee Sponsored Health Plans, nationally,
approximately  89%  of employers with more than 500 employees offer some type of
dental  benefits  to  some  or  all  employees,  and  approximately 79% of these
employers  have  a  stand-alone  dental  plan,  distinct and separate from other
health  and  welfare  benefits  offered to employees. By comparison, this survey
reported  that  approximately 54% of employers that had less than 500 employees,
offer dental benefits. About 62% of all employers who offer dental benefits have
distinct  stand-alone  plans.  It  has  been  the Company's experience that many
employers in the small to mid-size range, that do not offer dental benefits, are
willing  to  consider  offering a plan, initially in which the employee pays the
full  cost  or  substantially  the  full  cost  of such benefits through payroll
deductions  collected by the employer. Consequently, it is the Company's current
intent  to  target  its  marketing  efforts  on  the  small to mid-size range of
employers  to  help  increase  growth.

The Dental HMO industry as a whole, is currently fragmented and characterized by
participation  of  several  large,  national  insurance  companies  and numerous
independent  organizations.  As  of  December  31, 1996, the NADP estimated that
there  were over 150 Dental HMO companies in the United States, with no dominant
market  leader.

The  increase  in the number of dentists nationally during the last two decades,
has  exceeded  the  rate  of population growth. According to the American Dental
Association  ("ADA"), the number of practicing dentists in the United States has
increased  to  approximately 151,000, while the rate per 100,000 population, has
increased  from  53  in  1980  to  60  in 1991. In addition, the dental delivery
marketplace  is  highly  fragmented  with  approximately  96%  of all practicing
dentists,  working  in  a one or two-dentist office, according to the ADA. Also,
according to a survey of dental practices published by Dental Economics in 1994,
the median of staff and other costs that are part of total overhead expenses for
practicing  dentists  were  approximately  60%  of the gross revenue of solo and
group  dental practices. The significant increase in the number of dentists as a
proportion  of  the  population, the fragmented dental delivery marketplace, the
high  proportion of overhead costs for dentists and an improved level of overall
dental health in the country, has created a highly competitive environment among
dentists,  particularly  in  major  metropolitan areas where it is believed that
there  is  a  greater than 25% vacancy rate in the average dentist's office. The
Company  believes  that  these  factors  have  contributed  to  the  increased
willingness  of  qualified  dentists  to participate in Dental HMO and preferred
provider  organization  networks,  such  as  those maintained by the Company, as
dentists  seek  alternative  methods  to  increase  practice  revenues.

Under  a  traditional fee-for-service indemnity plan, coverage is provided based
on  a  reimbursement formula of the usual and customary charges submitted by the
dentist.  Compared  to  medical coverage, the average cost of dental services is
lower  and  the  utilization  of  services  is  more predictable. Unlike medical
coverage,  dental  coverage  generally does not cover catastrophic risks. Dental
care  is  provided almost exclusively on an outpatient basis and, according to a
1990  ADA  survey,  over  81%  of  all  dental services are performed by general
dentists.  Also,  dental  plans  generally  do  not  include  coverage  for
hospitalization,  typically  the  most  expensive component of medical services.


                                      -3-
<PAGE>
Common  features  of  dental indemnity plans include deductibles, maximum annual
benefits  of  less  than $2,000 per person and significant patient cost-sharing.
Patient  cost-sharing  typically varies by type of dental procedure ranging from
no  cost  sharing for preventive procedures to 50% cost-sharing for dentures and
even  greater  cost-sharing for orthodontic care. This high patient cost-sharing
and  the  relatively  predictable  nature  of  dental expenditures substantially
limits  the underwriting risk of a dental plan when compared to the underwriting
risk  of  a  medical  plan  which  covers  catastrophic  illness  and  injuries.
Furthermore,  since  most  dental  problems  are  neither  life  threatening nor
represents  serious  impairments  to overall health, there is a higher degree of
patient  cost  sensitivity  and  discretion  associated  with  obtaining  dental
services.  Many  dental  conditions  also have a range of appropriate courses of
treatment,  each  of  which has a different out-of-pocket cost for patients. For
example,  a  deteriorated  amalgam  filling may be replaced with another amalgam
filling  (a  low-cost  alternative) a pin-retained crown build-up (a more costly
alternative)  or  a crown with associated periodontal treatment (the most costly
alternative).  The  level  of  coverage  provided  to the patient and the dental
plan's  reimbursement methodology may influence the type of services selected by
the  patient  or  rendered  by  the  dentist.

Under a traditional indemnity insurance plan or fee-for-service arrangement, the
insurer  and  the  patient  each  pays  a  percentage  of the fee charged by the
dentist,  subject  to  cost-sharing,  maximum  benefit  allowances and usual and
customary  limits.  Under such an indemnity plan, dentists have little incentive
to reduce total charges because they are compensated on a fee-for-service basis.
By  contrast,  under  a  Dental  HMO  plan  capitation  payments  are  fixed and
co-payments  for  additional  services  are  pre-negotiated  by the Company. The
co-payments  generally  are designed to exceed the dentist's variable costs, but
are  typically less than the dentist's usual and customary fee. Fixed capitation
payments  that  do  not  vary  with the frequency of services provided create an
incentive  for dentists to emphasize preventive care, control costs and maintain
a  long-term  patient relationship that generates consistent capitation revenue.
Fixed capitation payments also substantially reduce the underwriting risk to the
Company  associated  with  the  high  utilization  of  dental  services.

(b)     FINANCIAL  INFORMATION  ABOUT  INDUSTRY  SEGMENTS.

The  Company  operates  in  a  single  industry segment providing Dental HMO and
indemnity  dental  benefits.

(c)     NARRATIVE  DESCRIPTION  OF  BUSINESS.

GENERAL  DESCRIPTION  OF  THE  COMPANY

The Company contracts with large and medium sized governmental or private sector
employers,  and  multiple  employer  trusts.  In addition, over the last several
years  the  Company  has  focused  its  marketing efforts on mid-sized and small
employer  groups,  usually  with  less than 1,000 employees. At the end of 1998,
dental  care  under  the  Company's  Dental  HMO and preferred provider plans is
provided by a panel of approximately 5,600 independent dental offices consisting
of  approximately  6,700  dentists.

As  of  December  31,  1998,  the Company had contracts with approximately 6,300
employer  clients  providing  benefits  to  approximately  1,018,000  members,
representing a 12.6% decrease in membership from 1,165,000 at December 31, 1997.
This  decrease  in  membership resulted primarily from the anticipated loss of a
large  private label HMO relationship in the first quarter of this year together
with  a  decline  in  the  Company's  indemnity dental insurance membership as a
result  of  the certain policy holders choosing not to renew their coverage when
renewal  rates  were  offered.

The Company's Dental HMO contracts with its clients generally require the client
to pay a monthly per capita fee that is usually fixed for a period of one to two
years.  The  typical fee for a Dental HMO program for an employee and his or her
dependents  varies depending on the level of dental benefits, dependent coverage
and  member co-payment requirements stipulated in the contract. Each employee or
dependent  member receives covered services from a dental office selected by the
member  or  dependent  which is on the Company's panel of providers, whereas the
individual  is  ordinarily  free  to  select  any  dentist  under  a traditional
indemnity  insurance  program. The Company's Dental HMO plans do not require the
member  to  pay deductibles, file claim forms, or be subject to an annual dollar
limitation  on  the  amount  of  dental  care  for  which  they  are  eligible.

Under the Company's indemnity dental insurance programs, members are required to
pay  small  deductibles  and copayments which are traditionally higher than that
which  are  required  by the Company's Dental HMO products. However, members may
select  any dentist of their choice for their dental care under these plans. The
typical  fee  for  an  indemnity  dental  program for an employee and his or her
dependents  depends  upon the level of dental benefits provided in the contract.

The  Company  utilizes  a  local market strategy which establishes local offices
responsible  for sales, client services and provider relations, staffed by up to
twelve  individuals  who are responsible to the local office executive director.
Each  local  office  is  a  separate  profit  center  and  has  profitability
responsibility  and  decision-making process. Some larger metropolitan areas may
have  more  than  one  local  office, depending upon the needs of the geographic
territory.  The  Company  also uses regional offices as training and support for
the  local  office's  sales,  provider  relations,  client  services  and market
management  activities.  Regional  offices also provide provider administration,
member  and  provider  services,  underwriting,  financial  analysis,  quality
improvement  and  dental  policy  administration.  The Company currently has two


                                      -4-
<PAGE>
regional  offices  which  are responsible to provide support and training to the
local  offices  in  those  regions.  The  Company's  corporate  office  provides
corporate  governance,  corporate  finance,  legal  and  regulatory  services,
processing  policy  and  compliance activities, obtaining regulatory approval of
new  products,  market  research,  product  development  and  management, public
relations,  information systems, claims administration, billing and collections,
corporate  quality  improvement  policy  and  compliance  activities, large case
support, brokerage relationships, alternative distribution programs and business
planning.  The  Company's  stated  goal  is  to  move as much as possible of the
decision-making  process to the various constituencies of the Company, to better
serve  the  member,  the  client  and  the producer by adopting the local office
strategy.

It  is  the  Company's primary goal to be the leading dental benefits company in
each  of the markets in which it operates. Presently, the Company is licensed to
provide  Dental  HMO benefits in fifteen states and the District of Columbia and
indemnity  benefits  in  twenty-seven states. It is the Company's belief that by
targeting  a  specific  segment  of  each  of  the  markets in which the Company
operates,  it can attain and maintain market leadership by offering a full gamut
of  Dental  HMO and indemnity dental products more particularly described below.

To  implement  its  strategy, the Company offers a comprehensive range of dental
benefit  plans  utilizing  specific standard plan designs which are available in
each  of  the markets in which the Company operates. By standardizing the dental
plans  the  Company offers, it can attain market share and excellence in service
through  the  consistent  application  of  policies  and  procedures,  and
administrative  functions.  Such  standardizing  also  allows employers to offer
substantially  the  same benefits in all states in which the Company is licensed
to  operate.

The  Company  utilizes  multiple  distribution methods to sell its products. Its
sales  force  focusing on its target market, allows the Company to attain growth
in  its  core  business  areas,  working  with independent insurance brokers and
agents  who  market  the  Company's  plans.  The  Company  also works with large
national  brokerage  firms who provide consultative advice to large employers on
the  selection  of  dental  benefit plans. The Company also sells to third party
HMOs  that  offer  its  plans as an additional benefit to members of the medical
HMOs.  The Company also utilizes a general agency relationship in several of the
markets  in  which  it  operates,  targeting  small  employers  and individuals.

The  Company  is  committed  to  ensuring quality dental care through a panel of
accessible  dentists. By providing multiple types of reimbursement programs, the
Company is able to contract with and maintain significant provider panels in the
markets  in  which  it  operates  by  providing  a broad spectrum of patients to
dentists  through  various  funding mechanisms. The Company's provider relations
representatives  in  each of its local market offices provide a valuable service
in  assisting  to  maintain  the  provider  relationships.  Local  knowledge and
expertise  provided  through  these  local representatives enable the Company to
develop  highly  accessible dental networks convenient for plan members which is
an  important  factor to employers in selecting a Dental HMO plan. Local efforts
are  supported  by  the  Company's  regional  and  corporate  activities.

An  important  factor  in  the  Company's  strategy  is to provide an integrated
approach  to  member  services.  Regional member service representatives provide
support  and  assistance  to  local  market  offices  by  responding  to  member
inquiries,  requests  for  change  in  provider facilities, claims questions and
payment  information.  Specific  800 telephone numbers accessible throughout the
country  are  maintained  with  the objective of providing consistent, reliable,
responsive  and  efficient  member  services.

PRODUCTS

Dental  HMO  Plans.  The  Company offers a variety of Dental HMO plans under the
names  SafeGuard  Health  Plans,  SafeGuard  Dental  Plans  and  American Dental
Corporation.  The  Company's Dental HMO plans operate similarly in each state in
which  business is conducted. Under the Company's Dental HMO plans, a premium is
paid  to  the  Company on behalf of the subscriber by the employer from the date
the  subscriber  enrolls  in the plan. A portion of this contribution is used by
the  Company  to  "prepay"  for  dental care for members through regular monthly
capitation  payments by the Company to a specific selected primary care dentist.
The  capitation  rate  does  not  vary with the nature or the extent of services
utilized,  but  is variable based on plan design. In exchange for the capitation
payments, the selected provider is obligated to provide specific dental services
to  plan  members.

Members covered under the Company's Dental HMO plans obtain certain basic dental
procedures,  such  as  examinations,  x-rays,  cleanings  and  fillings,  at  no
additional  charge,  other  than,  in  some  cases,  a  small  per  office visit
copayment.  The  plan's  established  copayments for more complicated procedures
provided  by  the selected primary care dentist, such as root canals and crowns,
vary  in accordance with the complexity of the service and the level of benefits
provided. Most of the Company's Dental HMO plans also cover services provided by
specialists  participating  in  the  panel rather than the primary care dentists
selected  by  the subscriber, including oral surgery, endodontics, periodontics,
orthodontics,  and  pedodontics.  The  Company  assumes responsibility under its
Dental  HMO  plans  for  such specialty care arrangements and is responsible for
such  payments,  usually  on  a  discounted  fee-for-service  basis.


                                      -5-
<PAGE>
Dual  Choice Plans. The Company's products also include dual choice dental plans
which  allow  subscribers  to  choose between a Dental HMO plan and an indemnity
dental  insurance  plan.  The  Company  believes  that its ability to offer dual
choice  plans is an important element of its business success because it enables
the  Company to offer prospective customers flexibility, particularly when there
are  potential  subscribers  outside the area served by the Company's Dental HMO
panel.  Certain  states,  such  as  Nevada and Oklahoma, require that Dental HMO
plans  be  offered only as part of a dual choice plan and other states may do so
in  the  future.  Dual  choice  plans  are particularly effective as part of the
Company's  growth  strategy in areas in which the Company's dental panel is less
well  developed  and members may value the ability to choose non-panel dentists.
The  Company  also  believes  that  securing  customers  through  dual  choice
arrangements  provides  an  opportunity  to  cross  sell  Dental  HMO  plans.

Preferred  Provider  Organizations. The Company's products also include a dental
plan  which  provides  for  an increased level of benefits in the event a member
utilizes  a dentist participating on its Preferred Provider Organization ("PPO")
panel.  The  level  of  benefits provided to members who select a PPO dentist is
usually  increased  by  at least 10% and usually provides for a waiver of annual
deductibles  required  to  be paid by plan members. In exchange, the dentist has
contracted  to provide dental benefits to plan members at a fee which is usually
discounted  by  at least 30% off of the dentist's usual and customary fee or the
Company's  fee  allowance,  whichever  is  less.  Additionally, the cost savings
through  reduced  fees charged by PPO dentists are shared by the Company and the
member. In the event the member utilizes a PPO dentist, the member also receives
the  same  level  of  discount off of the provider's usual and customary fee, as
applied  to  the  member's  coinsurance. The Company believes that its PPO is an
excellent  way  to  enter into new markets or areas that have been traditionally
difficult areas to recruit dentists into a managed care plan, since the PPO acts
as  a  transitional  step  for  dentists between the traditional fee-for-service
plans  and  the Dental HMO plans offered by the Company. The indemnity insurance
portion  of  the  Company's  Dual  Choice and PPO dental plan is underwritten by
SafeHealth Life, a subsidiary of the Company. These plans subject the Company to
underwriting  risks associated with over utilization and pricing variances which
are  different  from  those pricing and reimbursement mechanisms utilized by the
Company's  Dental  HMO  plans.

Other  Dental  Products. For self-insured employers, the Company provides claims
administration under an Administrative Services Organization ("ASO") arrangement
whereby  the  Company  does  not  assume the underwriting risk for the indemnity
claims.  The  Company  receives  an administrative fee to process claims and the
underwriting  risk is retained by the employer sponsoring the self-insured plan.
The  Company also provides access to its PPO network for a fee to clients. Under
this  program,  the  PPO  network  providers  offer  a  reduced fee schedule for
services  performed.  Eligible  participants  pay reduced fees when they receive
dental services from a PPO network provider. The Company charges its PPO network
clients  a monthly fee for each participant eligible to access the Company's PPO
fee  arrangements.  The  Company  does  not  make any payment to its PPO network
providers  on  behalf  of  the  participant  eligible  to access the reduced fee
arrangement.

General  Dental  Services.  On  October  21,  1996,  the  Company  implemented a
strategic plan to sell all of the general dental practices owned by the Company.
The  assets sold consisted primarily of accounts receivable, supply inventories,
equipment  and  leasehold  improvements.  Each  practice sold could enter into a
contract  with the Company's practice management subsidiary, whereby the Company
would  provide  certain  services  to  support  the operation of their practice,
including  administrative  support.  The  Company  discontinued  its  practice
management subsidiary and terminated these agreements in 1998.  See "Restatement
of  Financial  Statements"  and  Note  15 of Notes to the Consolidated Financial
Statements.

Orthodontic  Services.  On  February  26,  1998,  the  Company  announced  the
discontinuance  of  its  orthodontic  practices.  The  assets of the orthodontic
practices  consisted  primarily  of  accounts  receivable,  supply inventory and
dental  equipment,which were sold on April 1, 1998, pursuant to the terms of the
definitive Master Asset Purchase Agreement (the "Agreement") dated and effective
as  of  April  1,  1998,  by  and  among  the  Company and PCD.  The orthodontic
practices  were  sold  for  $15  million,  represented  by  an  8  1/2%  30-year
promissory  note and secured by all current and future assets of the Purchasers,
including  those assets transferred under the Agreement made by PCD. Among other
provisions, the Agreement includes a long term commitment to continue to provide
orthodontic  services  to  the  members  of  SafeGuard  Health  Plans, Inc.  See
"Restatement  of  Financial Statements" and Note 15 of Notes to the Consolidated
Financial  Statements.

PROVIDER  RELATIONS

The Company believes that the most essential element in its enrollment growth is
a  stable panel of quality focused dentists in convenient locations. The Company
also  requires that all Dental HMO and PPO providers meet all Quality Assessment
program  standards.  The  program  includes  current  professional  license
verification,  current  liability insurance, and a risk management review of the
dental  facility to ensure that all OSHA and regulatory requirements are met, an
inspection  of  the  office's  sterilization  practices,  and  a  review  of the
facilities  location,  including  parking  availability and handicap access. See
"QUALITY  MANAGEMENT  AND  IMPROVEMENT."

The  Company  believes that dental providers on the Company's Dental HMO and PPO
panels  are  willing to provide their services at a lower capitated (fixed) rate
per  month  in  exchange  for  the relatively steady, extended stream of revenue
generated  by  panel participation. Furthermore, this contractual revenue source
for  the  provider is free from the collection problems and administrative costs
sometimes  associated  with  other  forms  of  dental  coverage. Thus, qualified
dentists  and/or  dental  groups  have  generally  been available and willing to
participate  on  the  Company's  panels  and  supplement  their  fee-for-service
practice.


                                      -6-
<PAGE>
The  Company  compensates  each panel dental office on its Dental HMO plans on a
monthly  capitation  rate for each member who selects that office, regardless of
the  amount  or  character  of service provided during the month. The capitation
rate does not vary with the nature or extent of services utilized, however it is
variable  based upon plan design. The total amount paid to each dental office is
determined  by  the capitation rate per each client contract applicable thereto,
and  the  number  of eligible members served by the participating dental office.
The  Company  provides  additional  compensation to its Dental HMO providers for
specified dental procedures. The Company believes that this compensation program
provides  for  a  higher  level  of  member  and  provider  satisfaction through
increased compensation to the provider. For dentists who provide services to the
Company's  insured  members,  compensation  is  based  upon  a percentage of the
provider's  usual  and customary fee based upon established tables of allowances
utilized  by  the  Company in its claims paying processing systems. Benefits are
provided  in  accordance with percentages that are established for each member's
benefit  program.  Providers  who  participate  in the Company's PPO program are
compensated  at a fee which is less than the provider's usual and customary fee,
usually  at  a  discount of up to 30 percent, or 30 percent off of the Company's
usual  and  customary  fee  for  the  area,  whichever  is  less.

The  Company  currently employs provider relations representatives in each local
market.  All  have  extensive  dental  office  management backgrounds and act as
consultants to assist our panel providers with the administration of the plan in
the  day-to-day operation of their offices. Should a dental office terminate its
contract  with  the  Company, if necessary a new provider will be recruited in a
timely  manner  to meet the needs of the members assigned to that office, and so
there  will  be  no  delay  in  the  member's  care. No individual dental office
provided  service  to  more than 10 percent of the Company's members at December
31,  1998.

The  Company's panel dental offices are free to contract with other dental plans
and  both  they  and  the Company can terminate the contract at any time upon 60
days prior written notice. In accordance with the contract, the Company may also
terminate  the  contract  "for  cause"  upon  15  days prior written notice. The
Company  may  also, at anytime, change the terms, rates, benefits and conditions
of  the various plans serviced by its providers with ten (10) days notice to the
provider.  The  Company's  contracts  with  panel dental offices require them to
maintain  their  own  professional liability insurance for a minimum of $200,000
per  claim,  and  $600,000 per annual aggregate and to indemnify the Company for
claims  arising  from  the  dentist's  acts  or  omissions.

At December 31, 1998, approximately 5,000 primary care and specialty care dental
offices,  consisting  of  approximately 6,000 dentists, were participating panel
providers  on  the  Company's Dental HMO plans. General dentists are required to
render  all basic dental care and refer members to specialists only as required.
Under  its  policy,  the  Company  offers  nearly all specialty dental services,
including  oral  surgery, endodontics, periodontics, orthodontics, and pediatric
dentistry. If the specialty care falls within the Company's guidelines, all or a
substantial  portion  of  the  specialists  fees  are  paid by the Company. Such
payments  were  10.3 percent and 9.6 percent of the Company's dental health care
services  expenses  in  1998  and  1997, respectively. At December 31, 1998, the
Company  contracted  with  approximately  11,790 primary care and specialty care
dentists  on  the  Company's  PPO  panel.

MANAGEMENT  INFORMATION  SYSTEMS

During  1998,  the  Company  continued  to  enhance  its  proprietary management
information  system  to  better manage its operational resources and analysis of
data.  These  changes  focused  on  reporting  mechanisms  to  track  regulatory
compliance and data interface with clients. The Company's goal is to continue to
enhance  technologies  to  better  equip the Company to compete while ultimately
reducing  the  Company's administrative expenses. The Company also continued its
development  of  various  operating  systems  based  upon  software  source code
purchased in 1996 for its business operations system, which are being adapted to
the  specific needs of the Company. This software allows the Company to develop,
in-house,  a system which is used to expand the Company's management information
system to all Company regional offices. This system takes advantage of the power
of  personal  computers  in the workplace. The system provides a much easier and
more  efficient interface using Windows-based screens. Individual users are able
to quickly customize data queries for their specific needs with results directed
to  the  screen, printer or downloaded into a word processor and/or spreadsheet.
See  Part 1, Item 7, Management's Discussion and Analysis of Financial Condition
and  Results  of  Operations  regarding  Year  2000  compliance.

The  Company  employs  a  personal  computer network-based general ledger system
providing  reporting  and  analysis  tools  which  allows for the extraction and
download  of  data to word processors and spreadsheets for further analysis. The
Company  also expanded the use of its electronic mail system to all its regional
and  sales  offices.  The  Company  has also upgraded its current network server
systems  to  handle  the  increased  activity within the network. The Dental HMO
plan,  indemnity  and  PPO  plans,  and  electronic  mail  environments  are now
interconnected.  With  the implementation of these new and upgraded systems, the
entire  network  is  tightly integrated. These systems demonstrate the Company's
proactive  position  in  automating  its  computer operations and allowing it to
remain  competitive  in  the  marketplace.

COMPANY-OWNED  DENTAL  FACILITIES

General  Dental  Practices.  On  October  21,  1996,  the  Company implemented a
strategic plan to sell all of the general dental practices owned by the Company.
The  assets sold consisted primarily of accounts receivable, supply inventories,
equipment  and  leasehold  improvements.  Each  practice sold could enter into a
contract  with the Company's practice management subsidiary, whereby the Company
would  provide  certain  services  to  support  the operation of their practice,
including  administrative  support.  The  Company  discontinued  its  practice
management  subsidiary  and  terminated  these  agreements  in  1998.


                                      -7-
<PAGE>
Through  June  1997,  the  Company  sold  fifteen  general  dental  practices to
purchasers in exchange for consideration consisting of $9.5 million of long-term
promissory  notes.  In  September 1997, the Company sold the remaining practices
to  Pacific Coast Dental, Inc., Associated Dental Services, Inc., and affiliated
dentists (the "Purchasers" or "PCD") in exchange for consideration consisting of
$8.0  million  of  long-term  promissory  notes.

During  1997 and 1998, of the fifteen practices previously sold to parties other
than  PCD,  four  of  these  practice  were  conveyed to PCD in exchange for the
assumption  of  the  promissory notes payable to the Company. At the time of the
conveyances  of  these  practices  to  PCD,  the related promissory notes had an
aggregate  carrying  value of $1.9 million on the Company's balance sheet, which
exceeded  the  historical cost of the net assets of the related dental practices
by  $1.4  million.

Orthodontic  Practices.  On  February  26,  1998,  the  Company  announced  the
discontinuance  of  its  orthodontic  practices.  The  assets of the orthodontic
practices  consisted  primarily  of  accounts  receivable,  supply inventory and
dental  equipment,which were sold on April 1, 1998, pursuant to the terms of the
definitive Master Asset Purchase Agreement (the "Agreement") dated and effective
as  of  April  1,  1998,  by  and  among  the  Company and PCD.  The orthodontic
practices  were  sold  for  $15  million,  represented  by  an  8  1/2%  30-year
promissory  note and secured by all current and future assets of the Purchasers,
including  those assets transferred under the Agreement made by PCD. Among other
provisions, the Agreement includes a long term commitment to continue to provide
orthodontic  services  to  the  members  of  the  Company's  dental  HMO  plans.

In  connection  with the sale of the general dental and orthodontic practices to
PCD, the Company committed  to lend PCD certain amounts for working capital.  As
of  December  31, 1997 and 1998 the working capital loans to PCD amounted to $.8
million  and  $1.6  million,  respectively.

The  Company  concluded  that PCD did not have sufficient resources to repay the
promissory  notes  from  sources  other  than  the  operations  of the purchased
practices.  Accordingly,  the  related  promissory notes and the working capital
loans  have  not been recorded in the financial statements.  The historical cost
of  the  net  assets of the practices sold to PCD are reflected on the Company's
balance  sheet  under the caption "Assets of discontinued operations transferred
under  contractual  arrangements."  The  financial statements do not reflect any
gains  on these sale transactions, and do not reflect any interest income on the
related  promissory  notes.  In  addition,  the carrying value of the promissory
notes related to the four practices that were ultimately transferred to PCD from
other  purchasers,  was  reduced to the historical cost of the net assets of the
related practices. The working capital loans were fully reserved at the time the
loans  were  made  and  the  Company  has  no further obligation to provide such
working  capital  loans.  Interest  payments  received of $ .3 million have been
applied  to  reduce  the  historical  cost  of  the  net  assets  transferred.

At  December 31, 1998, rather than the Company exercising its right to foreclose
on  the  Notes,  the Company entered into a Default Forbearance Agreement and an
Irrevocable Power of Attorney with the Purchasers, which will enable the Company
to  either  resell  the  assets  or  Notes  relating  to  the  practices.

QUALITY  MANAGEMENT  AND  IMPROVEMENT

The  Company's  commitment  to  quality  is  supported  throughout  the  entire
organization.  The  program is fully encompassing to include the quality of care
management  process,  provider selection, accreditation, maintenance assessment,
utilization  management,  provider  network  corrective  action  and  counseling
management,  grievance  management  functions,  member  satisfaction  survey
functions,  accessibility  monitoring,  and  ongoing  improvement  studies.  The
Company's  quality  management  program objectives include quality assessment of
the  credentials  and  qualifications  of  dentists  to  become  and/or  remain
affiliated  providers,  quality  assessment of the affiliated network, dentist's
compliance  with  Company  standards,  analysis  and  measurement of network and
provider  behavior,  and  continuous  improvement  of affiliated network dentist
performance  through  constructive  and  continuous  feedback.

Under  the  direction of the Company, each affiliated dentist's office undergoes
regular assessments to determine appropriateness of care and treatment outcomes.
The  Company  outsources the onsite review process to several firms dedicated to
this  process.  This  policy  is  similar  to  the  concept of using independent
accountants  to  audit  financial  statements.  By  using an outside source, the
Company is able to maintain a significant level of independence not always found
when  using  employees  to  conduct  the  on-site  assessments. The Company also
maintains  a  credentialing  committee  and  credentialing  verification process
through  an  outside source which is utilized to verify the provider's licensing
status,  insurance,  compliance  with  applicable federal and state regulations,
peer  review  society  status,  and  other  related  processes with an objective
approach  for  consistency,  effectiveness,  and  risk  management  review.

The  Company's Member Satisfaction Assessment Program is designed to provide the
Company with valid and reliable information on members' perceptions of the value
of  the dental services provided, as well as how expectations are being met. The
program  is a fully integrated approach to monitoring and responding to customer
needs,  and  evaluating  member  satisfaction.  The  specific  functions of this


                                      -8-
<PAGE>
program  are  to establish an understanding of customer expectations, assess the
performance of the dentist's care relative to members' perceptions and levels of
satisfaction,  link  member  complaints  with  satisfaction  for  appropriate
actionable  network  management,  provide  regular  and  accurate  feedback  to
providers  on  members'  perceptions  and  levels  of  satisfaction, and provide
comparison levels for perception and levels of satisfaction measurements between
different  dental  products.

The  Company  maintains  a  comprehensive accessibility monitoring program which
tracks  appointment  availability  with  affiliated  dentist  offices  through
standards  including  the  availability  of  new  patient  appointments;  the
availability  of  hygienist  appointments;  the  availability  of  restorative
appointments;  the  availability  of emergency appointments; the wait times upon
arrival  at  the  dental offices; and arrival in the operatory room. The Company
conducts  accessibility monitoring on a quarterly basis by mail, and results are
then  compared  to  findings  of the on-site quality review, member satisfaction
surveys,  grievances,  and  Provider  Relations  visits.

The  Company  continues  to  improve  its  review  system  to assure members are
receiving  quality  care  and  providers  are receiving training and guidance as
needed. The Company employs a team concept, combining its Quality Review, Member
Services  and  Provider  Relations  departments,  to benefit both the member and
provider.

UTILIZATION  REVIEW

The  Company uses computerized analysis to monitor the dental treatment provided
to  members.  The  analysis  of  provider  utilization  and cost data enable the
Company  and  its  clients to determine the type of procedures performed by plan
contracted  dental offices and ascertain the savings to both clients and members
compared  to  competitive  dental indemnity insurance coverage. The analyses are
also used by the Company to identify unusual patterns of dental care utilization
or  complaints  which  may  trigger special or comprehensive dental reviews. The
computer  system  greatly  enhances  the  Company's  ability  to  monitor member
utilization  and  appropriate  dental  treatment  and  to  provide  essential
statistical  information.

The  Company is also expanding its use of its indemnity claims paying processing
system  to  include  utilization  review  and  case management for its indemnity
insurance  subsidiary.  As  part  of  the  expansion  of its PPO activities, the
Company  has  developed  a  sophisticated  reporting  system to demonstrate cost
savings  for  clients  and members when PPO dentists are utilized. These reports
compare  practice  patterns  that  vary from established norms, identify patient
costs  trends, provide detailed claims and group experience, and case and claims
management  through  a thorough preauthorization process. Repricing services are
also  provided  through  the  Company's  PPO  program.  The  Company  compares
utilization  patterns  for  dentists  rendering dental services to the Company's
insureds  to  determine  whether  such  dentists are over-utilizing the benefits
provided.  In  the  event  that  an unusual practice pattern is ascertained, the
Company  conducts  a review of the dentist's facility to determine the basis for
such  practice  patterns  and reviews its findings with the dentist on a regular
basis  to  eliminate  any  potential  for  abuse.

MEMBER  SERVICES

The  Company  maintains a comprehensive Member Services and Grievance Resolution
System  designed  to  assist  members  with  simple  inquiries and resolution of
dissatisfactions. The Company consistently monitors service statistics to ensure
continued  ability  to  exceed  the members' expectations. Eighty percent of all
dissatisfactions  (grievances)  received  concerning eligibility or professional
services  are  resolved  completely  within  48  hours.  The Company makes every
attempt  to resolve more complex situations within 5 working days, but no longer
than  30  days  following  the  receipt  of  the  grievance.

The Company's Grievance Monitoring Committee provides oversight of the grievance
process  with  particular attention paid to emerging patterns and trends, nature
and  volume  of  complaints,  financial  implication  for  the  disposition  of
complaints,  and  quality  of  care  issues.  The monitoring process is enhanced
through  the involvement of the Quality Management and Public Policy Committees.
The  Quality  Management  Committee,  at  quarterly  scheduled meetings, reviews
grievances  at  the provider level and has the responsibility to make corrective
action  recommendations to the Company's Board of Directors based upon grievance
volume,  trends  and/or  patterns.  The  Public  Policy  Committee, at quarterly
scheduled  meetings,  reviews grievances based on volume and type of complaints,
emergent patterns and trends, and has the responsibility to make administrative,
policy  or plan change recommendations to the Company's Board of Directors. Both
committees  also  review  specific  complaints  that have exhausted the standard
grievance  resolution  process.  All grievances receive a written disposition of
the  resolution  within  30  days  of  receipt  of  the grievance. The Company's
arbitration  policy  is designed as a final resort for members or providers that
are  dissatisfied  with the results of the appeals, Quality Management or Public
Policy  processes. Arbitration may not be initiated until the grievance, Quality
Management,  or  Public Policy processes have been exhausted. The arbitration is
conducted  according  to  the  American  Arbitration  Association  rules  and
regulations.

The  Company utilizes an automated call distribution ("ACD") system for customer
call  management. The Company provides toll-free customer telephone service with
automated  24-hours  per day, 7 days per week access. Automated service features
are  available  for  simple  inquires such as provider selection, identification
card  requests, and eligibility verification. The Company also provides customer
service  telephone  support  during  regularly  scheduled  business  hours.  The
Company's  call  volume  averages  45,000 calls per month, with approximately 30
percent  handled  via  automated  selection  features.  The  ACD  system has the
capability  to  prioritize  customer calls, and provide service update standards
per guidelines reports on a predetermined basis. The Company strives to maintain
a  service  standard  of  answering  all  customer calls within an average of 40
seconds,  with  an  abandonment  rate  of  approximately  2 percent to 4 percent
monthly.


                                      -9-
<PAGE>
RISK  MANAGEMENT

The Company has sufficient general and professional liability insurance coverage
to  manage  the  ordinary exposure of operating its Dental HMO plan business and
its  indemnity  dental  plans.  Generally,  the  Company  is indemnified against
professional  liability  claims  by  its  independently contracted providers. In
addition,  each dentist is required to maintain professional liability insurance
with  specified  minimums  of  coverage.  The Company also maintains arbitration
provisions  in  its  contracts  with  providers.

Considering  the  Company's  exposure  to  future  claims for failure to provide
coverage in addition to the secondary risk to professional liability claims, the
Company  carries its own professional liability insurance coverage in the amount
of  $10  million which it views as being adequate. However, no guarantee is made
that sufficient general and/or professional liability insurance coverage will be
available  to  the  Company  at  an  acceptable  cost.

During  1998  as a result of its favorable claims history, the Company continued
to  lower  its  risk  management  costs.

CLIENTS  AND  CONTRACTS

Substantially  all  of  the  Company's  1,018,000  members at December 31, 1998,
participate  through over 6,300 group plans paid for by governmental and private
sector employers, multiple-employer trusts and educational institutions or, to a
minor  extent,  through  individual  plans.  The  Company's  10  largest clients
accounted for approximately 18 percent of the Company's health care revenues for
1998  and  19 percent in 1997. Significant clients served in 1998 by the Company
include  the  City  of  Dallas, City of Los Angeles, Southern California Edison,
County  of  Los  Angeles,  Dallas  Independent  School  District,  Health  Net,
Foundation,  several  contracts  with  McDonnell  Douglas  Corporation, Southern
California  Gas Company, and the Joint Council #42 Welfare Trust. In the opinion
of  management,  the loss of any single client would not have a material adverse
effect  on  the  Company's  financial  condition  or  results  of  operations.

The  Company  takes  a  proactive  approach  to  better  service its clients and
members.  The  Company  maintains  a  multi-faceted plan to address the specific
needs  of  its  clients  by  assigning  a  client services representative to all
clients.  Each  client  services  representative  has  dental  care  and  field
experience.  The  Company's  customer  service  complaint  system  also has been
enhanced  by  the  Company's computer network which provides each representative
with  full access to client, member and provider records. The Company's provider
network  also  benefits  its  multi-state  clients.

Given  the  increasingly competitive nature of the dental care market, it is not
unusual for the Company to obtain a new client from competing indemnity insurers
or  other dental HMO plans, or to lose an existing client to others. The Company
is  also  sensitive  to  the  requirement  that  there  be  adequate  levels  of
compensation  to its panel of participating providers so as to ensure that there
is  an  adequate  panel of providers from which the client's members may select.
See  "MARKETING"  and  "COMPETITION."

The  Company's  contracts generally provide for a defined dental benefit program
to  be  delivered  to  plan  members for a period of one to two years at a fixed
monthly  per-capita  rate to the client. The contracts normally allow the client
the right to terminate on 60 days written notice of a deficiency in performance;
the Company has the right to extend the 60-day period to correct the deficiency.

ACQUISITIONS

In  1996, the Company completed the acquisition of all of the outstanding shares
of  First  American  Dental  Benefits,  Inc.,  dba,  American Dental Corporation
("First  American"), a privately held Dental HMO company based in Dallas, Texas,
and  an  affiliated marketing entity, for a total consideration of approximately
$23.6  million.  Of  the purchase price, $20 million was paid at closing and the
Company  paid  an  aggregate  sum  of  $3.6  million  over  3  years pursuant to
non-competition  agreements  entered  into  between  the  Company and the former
owners of First American. The Company financed the acquisition of First American
through  a  credit agreement with a bank. First American provides managed dental
care  services through a network of approximately 1,100 dental care providers to
approximately  175,000  members  in Texas. The acquisition of First American was
accounted  for  using  the  purchase  method  of  accounting with the results of
operations  of  the  businesses acquired included from the effective date of the
acquisition.

In  May  1997,  the  Company completed the acquisition of all of the outstanding
shares  of  common  stock of Advantage Dental HealthPlans, Inc. ("Advantage"), a
privately held Dental HMO company based in Fort Lauderdale, Florida, for a total
value of approximately $10.0 million consisting of cash and debt. As of December
31,  1998,  Advantage provided benefits to approximately 125,000 members through
approximately 700 dental care providers in Florida. The acquisition of Advantage
was  accounted  for  using the purchase method of accounting with the results of
operations  of  the  business  acquired  included from the effective date of the
acquisition.  In October 1997, the Company renamed Advantage to SafeGuard Health
Plans, Inc. In January 1998, the Company merged one of the Advantage affiliates,


                                      -10-
<PAGE>
Advantage  Dental HealthPlans, Inc., a Missouri corporation, into its affiliate,
SafeGuard  Health  Plans,  Inc.,  a  Missouri  corporation.  In August 1997, the
Company  completed  the  acquisition  of all of the outstanding shares of common
stock  of  Consumers  Life  Insurance Company of North Carolina ("Consumers"), a
privately  held  dental  indemnity  insurance  company  with licenses in sixteen
states.  The  Company  purchased  the  licenses  and  obtained all the statutory
deposits  held  on  behalf  of  Consumers for a cash payment of $3.2 million and
capitalized  Consumers  with  total  capital  and  surplus  of  $4.6 million. In
connection  with  the acquisition of Consumers, it was redomesticated from North
Carolina  to  Texas  and  renamed  SafeHealth  Life  Insurance  Company,
Inc.("SafeHealth,  Inc.") No active business was acquired in connection with the
acquisition  of  Consumers  by  the  Company.  In  September  1999,  the Company
completed  the  merger  of  SafeHealth, Inc. into its affiliate, SafeHealth Life
Insurance  Company,  a  California  corporation  ("SafeHealth"),  as  part  of a
strategic plan to simplify business operations from an administrative, financial
and  legal  perspective.  The  merger  of  SafeHealth, Inc. into SafeHealth also
released surplus requirements of the no longer existing entity, SafeHealth, Inc.

MARKETING

In  the past, the Company's primary marketing strategy has been to contract with
large  employer  groups.  While this strategy has served the Company well in the
past,  several  years  ago the Company broadened its market strategy to seek out
and  contract  with employers with between 100 and 1,000 employees. While in the
past,  the  Company's  Dental HMO plan had been offered as an alternative to the
primary dental insurance included in the employer's health care benefit program,
with  the  acquisition  of  the  Company's  indemnity  insurance subsidiary, the
Company is now able to contract with the employer to provide both the Dental HMO
plan  and  the  indemnity  dental insurance program through one relationship. By
targeting  the  smaller  and  mid-sized  employer groups described above, and by
offering  both the Dental HMO and indemnity dental products to the employer, the
Company  is  able  to  obtain  a  higher per member per month rate than it could
previously by only offering its Dental HMO plan. Before submitting a proposal to
a prospective employer-client, the Company analyzes a demographic profile of the
potential  new  plan  members,  the  current  and desired dental benefit levels,
availability of adequate provider coverage and timely access, and other factors.

The  Company  markets  its  dental benefit plans through a network of over 1,500
independent  insurance  agents  and  brokers  and  an employee sales force. This
distribution  system  is  designed  to reach group purchasers of all sizes in an
efficient  and  cost  effective  manner. The Company believes that its marketing
strategy  provides it with a competitive advantage by enabling it to market to a
wider  range  of potential groups more effectively than companies relying upon a
single  distribution  system.  The  Company's  sales force targets employers and
groups,  which are more likely to contribute towards the cost of dental benefits
for  their  employees.  In  marketing  to such groups, the Company's sales force
focuses  on  selling  both the Dental HMO plan and an indemnity/PPO product. The
Company  pays  its  sales  force  through  a combination of salary and incentive
compensation  based  upon the number of members enrolled for new groups. As part
of  its  growth strategy, the Company intends to increase its sales staff during
1999.

The Company's independent insurance agent and broker network focuses on offering
Dental  HMO  and  indemnity/PPO  products  to medium and smaller sized employers
which  may  or may not contribute towards or offer dental benefit plans to their
employees. The Company believes that there are significant opportunities for the
Company  to expand Dental HMO and indemnity coverage to medium and smaller sized
employers  by  expanding  its network of independent brokers who can effectively
sell dental benefit programs to the medium and smaller sized market. Brokers and
agents typically do not market the Company's dental plans on an exclusive basis.
Brokers  and  agents generally receive a flat percentage of premium collected as
commission  for  the  initial  sale  and  for each renewal thereafter. Brokerage
commissions  paid by the Company were 6.3 percent and 5.7 percent of health care
revenues  for  1998  and  1997,  respectively.

Once  plan  participation  is  to  be made available to employees, the Company's
marketing  efforts  shift  to  the  potential  plan members. During a designated
annual open enrollment period, participants may elect the Company's dental plans
or  opt for the other form(s) of dental benefits being offered, generally dental
indemnity insurance, either offered by the Company or another insurance carrier.
Generally,  participating  employees  can enroll in or drop out of the Company's
plans  only during this enrollment period. Management believes that with most of
its  group  clients,  an  average  of  approximately 10 percent to 15 percent of
eligible  employees  select  the Company's Dental HMO plan during the first open
enrollment period in which it is offered and that with smaller group clients, an
average  of  approximately  20 percent with voluntary plans select the Company's
Dental  HMO  plan,  and  an  average  of  approximately  30  percent of eligible
employees  with  employer paid plans select the Company's Dental HMO plan during
the  first  open  enrollment  period  in  which  it  is  offered.

The  Company  believes  that  it has an opportunity to obtain new contracts from
employers  with  between  100  and  1,000  employees in the markets in which the
Company  operates. The Company believes that this represents a significant under
penetrated  market  segment for the products offered by the Company. The Company
intends  to  build  upon  its  current  market  position  and increase its sales
activities  by applying market segmentation and quality management principles to
identify  the  highest potential of customers and proactively anticipating their
needs  in  the  marketing  process.  The  Company  intends to accomplish this by
identifying  its  core  capabilities and competitive advantages that it has over
its  competitors.  By adding incremental service levels provided by the Company,
and applying technological advances to the marketing process, the Company's goal
is  to  lower  per member acquisition costs, and eliminate unnecessary sales and
administrative  expenses  while  increasing  production  capabilities  of  the
Company's  marketing  forces.


                                      -11-
<PAGE>
In  the  situation  where  the Company is successful in selling its multi-choice
products to the employer, all employees are enrolled in one of the plans offered
by  the  Company.  The Company believes that the ability to offer a multi-choice
option  program  increases  the  amount  of  revenue generated from each sale by
providing  the employer with the entire insurance program which may be available
to  its  employees. This has the effect of increasing the overall per member per
month rate paid by the employer for each employee since the per member per month
premium  for the Company's indemnity dental program is significantly higher than
that  which  the  Company charges for its Dental HMO plans. This has the overall
effect  of  increasing  the  revenue  generated  from  each  dollar  of  expense
associated with the selling of the Company's products. In 1998, approximately 60
percent of the Company's enrollment originated in the State of California, while
approximately  19  percent  originated  in  the  State  of Texas. No other state
contributed  more  than  10%  of  the  Company's  enrollment  during  1998.

The  Company  provides  a  vision  plan  known  as Premier Vision Care Plan (the
"Premier  Plan").  The  Company developed the Premier Plan with the intention of
enhancing  the  vision  care component of its benefit programs. The Premier Plan
also  features  a  convenient open provider option that allows members to select
any optometrist under contract with the Company at the time they seek care. This
open  panel  option  is  underwritten  by  the  Company's  indemnity  insurance
subsidiary  in  California.  The  entire  Premier  Plan  is underwritten by this
subsidiary in all other states in which it is provided. No provider preselection
is  required.  There  are  no cards to mail or forms to present before receiving
care so members can enjoy immediate access. The Premier Plan also allows members
to  obtain  services from any vision care professional and receive reimbursement
from  the Company according to a set schedule of benefits. While the vision plan
did  not  generate  significant revenues during 1998, it is anticipated that the
vision  plans  will  continue  to  contribute  to  net  income.

Smaller  group  employers  find  especially  attractive the Company's ability to
offer one-stop shopping with its multi-choice dental package of indemnity dental
insurance  and  Dental HMO plans, its vision plans and its life insurance plans.

The  Company  continues  to  increase its efforts to expand its business through
strategic  alliances.  As  a  result,  the Company maintains a relationship with
several  Health  Maintenance  Organizations  ("HMOs")  to  provide  dual  choice
indemnity  and  Dental  HMO  plans  to  segments of members enrolled in the HMO.

INDEMNITY  INSURANCE  PLANS  -  INDEMNITY  INSURANCE  BENEFITS

As  a  result  of its desire to respond to the changing marketplace, the Company
expanded  its business to include indemnity dental plans. In September 1992, the
Company  acquired  a  California domiciled life and health insurance company and
renamed  it  SafeHealth  Life  Insurance Company ("SafeHealth Life"). SafeHealth
Life  is regulated by the California Department of Insurance and currently holds
a  Certificate  of  Authority  as  a  life, health and disability insurer in the
states  of  Arizona, California, Colorado, Illinois, Kansas, Maryland, Missouri,
Nevada, New Mexico, Ohio, Oregon, Texas, Utah and Wisconsin. In August 1997, the
Company  also  acquired  a  North  Carolina  domiciled life and health insurance
company  known  as  Consumers  Life  Insurance  Company  of  North  Carolina,
redomesticated it to the State of Texas and renamed it SafeHealth Life Insurance
Company, Inc. ("SafeHealth, Inc."). SafeHealth, Inc. is licensed to transact the
business  of  a  life,  health and disability insurance carrier in the states of
Alabama,  Arizona,  Arkansas,  Delaware,  Florida,  Georgia,  Indiana, Kentucky,
Louisiana,  Mississippi,  North  Carolina,  Oklahoma, South Carolina, Tennessee,
Texas,  and  Virginia.  No  active insurance business was acquired in connection
with  the  acquisition  of  SafeHealth  Inc. The Company completed the merger of
SafeHealth  Inc. into and with SafeHealth Life during the third quarter of 1999.

SafeHealth  Life  has  collaborated  with  other  subsidiaries of the Company to
develop  certain  innovative  marketing  concepts  with  the  intent of offering
consumers  a  multiple choice product consisting of a flexible indemnity plan, a
PPO  plan,  and  a  comprehensive Dental HMO plan in the states where it holds a
Certificate  of  Authority.  The  ability  to offer fee-for-service dental plans
along  with  Dental  HMO  benefits,  better serves new and existing clients. The
Company  also  offers  a  vision  plan  through  SafeGuard  in  California,  and
SafeHealth  Life  in  Colorado, Illinois, Missouri, Nevada and Texas. SafeHealth
Life  utilizes  independent  agents  and  brokers who specialize in the employee
benefits  area  and  appreciate  the ability of SafeHealth Life to custom design
plans  as  needed.

SafeHealth's  client base includes small employer groups as well as governmental
agencies  and  political subdivisions. At the end of 1998, the number of insured
members  covered  by  SafeHealth  stood  at  114,000.  SafeHealth  anticipates
increasing  production of its multiple choice dental programs in other states in
which it is admitted to do business. SafeHealth is also offering group term life
insurance,  the  volume  of  which  is  currently  insignificant.

In late 1996, the Company purchased an indemnity dental claims processing system
capable  of auto-adjudicating a significant number of claims filed. In 1997, the
Company  acquired  the  source  code  for  its indemnity dental processing claim
system  so as to allow the Company to better utilize the features of this system
so  as  to  maximize  the  technological advantages that are available with this
system.  This  system and its modifications will allow the Company to expand its
indemnity  dental  programs without necessarily incurring significant additional
administrative  expense.  In  1998,  over  65  percent of claims filed were auto
adjudicated  by  this  system.


                                      -12-
<PAGE>
The  ownership of an indemnity insurance company exposes the Company to risk for
over  utilization and claims costs in excess of premium revenue. To minimize its
risks,  the  Company  conducts  thorough  claims review and develops lag studies
through the computer system purchased by the Company for its indemnity insurance
business.  The  Company  also  engages  an  actuary  to  assist  the  Company in
developing  its  benefit  programs,  rates  and  payment  schedules.

PREFERRED  PROVIDER  ORGANIZATION

Since 1993, SafeHealth Life has developed its PPO Network program in response to
the  market  demands  to  offer a more cost-effective alternative to traditional
indemnity  insurance,  and  more  freedom  of  choice  than  the  Dental  HMO
network/product  alternatives.  The  PPO  Network  program  was  developed  to
complement  and  also  be  used  as a cost containment mechanism for current and
future indemnity dental plan clients. The negotiated fee arrangements enable the
Company  to  offer indemnity dental and SafeHealth PPO Network Plans that reduce
benefit  costs  for  participating  client  groups  and  members. SafeHealth PPO
Network  Plans  are  designed to encourage a greater level of participation from
participating  network  dentists  due  to  lower  levels  of  benefits  for  the
out-of-network  option.

The  Company also offers PPO Network Lease Services which offer the network as a
stand  alone option for a per-member per-month fee. The Network Lease Service is
intended  to  be  an  option  that  is  marketed  to  Health and Welfare Trusts,
Third-Party  Administrators and Self-funded Employer Groups, again promoting the
cost  containment  features  of the negotiated discounts. The Company assumes no
risk  for  clients  that lease the PPO Network. At December 31, 1998, SafeHealth
had  contracted  with  approximately  11,790 participating general and specialty
dentists  in  the  markets  in  which  it  operates.  The  overall  geographical
distribution of the dental network was developed to allow members easy access to
network  dentists  to  take advantage of negotiated discounts. All participating
dentists  have  passed a strict qualification process and undergo annual quality
assessment reviews as part of ongoing compliance with network participation. The
Company  continues to actively recruit dentists for its PPO plan, and intends to
increase  the  size  of  its  PPO  panel  in  the  future.

The PPO Network offers savings to the Company in the form of lower dollar levels
of  claims costs, and savings to the insured in lower out-of-pocket costs due to
the  PPO Network contracted fees. Administrative review protocol that utilizes a
sophisticated  case  management  system  insures  that the individual needs of a
member  are matched to treatment plans. The necessity and appropriateness of the
treatment  plans  are  continually  monitored  to  assure  a  professional  and
appropriate  treatment conclusion. The combination of the waiver of deductibles,
negotiated  provider  fees  and  case  management  review  system  can result in
significant  member  and  claim  costs  savings.

GEOGRAPHIC  EXPANSION

The  Company's strategy regarding geographic expansion is presently undergoing a
strategic review to identify and capitalize upon opportunities that may exist in
states  in  which  the  Company  is  not  presently  operating. In the past, the
Company's strategy generally has been to enter new states only after obtaining a
major  contract, either by expanding the geographic scope of service to existing
clients,  by  entering  into  contracts  with  new  clients,  or by establishing
marketing  agreements  with  other  organizations.  Geographic expansion is also
expected to be accomplished through acquisition of other Dental HMO or indemnity
insurance organizations, such as the Advantage acquisition that was completed in
May 1997 which facilitated the establishment of a regional office in Florida and
allowed  the Company to commence operations in Florida, Georgia, and Washington,
D.C.  While the Company generally prefers not to expand into new states until an
adequate  base  of  client  business exists to help defray the start-up costs of
operations in those new states, the Company is currently reviewing its strategic
opportunities  to  provide  Dental  HMO  and  dental indemnity benefits in other
states  and markets in which the Company does not presently operate. A number of
opportunities  exist through strategic affiliations which the Company may pursue
in  the  future.

Once a decision to expand has been made, the Company usually establishes a local
market  office  to provide sales, marketing and provider services support in the
local  market.  Basic administrative services are provided by the Company at its
regional  offices.  By  using  strategically  located  local  market offices and
regional  support  offices,  the  Company  has  better controlled administrative
expenses  associated  with  new  plan  start-ups,  and  can more efficiently and
effectively  service  a  greater  number  of  members  in  each  market.

GOVERNMENT  REGULATION

Many  states  have  laws  establishing  the requirements for, and regulating the
conduct of, the Company and other Dental HMO plans. Such laws vary from state to
state  and  they  generally  require  a  state  license,  frequently  prescribe
requirements  for  contracts, establish minimum benefit levels, impose financial
tests  and  maintain  standards  for  management  and  other personnel. There is
currently  no  regulation  of  the  Company's  plans  at  the  federal  level.


                                      -13-
<PAGE>
Since  some  states  will  only  license  full service health plans, the Company
cannot  enter  those  states  except  in  conjunction  with SafeHealth Life, its
indemnity  insurance subsidiary, or with a full service HMO. Other states permit
only  nonprofit  corporations  to  become  licensed  as  Dental HMO plans, again
limiting  the  Company's  access.  The heavily regulated nature of the Company's
industry  imposes  a  variety  of  potential obstacles to management's plans for
further geographic expansion and could limit the Company's future growth. On the
other  hand,  this regulatory environment also governs the conduct and expansion
prospects  of  existing  and  new  competitors, thereby providing a niche in the
marketplace  for  the  Company.

The  Company's  Dental  HMO  plans are licensed and regulated by pertinent state
authorities.  Among the areas regulated, although not necessarily by each state,
are  the  scope  of  benefits available to members, the content of all contracts
with  clients,  providers  and  others,  tests of financial resources, including
maintenance  of  minimum  stipulated  financial reserves for the benefit of plan
members,  procedures  for  review of quality assurance, enrollment requirements,
minimum  loss  ratios,  "any  willing provider" requirements which may limit the
Company's  right  to restrict the size of its provider network, the relationship
between the plan and its providers, procedures for resolving grievances, and the
manner  in  which  premiums  are  determined  or  structured.

The  Company's  indemnity  insurance  operations  through  SafeHealth  Life  are
regulated  by  the  California  Department  of  Insurance, and the Department of
Insurance  of  the other states in which SafeHealth Life is licensed to transact
insurance  business.  The  Company's  indemnity  insurance  operations  through
SafeHealth Life, Inc. are regulated by the Texas Department of Insurance and the
Department  of  Insurance  in the other states in which SafeHealth Life, Inc. is
licensed  to  transact business. These regulations include specific requirements
with  regard to minimum capital and surplus, permitted investments, advertising,
policy  forms  and  claims  processing  requirements.  The  Company's  insurance
operations  are  also  licensed  to  transact  business  in  other  states which
traditionally  follow  the  compliance  requirements  of the insurance company's
domiciled  state,  while  sometimes imposing minimal specific policy and deposit
requirements  for  the Company's operations in those states. Insurance companies
are  heavily  regulated  and  require  significant cash deposits for capital and
surplus. The Company's ability to expand its insurance operations into states in
which  it  is  not  currently  licensed  is  dependent  for the most part on the
regulatory  review  process which is conducted by the Department of Insurance in
each state in which the Company is applying. Such reviews may take anywhere from
six  to  twenty-four  months.

TRADEMARKS,  SERVICE  MARKS  AND  TRADENAMES

The  Company  has  filed,  received approval and has obtained renewal protection
from  the  United  States Patent and Trademark office for certain trademarks and
tradenames  for names and products used by the Company in its ordinary course of
business.  The  Company  has received a trademark, service mark or tradename for
the  following  words  and  phrases  used  with  and  without  distinctive logos
maintained  by  the  Company:

o    SafeGuard  used  with  a  distinctive  logo  depicting  a  modified  smile
     used  in  connection  with  its  Dental  HMO  plans;

o    SafeGuard  Health  Plans  used  in  descriptive  material  to describe the
     products  offered  by  the  Company;

o    SafeGuard  Dental  Plans  used  to  describe  the various Dental HMO plans
     offered  by  the  Company;

o    SafeHealth  Life  used  with  a  descriptive  logo  depicting  a  modified
     smile  used  by  the  Company  to  describe its indemnity insurance and PPO
     products;  and

o    American  Dental  Corporation  adjacent  to  a  flag of the State of Texas
     used  in  connection  with  its  Dental  HMO  plans.

Collectively,  these trademarks, service marks and tradenames were first used in
commerce  in  1984  and have been continuously used thereafter. In addition, the
Company  has  nearly  completed  and  is about to receive trademark/service mark
protection  from  the United States Assistant Commissioner for Trademarks of its
distinctive  logo  depicting  a smile that the Company is currently utilizing in
interstate  commerce.

COMPETITION

The  Company  operates  in  a  highly  competitive  environment  with  numerous
competitors  wherever  the  Company conducts business. The Company's competitors
include  large  insurance  companies  that  offer  both  Dental HMO benefits and
traditional  dental  indemnity  insurance,  HMOs  that  offer  dental  benefits,
self-funded  employer-sponsored  dental  programs,  dental  PPOs,  discounted
fee-for-service  dental  plans and other local or regional companies which offer
dental  benefit  programs.  Many  of the Company's competitors are significantly
larger  and  have  substantially greater financial and other resources, than the
Company.


                                      -14-
<PAGE>
The  Company believes that key factors in selecting a particular dental benefits
company  include  the  comprehensiveness and range of benefit plans offered, the
quality,  accessibility  and  convenience  of  the  plans'  dental networks, the
responsiveness of customer service, and the premium rates charged. The Company's
competitors  compete  aggressively  in  all  of the markets in which the Company
operates  on all of these factors, including situations where the selection of a
dental plan is made through a competitive bidding process. Some markets in which
the  Company  operates also have intense price competition, which could occur in
all  of the markets in which the Company operates in the future. The Company has
seen  increasing  competition  from  all  competitive  sectors  and  the Company
anticipates  that  this  trend  will  continue  in  the  future.

Larger,  national  indemnity  insurance companies that offer both Dental HMO and
indemnity  dental  benefits  may  have  a competitive advantage over independent
dental  plans  due  to  the  availability of multiple product lines, established
business  relationships,  better  name  recognition  and  greater  financial and
information  system  resources.  The  Company  believes  that it can effectively
compete  with  these  insurance  companies  due  to the comprehensiveness of its
management  team  and  resources  directed towards developing competitive dental
benefit  plans  at  premium  rates,  which  are  generally lower than such large
national indemnity insurance companies. Some medical HMOs offer their own dental
benefit  plans  and  others contract with independent Dental HMO plans for those
services.  The  Company believes that it can compete with HMOs that offer dental
benefit  plans  and  the  Company intends to continue to pursue opportunities to
form  relationships  with  HMOs  to  offer  dental benefit plans to HMO members.

Other  than  for  technological expenses associated with the provision of Dental
HMO  and  indemnity  dental  benefit  programs,  the Company's business does not
require substantial amounts of capital. Other than government regulation and the
related  operating  costs  of start-up, there are no significant barriers to new
companies  entering  into the market. There can be no assurance that the Company
will  be  able  to  compete  successfully  with  new  market  entrants. Any such
additional competition could adversely impact the Company's revenues, net income
and  growth  prospects  through  fee  reductions,  loss of providers or clients,
and/or  market  share.

EMPLOYEES

At  December 31, 1998, the Company had 269 employees, of whom 12 were executives
and  257  were  administrative  and  clerical personnel. Regional administrative
services  are  provided  in Aliso Viejo, California and Dallas, Texas. Corporate
administrative  services  are  provided  at the Corporate office in Aliso Viejo,
California. Approximately 45 clerical and auxiliary employees are represented by
a  labor  union.  The  Company  considers its relations with its employees to be
good.

The Company maintains a 401(k) plan which allows for a pre-tax contribution from
an employee's earnings. Employees are eligible to participate in the 401(k) plan
upon  completion  of  six  months  of service with the Company. Under the 401(k)
plan,  an  employee  may defer up to 15 percent of his or her gross compensation
each  pay  period  and  the  Company  may,  at  its  option,  make an additional
discretionary  contribution  to  be  allocated  among  employees  in the plan in
proportion  to  the  compensation  deferred. Employees are 100 percent vested in
their  interest  in  the  401(k) plan at all times. The Company also maintains a
pre-tax  medical insurance option within the meaning of Paragraph 106 of Section
125  of  the  Internal  Revenue  Code  for  its  employees.

RISK  FACTORS

The  Company's business and competitive environment involve certain factors that
expose  it to risk and uncertainty. Some risks relate to the managed dental care
industry  in  general  and  other risks relate to the Company specifically. As a
result  of  the  risks  and uncertainties described below as well as other risks
presented  elsewhere in this report, there is no assurance that the Company will
be  able  to  maintain its current market position. Some of the below-referenced
risk  factors have affected the Company's operating results in the past, and all
of  these  risk  factors  could  affect  its  future  operating  results.

Waivers  and/or Extensions from Lender. As of December 31, 1999, the Company was
not  in  compliance  with  certain  financial  covenants contained in its credit
agreements.  As  a  result,  the  entire  outstanding balance under these credit
agreements, which was $39.5 million at December 31, 1999, was due on January 28,
2000.  The  Company's financial position may be negatively affected in the event
it  is  unable  to  obtain  regulatory  approval  for its agreement with certain
investors  and  its  lenders  dated March 1, 2000. See "RECENT DEVELOPMENTS" and
"CREDIT  FACILITIES."

Recent  Operating  Losses.  The  Company  incurred  significant operating losses
during  1998  and  1999. The Company's ability to meet its financial obligations
and  to  continue  its  business  depends  upon  a  return  of its operations to
profitability.

Government  Regulation.  The  health  and  dental  care  industry  is subject to
extensive  federal,  state  and  local  laws, rules and regulations. Each of the
Company's  operating  subsidiaries is subject to various requirements imposed by
state  laws  and  regulations  related  to  the  operation  of  a health plan or
insurance company, including the maintenance of a minimum amount of tangible net
worth  by  each  subsidiary.  Due  to  significant  regulation  of the Company's
business,  a  variety of potential obstacles to its plans for further geographic
expansion  could  limit  future  growth.  Additionally,  dental  care  practice
standards  and  related  federal  and  state regulations may change. The Company
cannot  predict  what  changes  may be enacted which may affect its business and
future  growth.


                                      -15-
<PAGE>
Ability  to  Sell  Dental  Offices  and/or  Promissory  Notes.  General  Dental
Practices. On October 21, 1996, the Company implemented a strategic plan to sell
all  of  the  general  dental  practices  owned  by the Company. The assets sold
consisted  primarily  of  accounts receivable, supply inventories, equipment and
leasehold  improvements. Each practice sold could enter into a contract with the
Company's  practice  management  subsidiary,  whereby  the Company would provide
certain  services  to  support  the  operation  of  their  practice,  including
administrative  support.  The  Company  discontinued  its  practice  management
subsidiary  and  terminated  these  agreements  in  1998.

Through  June  1997,  the  Company  sold  fifteen  general  dental  practices to
purchasers  in  exchange  for  consideration  consisting  of  $10.4  million  of
long-term  promissory  notes.  In September 1997, the Company sold the remaining
practices  to  Pacific Coast Dental, Inc., Associated Dental Services, Inc., and
affiliated  dentists  (the  "Purchasers" or "PCD") in exchange for consideration
consisting  of  $8.0  million  of  long-term  promissory  notes.

During  1997 and 1998, of the fifteen practices previously sold to parties other
than  PCD,  four  of  these  practice  were  conveyed to PCD in exchange for the
assumption  of  the  promissory notes payable to the Company. At the time of the
conveyances  of  these  practices  to  PCD,  the related promissory notes had an
aggregate  carrying  value of $1.9 million on the Company's balance sheet, which
exceeded  the  historical cost of the net assets of the related dental practices
by  $1.4  million.

Orthodontic  Practices.  On  February  26,  1998,  the  Company  announced  the
discontinuance  of  its  orthodontic  practices.  The  assets of the orthodontic
practices  consisted  primarily  of  accounts  receivable,  supply inventory and
dental  equipment,which were sold on April 1, 1998, pursuant to the terms of the
definitive Master Asset Purchase Agreement (the "Agreement") dated and effective
as  of  April  1,  1998,  by  and  among  the  Company and PCD.  The orthodontic
practices  were  sold  for  $15  million,  represented  by  an  8  1/2%  30-year
promissory  note and secured by all current and future assets of the Purchasers,
including  those assets transferred under the Agreement made by PCD. Among other
provisions, the Agreement includes a long term commitment to continue to provide
orthodontic  services  to  the  members  of  the  Company's  dental  HMO  plans.

In  connection  with the sale of the general dental and orthodontic practices to
PCD, the Company committed  to lend PCD certain amounts for working capital.  As
of  December  31, 1997 and 1998 the working capital loans to PCD amounted to $.8
million  and  $1.6  million,  respectively.

The  Company  concluded  that PCD did not have sufficient resources to repay the
promissory  notes  from  sources  other  than  the  operations  of the purchased
practices.  Accordingly,  the  related  promissory notes and the working capital
loans  have  not been recorded in the financial statements.  The historical cost
of  the  net  assets of the practices sold to PCD are reflected on the Company's
balance  sheet  under the caption "Assets of discontinued operations transferred
under  contractual  arrangements."  The  financial statements do not reflect any
gains  on these sale transactions, and do not reflect any interest income on the
related  promissory  notes.  In  addition,  the carrying value of the promissory
notes related to the four practices that were ultimately transferred to PCD from
other  purchasers,  was  reduced to the historical cost of the net assets of the
related practices. The working capital loans were fully reserved at the time the
loans  were  made  and  the  Company  has  no further obligation to provide such
working  capital  loans.  Interest  payments  received of $ .3 million have been
applied  to  reduce  the  historical  cost  of  the  net  assets  transferred.

The  Company's  working capital and liquidity will be negatively impacted should
the  Company  be  unable  either  resell  the  assets  or  Notes relating to the
practices.

Risk  of  Acquisitions. The Company completed three acquisitions in the past few
years.  These  acquisitions  entail  risks  that  the  Company  may be unable to
successfully  integrate  the  acquired  businesses into its existing operations.
Also,  the  acquisitions  may  fail  to  perform  as  expected. In addition, the
acquisitions may require significant amounts of management's time to assimilate.
As  a  result,  occurrence  of  any  of  the  risks listed could have a material
negative  effect  on  the  Company's  operating  and  financial  results.

Possible  Volatility  of  Stock  Price.  The Company's stock price is subject to
fluctuations.  The  stock  price  volatility  can  be  a  response  to actual or
anticipated  variations in operating results, announcements of new developments,
actions  of  competitors,  developments in relationships with clients, and other
events  or  factors.  Even a modest underperformance against the expectations of
the  investment  community  can  lead  to a significant decline in the Company's
stock  price.  Broad  stock  market  fluctuations, which may be unrelated to the
Company's  operating  performance may have a negative affect on the price of its
stock.

Competitive  Market.  The  Company operates in a highly competitive environment.
Its  ability  to  expand  is affected by existing and increasing competition and
dental  product  choices  and  number of competitors in the areas that it offers
products.  There  can  be  no assurance that the Company will be able to compete
successfully  with  new market entrants. Any additional competition could have a
negative  impact  on  the  Company's  revenues,  net income and growth prospects
through  premium  reductions, loss of providers or clients, or market share. The
Company  expects  the  level  of  competition  to  remain high. In addition, the
Company recognizes that competitive pricing pressures may have a negative effect
on  its  operating  margins.


                                      -16-
<PAGE>
Ability  to  Continue  Company  Growth.  The  Company  has grown in recent years
through  expansion  in  new  small  and mid-size clients. There has also been an
increase  in  the  number  of persons covered under indemnity insurance products
offered  by the Company's insurance subsidiary. Also, the Company experienced an
increase in the number of members covered as a result of strategic relationships
with  other health care providers due to the September 1996 acquisition of First
American, the May 1997 acquisition of Advantage, and the August 1997 acquisition
of  SafeHealth,  Inc.  Although the Company intends to continue to expand, there
can  be  no  assurance  that the Company will be able to maintain or continue to
expand  its  market  presence  in its current locations or to successfully enter
other  markets.  The  ability  to continue the Company's growth will depend on a
number  of factors, including existing and emerging competition. In addition, it
will depend upon the Company's ability to maintain effective control over dental
care  costs, secure cost-effective contracts with additional dentists, introduce
new  technologies,  and  on  the  availability of working capital to support its
growth.

Levels  of  Utilization and Dental Care Services. The Company's dental indemnity
and  PPO  dental  plans  are  underwritten  by  a  subsidiary that is a licensed
insurer.  These  plans subject the Company to underwriting risks associated with
over  utilization  and  pricing  variances. To minimize these risks, the Company
conducts thorough claims review and lag studies and engages an actuary. However,
if  underwriting risks are not accurately assessed, rates charged to clients may
not  cover  costs.  As  a  result,  a  material negative effect on the Company's
operating  and  financial  results  may  occur.

In  addition,  dental  care provided by specialists is made available to members
under  many  of  the  dental HMO plans. The Company assumes responsibility under
such  plans for such specialty care arrangements. The Company is responsible for
payments  to specialists, usually on a discounted, fee-for-service basis and not
on  a  capitated  basis.  Accordingly,  it  retains  the risk for the payment of
specialty  dental  care  claims.  If  the  utilization  of specialty dental care
increases  under  outstanding  dental HMO plans, operating and financial results
could  be  negatively  impacted.

Effect  of Adverse Economic Conditions. The Company's business may be negatively
affected by periods of economic slowdown or recession which, among other things,
may  be  accompanied  by  layoffs by client organizations reducing the number of
members  served,  and  increased  pricing pressure from clients and competitors.

Relationships with Dental Providers. The Company's success is dependent upon the
continued  maintenance  of  a  large  network of quality dentists in each of the
Company's  markets.  Generally,  the Company and the network dentists enter into
non-exclusive  contracts  that  may  be  terminated by either party with limited
notice.  The  Company's  operating  results  may be negatively affected if it is
unable  to  establish  and maintain contracts with an adequate number of quality
dentists  in any market in which it operates. See "BUSINESS-PROVIDER RELATIONS."

Dependence  on  Key  Personnel. The Company believes that its success is largely
dependent  upon  the abilities and experience of its senior management team. The
loss  of the services of one or more of these senior executives could negatively
affect  our  operating  and  financial  results.  The  Company  has entered into
employment  agreements with key senior executives, including the Chief Executive
Officer  and  the  Chief  Operating  Officer.

RECENT  DEVELOPMENTS

On  May 29, 1999, the Company restructured the credit agreement related to $32.5
million  of outstanding debt under its unsecured senior notes. The senior notes,
which  have  a  final  maturity  date  of September 30, 2005, (the "Notes") were
modified  to  provide  for  an increase in the interest rate from 7.91% to 9.91%
effective  on April 28, 1999. The interest rate decreased to 8.91% in June 1999,
due  to the execution of a definitive agreement with an investor group regarding
a  planned investment in the company (see more discussion of this below).  Under
the  restructured  agreement, the interest rate would decrease to 7.91% upon the
occurrence  of  certain other events, which have not yet occurred. In connection
with the restructuring, the Company issued warrants to acquire 382,000 shares of
the  Company's  common  stock  to  the  holder  of  the  Notes. The warrants are
exercisable  any time between January 1, 2000, and December 31, 2003, at a price
of  $4.51  per  share.

On  May  29, 1999, the Company also restructured the credit agreement related to
its  $8  million  bank line of credit, under which $8 million was outstanding at
December  31,  1998.  The restructured agreement extended the maturity date from
January  31,  1999  to  January  28,  2000. The interest rate on the outstanding
balance  is equal to the bank's prime rate plus 4%, effective on April 28, 1999.
The  interest rate decreased to prime plus 3% in June 1999, due to the execution
of  a definitive agreement with an investor group regarding a planned investment
in  the  company  (see  more  discussion of this below).  Under the restructured
agreement,  the  interest  rate  would  decrease  to  prime  plus  1.5% upon the
occurrence  of  certain  other  events,  which  have  not  yet  occurred.

Additional  collateral  was  provided to both the senior note holder and line of
credit  lender  under  the  restructured  agreements.  The Company also paid the
out-of-pocket  attorneys'  fees  and  costs incurred by both lenders through the
closing  date,  and  the  cost  of  certain consultants the lenders required the
Company  to  hire.  The  Company  agreed  to  provide  both lenders with monthly
consolidated  financial  statements  and  covenant  compliance certificates, all
Securities  and  Exchange  Commissions filings, and other financial documents as
they  may  reasonably  request.


                                      -17-
<PAGE>
New provisions include a requirement for the Company to provide the lenders with
any  notice  of  intent  to  audit  from  any  regulatory  agency, and copies of
correspondence from any regulatory agency and the Company's response thereto. In
addition,  the  Company  is  prohibited  from  declaring  dividends  or  other
distributions,  and  may  not  incur  any  liens  on  the  voting  stock  of any
subsidiaries  of  the  Company.  In  the event the Company sells certain assets,
including  the  notes  receivable  related  to  the  sale of dental offices, the
proceeds  have  to  be paid to the holder of the Notes and the Company's line of
credit  lender, in proportions specified in the restructured agreements. Various
other terms, covenants and provisions of the credit agreement, including various
financial  covenants,  were also revised. In consideration of the new agreement,
both  lenders waived all existing defaults under the previous credit agreements.
As of September 30, 1999 and December 31, 1999 the Company was not in compliance
with  these  new  restructured  debt  agreements.

On  June  30, 1999, the Company entered into an agreement with an investor group
under  which  the  investor group agreed to purchase $20 million of senior notes
and  $20  million  of  convertible  preferred  stock  from  the  Company.  This
transaction  was  subject  to  regulatory  approval,  stockholder  approval, and
various  other conditions.  In connection with this agreement, the Company filed
a  Proxy  Statement  with  the Securities and Exchange Commission on October 12,
1999.  However, the agreement with the investor group was terminated in February
2000.

On March 1, 2000, the Company entered into an agreement with both of its lenders
and the same investor group, under which the investor group loaned $8 million to
the  Company.  Under this agreement, the investor group and the existing lenders
agreed  to  convert the $8 million loan, the outstanding balance of $7.0 million
under  the  bank  line  of  credit, and the outstanding balance of $32.5 million
under  the  senior  notes  to convertible preferred stock, subject to regulatory
approval.  Under this agreement, both lenders agreed not to demand or accept any
payment  under the credit agreements, and not to take any enforcement actions of
any  kind  under  the  agreements  until  April  30,  2001.

During  June  1999  the  Company  completed  the sale of its former headquarters
office building for approximately $3.5 million, which was the carrying amount of
the  building  on  the  Company's  balance  sheet  as  of December 31, 1998. The
carrying  amount  of the building is reflected on the consolidated balance sheet
under  the  caption  "Assets  Held  for  Sale."

On  September 1, 1999 trading in the Company's common stock was removed from the
NASDAQ  National  Market  due  to  the  Company's inability to meet the relevant
minimum  net  tangible  worth  requirement.

During  the  quarter  ended September 30, 1999, the Company recorded a charge to
earnings  to  establish  a  valuation allowance against its deferred tax assets.
The amount of the allowance is equal to the total amount of its net deferred tax
assets, which was $8.5 million at December 31, 1998.  The Company's deferred tax
assets  have  been  fully reserved due to uncertainty about whether they will be
realized  in  the  future,  primarily  due  to  operating losses incurred by the
Company  in  1998  and  1999  and  the  existence  of  significant  unused  loss
carryforwards.

Effective  December  31,  1998,  rather than the Company exercising its right to
foreclose  on certain promissory notes (the "Notes"), the Company entered into a
Default  Forbearance  Agreement  and  an  Irrevocable Power of Attorney with the
issuer  of  those  notes (the "Issuer"), which will enable the Company to either
resell  the  assets or Notes relating to the practices. During 1999, the Company
reached  an  oral  agreement  with  the  Issuer  and  another  third  party (the
"Purchaser"),  under  which the Notes would be liquidated. Under this agreement,
the  Issuer  would  convey the dental practices that comprise the collateral for
the  Notes  to the Purchaser, in exchange for proceeds that would be paid to the
Company  in satisfaction of the Notes.  Due to uncertainty of the ability of the
Issuer  of  these  Notes to meet its contractual obligations to the Company (See
RISK  FACTORS  and  Restatement)  the Company did not recognize the transactions
that  gave  rise to these Notes as sales for accounting purposes and accordingly
these Notes have not been recorded in the Company's financial statements.  Based
on  this  oral  agreement  with  the  Issuer, and other factors, the Company has
determined  that  the  value  of  the  discontinued net assets being transferred
underlying  the  Notes  has been impaired.  Accordingly, the Company recorded an
additional loss of $6.4 million included in loss from operations of discontinued
operations  during  the  nine  months  ended  September  30,  1999 to reduce the
carrying value of these assets being transferred to their estimated net proceeds
that  would  be  realized  from  a sale of these assets.  During March 2000, the
Company  entered  into  a definitive agreement with respect to this transaction,
which  is  currently  pending  regulatory  approval.

The  Company  incurred  a significant operating loss during 1999, in addition to
interest  expense  on  outstanding  debt,  the  write-down  of notes receivable,
impairment of discontinued net assets transferred under contractual arrangements
and the valuation allowance against deferred tax assets. The Company borrowed an
additional  $8  million in March 2000, and executed an agreement under which all
of  its  debt  will  be  converted to equity upon regulatory approval.  However,
there  can  be  no assurance that the Company will be successful in returning to
profitability.

In  December  1999,  a  shareholder lawsuit against the Company was filed, which
alleges that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  The  Company has directors and officers liability insurance and intends
to  vigorously  defend  this  litigation.  In  the  opinion  of  the  Company's
management, the ultimate outcome of this matter will not have a material adverse
effect  on  the  Company's  financial  position  or  results  of  operations.


                                      -18-
<PAGE>
At  December  31,  1999 the Company determined that its wholly-owned subsidiary,
SafeHealth,  was  below  its  required regulatory minimum capital and surplus by
approximately  $4.5  million.  A  significant  portion  of the proceeds from the
Company's  new  loan entered into on March 1, 2000, described above, was used to
resolve  this  regulatory  capital  deficiency.

ITEM  2.     PROPERTIES

During  1997,  the  Company  entered  into  an  agreement  to lease office space
consisting  of  approximately 68,000 square feet in Aliso Viejo, California. The
Company moved its corporate headquarters and executive offices from its previous
location  in  Anaheim,  California  to  Aliso Viejo, California during the third
quarter  of  1998. The Company previously owned a 60,000 square foot building in
Anaheim,  California, which it previously utilized as its corporate headquarters
and  executive  offices. This building was sold by the Company during the second
quarter  of  1999.  In addition, the Company leases offices in Phoenix, Arizona;
Walnut Creek, California; Denver, Colorado; Fort Lauderdale, Florida; St. Louis,
Missouri;  and Austin, Dallas, and Houston, Texas. The Company leased all of the
office  space  used  by its previously owned Guards practices, which leases have
been assigned to the persons and/or entities who purchased the dental practices,
but  for  which  the  Company remains secondarily liable. Those leases expire on
dates  ranging  through  July  2005. In the opinion of management, the Company's
facilities  are  adequate  for  its  current  needs.

ITEM  3.     LEGAL  PROCEEDINGS

The  Company  is  subject  to  various  claims and legal actions in the ordinary
course  of  business.  The  Company  believes  all  pending  claims  either  are
adequately covered by insurance maintained by panel providers or the Company, or
will  not  have a material adverse effect on the Company's results of operations
or  financial  position.  In  December  1999,  a shareholder lawsuit against the
Company  was  filed,  which alleges that the Company and certain of its officers
violated  certain  securities  laws  by  issuing  a  series of alleged false and
misleading  statements  concerning  the Company's publicly reported revenues and
earnings during a specified class period. The Company has directors and officers
liability  insurance  and  intends  to vigorously defend this litigation. In the
opinion  of  the  Company's management, the ultimate outcome of this matter will
not  have  a  material  adverse  effect  on  the Company's financial position or
results  of  operations.

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

No  matters  were  submitted  to  a  vote  of security holders during the fourth
quarter  of  the  year  ended  December  31,  1998.

                                     PART II

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

(a)  Market  Information

The  Company's common stock is currently traded on the National Quotation Bureau
under the symbol SFGD. The following table sets forth the high and low prices at
which  the  Company's  common  stock  traded  as  reported.  The  bid quotations
represent inter-dealer prices, without retail markups or commissions, and do not
necessarily  represent  actual  transactions.

<TABLE>
<CAPTION>
                                      High      Low
                                     -------  -------
<S>                                  <C>      <C>
Fiscal Year ended December 31, 1998
  First Quarter.. . . . . . . . . .  $ 13.50  $  8.25
  Second Quarter. . . . . . . . . .  $ 9.375  $  6.00
  Third Quarter.. . . . . . . . . .  $7.1875  $3.6875
  Fourth Quarter. . . . . . . . . .  $  5.50  $3.3125
Fiscal Year ended December 31, 1997
  First Quarter.. . . . . . . . . .  $18.375  $11.125
  Second Quarter. . . . . . . . . .  $ 12.75  $ 9.625
  Third Quarter.. . . . . . . . . .  $ 14.00  $ 10.50
  Fourth Quarter. . . . . . . . . .  $14.875  $ 12.50
</TABLE>


                                      -19-
<PAGE>
Approximate  Number  of  Equity  Security  Holders

<TABLE>
<CAPTION>
                                Approximate Number of
                                   Record Holders
Title of Class                (as of December 31, 1998)
----------------------------  -------------------------
<S>                           <C>
Common Stock, $.01 Par Value                     1,000
</TABLE>

Dividends

No cash dividends have been paid on the Company's common stock. It is the policy
of  the  Board  of  Directors  to  retain  the Company's earnings for use in its
operations  and  expansion  of its business, and the Company does not anticipate
paying  cash  dividends  in  the  foreseeable  future.  The  Company's  credit
arrangements  prohibit  dividends.

Stockholder  Rights  Plan

In March 1996, the Company's Board of Directors declared a dividend of one right
to  purchase  fractions  of  the  shares  of  its  Series A Junior Participating
Preferred  Stock,  par  value $.01 per share having certain rights, preferences,
privileges  and restrictions, and under certain circumstances, other securities,
for  each  outstanding  share  of the Company's common stock, par value $.01 per
share  distributed  to  stockholders of record at the close of business on April
12,  1996.  The  description  and  terms of the Rights are set forth in a Rights
Agreement,  dated  as  of March 22, 1996, between the Company and American Stock
Transfer  and  Trust  Company,  as  Rights  Agent.

(b)  Use  of  Proceeds

N/A


                                      -20-
<PAGE>
ITEM  6.     SELECTED  FINANCIAL  DATA

The  selected  financial  data  in the following table has been derived from the
audited Consolidated Financial Statements of the Company.  The financial data as
of  December  31,  1998  and  1997,  and  for the two years then ended have been
restated  (see Note 15 of Consolidated Financial Statements). The financial data
as  of  December  31, 1998 and 1997 and for each of the five years in the period
ended  December  31, 1998, have also been reclassified in prior years to reflect
the  discontinuation  of  the Company's general dental and orthodontic practices
(see  Note 2 of the Consolidated Financial Statements). This data should be read
in  conjunction  with  such  financial statements and notes thereto, and Item 7.
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS."

<TABLE>
<CAPTION>
Selected Operating, Statistical and Balance Sheet Data
Year Ended December 31,                                         1998         1997        1996     1995      1994
                                                             -----------  -----------  --------  -------  --------
Operating Data (in $000's except income per share):          (Restated)   (Restated)
<S>                                                          <C>          <C>          <C>       <C>      <C>
Health care revenues. . . . . . . . . . . . . . . . . . . .  $   97,449   $   95,350   $72,709   $60,736  $53,921
                                                             -----------  -----------  --------  -------  --------
Expenses:
Health care services. . . . . . . . . . . . . . . . . . . .      66,020       65,702    54,534    45,285   39,203
Selling, general and administrative . . . . . . . . . . . .      36,259       25,103    16,292    13,451   12,178
Loss on impairment of assets. . . . . . . . . . . . . . . .       2,397           --        --        --       --
                                                             -----------  -----------  --------  -------  --------

Total expenses. . . . . . . . . . . . . . . . . . . . . . .     104,676       90,805    70,826    58,736   51,381
                                                             -----------  -----------  --------  -------  --------

(Loss) income from operations . . . . . . . . . . . . . . .      (7,227)       4,545     1,883     2,000    2,540
Other income. . . . . . . . . . . . . . . . . . . . . . . .         624        1,316       984     1,286    1,026
Interest expense. . . . . . . . . . . . . . . . . . . . . .      (4,311)      (2,871)     (485)       --       (3)
                                                             -----------  -----------  --------  -------  --------

Income (loss) before (benefit) provision for income taxes,
discontinued operations and cumulative effect of
accounting change . . . . . . . . . . . . . . . . . . . . .     (10,914)       2,990     2,382     3,286    3,563
Provision (benefit) for income taxes. . . . . . . . . . . .      (3,406)       1,371       980     1,251    1,390
                                                             -----------  -----------  --------  -------  --------

Income (loss) before discontinued operations and
cumulative effect of accounting change. . . . . . . . . . .      (7,508)       1,619     1,402     2,035    2,173
Income (loss) from operations to be disposed of, net. . . .      (2,430)      (7,408)     (852)      353     (881)
Gain on disposal of orthodontic and
dental practices, net . . . . . . . . . . . . . . . . . . .          --          296     1,678        --       --
Cumulative effect of change in accounting
principle, net. . . . . . . . . . . . . . . . . . . . . . .          --           --       824        --       --
                                                             -----------  -----------  --------  -------  --------

Income (loss) from discontinued operations, net and
cumulative effect of accounting change. . . . . . . . . . .      (2,430)      (7,112)    1,650       353     (881)
                                                             -----------  -----------  --------  -------  --------

Net income (loss) . . . . . . . . . . . . . . . . . . . . .  $   (9,938)  $   (5,493)  $ 3,052   $ 2,388  $ 1,292
                                                             ===========  ===========  ========  =======  ========

Basic net income (loss) per share:
Net income (loss) from continuing operations. . . . . . . .  $    (1.58)  $     0.34   $  0.30   $  0.45  $  0.47

Net income (loss) from discontinued
operations, net . . . . . . . . . . . . . . . . . . . . . .       (0.51)       (1.50)     0.17      0.08    (0.19)
Cumulative effect of change in accounting principle . . . .          --           --      0.17        --       --
                                                             -----------  -----------  --------  -------  --------

Net income (loss) . . . . . . . . . . . . . . . . . . . . .  $    (2.09)  $    (1.16)  $  0.64   $  0.53  $  0.28
                                                             ===========  ===========  ========  =======  ========

Weighted average shares outstanding
(000's) -- Basic. . . . . . . . . . . . . . . . . . . . . .       4,747        4,723     4,711     4,523    4,613
                                                             ===========  ===========  ========  =======  ========

Diluted net income (loss) per share:
Net income (loss) from continuing operations. . . . . . . .  $    (1.58)  $     0.33   $  0.28   $  0.43  $  0.45
Net income (loss) from discontinued
operations, net . . . . . . . . . . . . . . . . . . . . . .       (0.51)       (1.45)     0.17      0.08    (0.18)
Cumulative effect of change in accounting principle . . . .          --           --      0.17        --       --
                                                             -----------  -----------  --------  -------  --------


Net income (loss) . . . . . . . . . . . . . . . . . . . . .  $    (2.09)  $    (1.12)  $  0.62   $  0.51  $  0.27
                                                             ===========  ===========  ========  =======  ========

Weighted average shares outstanding
(000's) -- Diluted. . . . . . . . . . . . . . . . . . . . .       4,747        4,899     4,940     4,725    4,852
                                                             ===========  ===========  ========  =======  ========

Balance Sheet Data (in $000's):
Cash and short-term investments . . . . . . . . . . . . . .  $    6,215   $   12,906   $ 9,807   $14,746  $ 8,661
Current assets. . . . . . . . . . . . . . . . . . . . . . .      14,691       21,738    27,622    23,576   12,378
Current liabilities . . . . . . . . . . . . . . . . . . . .      25,379       20,193    11,633     5,941    3,043
Long-term debt. . . . . . . . . . . . . . . . . . . . . . .      32,500       33,894    19,086        --       --
Stockholders' equity. . . . . . . . . . . . . . . . . . . .      19,766       29,615    35,200    31,929   27,469
Total assets. . . . . . . . . . . . . . . . . . . . . . . .      77,956       84,085    68,116    38,343   30,792

Membership (000's): . . . . . . . . . . . . . . . . . . . .       1,018        1,165       983       761      721
Clients . . . . . . . . . . . . . . . . . . . . . . . . . .       6,306        5,550     4,922     2,661    2,086
Employees . . . . . . . . . . . . . . . . . . . . . . . . .         269          249       461       458      432
Contracted managed care dental offices. . . . . . . . . . .       5,600        5,000     4,200     3,291    2,902
Contracted PPO dental offices . . . . . . . . . . . . . . .      11,800        9,100     9,600     9,706    5,765
Company owned dental offices. . . . . . . . . . . . . . . .          --           --        27        33       30
</TABLE>


                                      -21-
<PAGE>
ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS  OF  OPERATIONS

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a
"safe  harbor"  for  forward-looking statements, so long as those statements are
identified  as  forward-looking  and  are  accompanied  by meaningful cautionary
statements  identifying  important  factors  that  could cause actual results to
differ  materially from those discussed in the statement. The Company desires to
take advantage of these safe harbor provisions. The statements contained in this
Management's  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations  concerning  growth  and  strategies,  future  operating  results and
financial position, as well as economic and market events and trends, any future
premium  pricing levels, future dental health care expense levels, the Company's
ability  to  control  health care, selling, general and administrative expenses,
items  discussed under the heading "Year 2000" and all other statements that are
not  historical  facts,  are  forward looking statements. Words such as expects,
projects,  anticipates,  intends,  plans,  believes,  seeks  or  estimates,  or
variations  of  such words and similar expressions are also intended to identify
forward-looking  statements.  These  forward-looking  statements  are subject to
significant  uncertainties  and  contingencies,  many  of  which  are beyond the
control  of  the  Company.  Actual  results  may  differ  materially  from those
projected  in  the  forward-looking statements, if any, which statements involve
risks  and  uncertainties.  The  Company's  ability  to  expand  is  affected by
competition  not  only in benefit program choices, but also the number of dental
plan  competitors  in  the  markets in which the Company operates. Certain large
employer  groups  and other purchasers of commercial dental health care services
continue  to demand minimal premium rate increases, while limiting the number of
choices  offered  to  employees.  In addition, securing cost effective contracts
with dentists may become more difficult in part due to the increased competition
among  dental  plans  for  dentist  contracts. Other risks include the Company's
potential  inability  to  obtain  waivers  and/or  extensions  from its lenders,
whether or not the Company enters into any extraordinary transaction, changes in
the  Company's  operating  or  expansion  strategy, or failure to consummate the
proposed  resale  of  dental  offices  and/or  promissory  notes.  The Company's
profitability  depends,  in  part,  on its ability to maintain effective control
over  health  care  costs,  while  providing  members  with quality dental care.
Factors  such  as  levels  of  utilization  of  dental health care services, new
technologies,  specialists  costs,  and  numerous  other external influences may
effect the Company's operating results. Any critical unresolved Year 2000 issues
at  the  Company  or  its  vendors  could  have a material adverse effect on the
Company's results of operations, liquidity or financial condition. The Company's
expectations  for  the future are based on current information and evaluation of
external  influences.  Changes  in  any  one  factor could materially impact the
Company's  expectations  relating  to  premium  rates,  benefits  plans offered,
membership  growth,  health  care  expenses,  and as a result, profitability and
therefore,  affect the forward-looking statements which may be included in these
reports.  In  addition, past financial performance is not necessarily a reliable
indicator  of  future  performance.  An  investor  should  not  use  historical
performance  alone  to  anticipate  future  results  or  future  period  trends.

The  following  should  be  read  in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto.  Where applicable, amounts for 1999
and  1998  have  been revised to give effect to the restatement of the financial
statements.  (See  Note  15  of Notes to the Consolidated Financial Statements).


                                      -22-
<PAGE>
<TABLE>
<CAPTION>
Results of operations
(000's omitted except percentages)    1998 Versus 1997  1997 Versus 1996   1996 Versus 1995
                                      ----------------  ----------------  ------------------
<S>                                   <C>               <C>               <C>
Membership enrollment. . . . . . . .             (147)              182                 222
Percentage change. . . . . . . . . .           (12.6%)             18.5%               29.2%
                                      ----------------  ----------------  ------------------

Health care revenues . . . . . . . .  $         2,099   $        22,641   $          11,973
Percentage change. . . . . . . . . .              2.2%             31.1%               19.7%
                                      ----------------  ----------------  ------------------

Health care expenses . . . . . . . .  $           318   $        11,168   $           9,249
Percentage change. . . . . . . . . .              0.5%             20.5%               20.4%
Percent of revenues. . . . . . . . .             67.7%             68.9%               75.0%
                                      ----------------  ----------------  ------------------

Selling, general and administrative
expenses . . . . . . . . . . . . . .  $        11,156   $         8,811   $           2,841
Percentage change. . . . . . . . . .             44.4%             54.1%               21.1%
Percent of revenues. . . . . . . . .             37.2%             26.3%               22.4%
                                      ----------------  ----------------  ------------------

Other income, net. . . . . . . . . .  $          (692)  $           332   $            (302)
Percentage change. . . . . . . . . .           (52.6)%             33.7%             (23.5)%
Percent of revenues. . . . . . . . .              0.6%              1.4%                1.4%
                                      ----------------  ----------------  ------------------

Interest expense . . . . . . . . . .  $         1,440   $         2,386   $             485
Percentage change. . . . . . . . . .             50.2%            492.0%                N/A
Percent of revenues. . . . . . . . .              4.4%              3.0%                0.7%
                                      ----------------  ----------------  ------------------

Income (loss) from continuing
operations before cumulative
effect of accounting change. . . . .  $        (9,127)  $           217   $            (633)
Percentage change. . . . . . . . . .          (563.7)%             15.5%             (31.1)%
                                      ----------------  ----------------  ------------------

Income (loss) from discontinued
operations, net. . . . . . . . . . .  $         4,682   $        (7,938)  $           1,297
Percentage change. . . . . . . . . .             65.8%          (961.0)%              367.4%
                                      ----------------  ----------------  ------------------

Net income (loss). . . . . . . . . .  $        (4,445)  $        (8,545)  $             664
Percentage change. . . . . . . . . .           (80.9)%          (280.0)%               27.8%
                                      ----------------  ----------------  ------------------
</TABLE>

1998  Versus  1997

The  Company's  revenues for the twelve months ended December 31, 1998 increased
2.2%  from  $95,350 to $97,449 on a membership decrease of 12.6%. The 1997 basis
of  comparison, however, includes the acquisition of Advantage in May 1997. On a
pro  forma  basis,  including  the  effect  of the Advantage acquisition for the
entire  year,  revenues  for  the  same  period  increased  $202 on a membership
decrease  of  12.6%. Notwithstanding the membership losses, largely in the first
quarter of 1998, the average revenue per member increased due to price increases
implemented  by the Company and an increase in the volume of indemnity business,
which  has significantly higher revenue per member than the dental HMO business.

Health care expenses increased 0.5% or $318 for the twelve months ended December
31,  1998.  As  a  percent  of revenues, health care expenses improved 1.2% from
68.9% of revenues for the twelve months ended December 31, 1997 to 67.7% for the
same  period  in  1998. Including the Advantage acquisition for twelve months of
1997,  health  care  expenses for the period would have been $66,452 or 68.3% of
revenues.  The  comparison  to 1998 then shows a decrease of $432 in health care
expenses  and  a  decrease  of  0.6%  in health care expenses as a percentage of
revenues.  The  Company  continues to improve the health care cost ratios in its
existing  business,  including the business provided by its recent acquisitions.

Selling,  general  and  administrative  expenses  increased  $11,156  or  44.4%.
Including  the  Advantage  acquisition  for  all of 1997, such increase would be
$10,586.  The  increase  experienced in 1998 is attributable to various factors,
including a charge for uncollectible accounts receivable, increases in the sales
and  management staff and other infrastructure components to support anticipated
growth of the Company in the future, the cost of the Company's relocation of its
corporate  headquarters from Anaheim, California to Aliso Viejo, California, and
the  associated  operating  leases, the costs associated with the elimination of
various  job  functions  at  year-end,  and  the  continuing  increases in costs
associated  with  telecommunications  and  computer  networks.


                                      -23-
<PAGE>
Other  income  decreased by 52.6%, or $692, for the twelve months ended December
31, 1998 from $1,316 in 1997 to $624. This is primarily due to capital losses on
the  sale  of  investments  in  1998.

Loss on impairment of assets in the amount of $2,397 for the twelve months ended
December  31,  1998  primarily  represents  a reduction in the carrying value of
certain  promissory  notes related to the sale of discontinued operations, and a
charge  to  reduce  the book value of the old corporate headquarters building to
estimated  net  realizable  value.

Interest  expense increased $1,440 for the twelve months ended December 31, 1998
from  $2,871 in 1997 to $4,311 in 1998, an increase of 50.2%. Such increase is a
result of the interest associated with the working capital credit facility which
was  entered into in 1998 and the private placement of long-term debt, which was
entered  into  during  1997.

The  net  loss  related  to  the  discontinued  orthodontic  and  general dental
practices for the twelve months ended December 31, 1998 was $2,430 versus a loss
of  $7,112  for  the  same  period  in  the  prior  year,  a decrease of $4,682.

Net loss of $9,938 for the twelve months ended December 31, 1998 was an increase
of  $4,445 over the loss of $5,493 reported for the same period a year ago. This
was  primarily  due  to  the  increase  in  selling,  general and administrative
expenses discussed above, which was partially offset by the decrease in the loss
from  discontinued  operations.

1997  Versus  1996

As  a  result  of  the Company's discontinuation of its orthodontic practices in
1997,  the financial statements have been reclassified for all comparative years
to  reflect these changes (see Note 2 of the Consolidated Financial Statements).
The  Company's revenues for the twelve months ended December 31, 1997, increased
31.1 percent, from $72,709 to $95,350, on a membership increase of 18.5 percent.
This  includes  the  contribution  from  the  acquisition  of  First American in
September  1996,  as well as the acquisition of Advantage in May 1997. Excluding
the impact of the two acquisitions, revenues for the same period indicated above
increased  13.1 percent on a 5.9 percent increase in membership. These increases
were  attributable  to  cross  selling of product offerings to existing clients,
moderate price increases to renewing clients and increases in sales to small and
mid-size  clients.

Health  care  expenses  increased 20.5 percent, or $11,168 for the twelve months
ended  December  31,  1997.  As  a  percentage of revenues, health care expenses
improved  by  6.1  percent,  from 75.0 percent of revenues for the twelve months
ended  December  31, 1996, to 68.9 percent for the same period in 1997. This was
primarily  due  to  the acquisitions of both First American and Advantage, which
have  a  lower  health  care  cost  as  a  percent of revenues. The Company also
realized  improvements  in  health  care  cost ratios for its existing business,
excluding  the  two  acquisitions, from 76.2 percent for the twelve months ended
December  31,  1996, to 74.5 percent for the same period in 1997, an improvement
of 1.7 percentage points. This improvement is due to improved pricing as well as
continued  improvement  in  control  of  costs.

Selling,  general and administrative expenses increased $8,811, or 54.1 percent,
for  the  twelve  months  ended December 31, 1997. This was primarily due to the
acquisitions  of  First American and Advantage with the related selling, general
and  administrative  costs  of  those  businesses.  Goodwill  and  intangible
amortization  expense  related  to  the  acquisitions  was $1,525 for the twelve
months  ending  December  31,  1997  compared  to  $312 for same period in 1996.
Excluding  the effect of the two acquisitions, the ratio of selling, general and
administrative  expenses to revenues increased to 23.0 percent from 21.3 percent
for  the  twelve  months ended December 31, 1997, compared to the same period of
1996.  This  was  as  a  result  of increases in telecommunications and computer
network  systems  costs,  as  well  as  increases in management staffing levels.

Other  income  increased by $332 for the twelve months ending December 31, 1997,
from  $984  in  1996, to $1,316, an increase of 33.7 percent. This was due to an
increase  in  interest  bearing  notes receivable resulting from the sale of the
discontinued general dental practices. Interest expense of $2,871 for the twelve
months  ending  December  31,  1997,  is  primarily  a  result of the borrowings
obtained  for  the  acquisition  of  both  First  American  and  Advantage. This
represents  an  increase  of  $2,386  from  $485  in  1996.

The operating results, net of taxes, of the discontinued orthodontic and general
dental  practices  for  the twelve months ended December 31, 1997, reflect a net
loss  of  $7,112  for the twelve months ending December 31, 1997, an increase in
losses  of  $7,938 over the same period in 1996. The net loss in 1997 includes a
pre-tax  charge of $7.2 million for under-performing notes and receivables ($4.3
million),  litigation  costs  ($750), and other transition costs ($2.2 million).
The  net  loss  in 1997 also includes a substantial increase in operating losses
incurred  by  the  discontinued  operations  in  1997,  compared  to  1996.

Net loss of $5,493 for the twelve months ended December 31, 1997, was a decrease
of  $8,545  in  net  income  over  the  same  period in the prior year. This was
primarily  due to the impact of the discontinued charge discussed above, as well
as  the  other  above  factors.


                                      -24-
<PAGE>
Liquidity  and  Capital  Resources

During  1998  and  1997, the Company met its cash requirements primarily through
borrowings  on  long-term  debt and liquidations of investments. At December 31,
1998  and  December  31,  1997, the current ratio was 0.6 to 1.0 and 1.1 to 1.0,
respectively.  The  Company's  net worth was $19.8 million at December 31, 1998,
compared  to  $29.6  million the previous year. The Company had $6.2 million and
$12.9  million  of  cash  and short-term investments as of December 31, 1998 and
December  31,  1997,  respectively.  As  a  result  of its regulated nature, the
Company is required to maintain various regulatory bank accounts in an aggregate
amount  of approximately $6.0 million to satisfy depository requirements imposed
by  state  regulatory  agencies.

In  September  1996,  the  Company  established  a  $30 million bank loan, which
provided for a $22 million reducing revolving acquisition sub-facility and an $8
million revolving working capital sub-facility. This agreement was terminated in
September  1997.

On  May  9,  1997,  the  Company  completed  the acquisition of Advantage Dental
HealthPlans,  Inc.  The  Company  financed  part  of  the acquisition through an
unsecured  $8.5  million  promissory note with the seller, with an interest rate
which  averaged 8.5 percent during 1998. The promissory note was paid in full in
April  1998.

On  September  30,  1997,  the  Company  completed  a private placement of $32.5
million  in  long-term  debt consisting of eight-year notes through John Hancock
Mutual  Life  Insurance  Company  ("Hancock").  The Company used the proceeds to
repay  all of its long-term indebtedness and for general corporate purposes. The
senior  notes  have  a  principal payment of $6.5 million due on September 30 of
each  year  starting  in  2001.  The interest rate for the loan is fixed at 8.91
percent  as  of  December  31,  1999.  In  connection with the senior notes, the
Company  is  subject  to certain financial and operational debt covenants. As of
December 31, 1998, the Company was in compliance, or has obtained a waiver, with
respect  to  these  covenants.

On  January  29,  1998,  the Company entered into a $8 million revolving working
capital  credit facility with Silicon Valley Bank (the "Bank"), all of which was
outstanding  at  December  31,  1998.  The  loan  is secured by a first priority
security  interest  in  all  the  personal  property  of  the Company, including
accounts  receivable,  fixed assets and intangibles and a negative pledge on the
stock  of  the  Company's  subsidiaries.

Recent  Developments

On  May 28, 1999, the Company restructured the credit agreement related to $32.5
million  of outstanding debt under its unsecured senior notes. The senior notes,
which  have  a  final  maturity  date  of September 30, 2005, (the "Notes") were
modified  to  provide  for  an increase in the interest rate from 7.91% to 9.91%
effective  on April 28, 1999. The interest rate decreased to 8.91% in June 1999,
due  to the execution of a definitive agreement with an investor group regarding
a  planned investment in the company (see more discussion of this below).  Under
the  restructured  agreement, the interest rate would decrease to 7.91% upon the
occurrence  of  certain other events, which have not yet occurred. In connection
with the restructuring, the Company issued warrants to acquire 382,000 shares of
the  Company's  common  stock  to  the  holder  of  the  Notes. The warrants are
exercisable  any time between January 1, 2000, and December 31, 2003, at a price
of  $4.51  per  share.

On  May  28, 1999, the Company also restructured the credit agreement related to
its  $8  million  bank line of credit, under which $8 million was outstanding at
December  31,  1998.  The restructured agreement extended the maturity date from
January  29,  1999  to  January  28,  2000. The interest rate on the outstanding
balance  is equal to the bank's prime rate plus 4%, effective on April 28, 1999.
The  interest rate decreased to prime plus 3% in June 1999, due to the execution
of  a definitive agreement with an investor group regarding a planned investment
in  the  company  (see  more  discussion of this below).  Under the restructured
agreement,  the  interest  rate  would  decrease  to  prime  plus  1.5% upon the
occurrence  of  certain  other  events,  which  have  not  yet  occurred.

Additional  collateral  was  provided to both the senior note holder and line of
credit  lender  under  the  restructured  agreements.  The Company also paid the
out-of-pocket  attorneys'  fees  and  costs incurred by both lenders through the
closing  date,  and  the  cost  of  certain consultants the lenders required the
Company  to  hire.  The  Company  agreed  to  provide  both lenders with monthly
consolidated  financial  statements  and  covenant  compliance certificates, all
Securities  and  Exchange  Commissions filings, and other financial documents as
they  may  reasonably  request.

New provisions include a requirement for the Company to provide the lenders with
any  notice  of  intent  to  audit  from  any  regulatory  agency, and copies of
correspondence from any regulatory agency and the Company's response thereto. In
addition,  the  Company  is  prohibited  from  declaring  dividends  or  other
distributions,  and  may  not  incur  any  liens  on  the  voting  stock  of any
subsidiaries  of  the  Company.  In  the event the Company sells certain assets,
including  the  notes  receivable  related  to  the  sale of dental offices, the
proceeds  have  to  be paid to the holder of the Notes and the Company's line of
credit  lender, in proportions specified in the restructured agreements. Various
other terms, covenants and provisions of the credit agreement, including various
financial  covenants  were  also revised. In consideration of the new agreement,
both  lenders waived all existing defaults under the previous credit agreements.
As of September 30, 1999 and December 31, 1999 the Company was not in compliance
with  these  new  restructed  debt  agreements.


                                      -25-
<PAGE>
On  June  30, 1999, the Company entered into an agreement with an investor group
under  which  the  investor group agreed to purchase $20 million of senior notes
and  $20  million  of  convertible  preferred  stock  from  the  Company.  This
transaction  was  subject  to  regulatory  approval,  stockholder  approval, and
various  other conditions.  In connection with this agreement, the Company filed
a  Proxy  Statement  with  the Securities and Exchange Commission on October 12,
1999.  However, the agreement with the investor group was terminated in February
2000.

On March 1, 2000, the Company entered into an agreement with both of its lenders
and the same investor group, under which the investor group loaned $8 million to
the  Company.  Under this agreement, the investor group and the existing lenders
agreed  to  convert the $8 million loan, the outstanding balance of $7.0 million
under  the  bank  line  of  credit, and the outstanding balance of $32.5 million
under  the  senior  notes  to convertible preferred stock, subject to regulatory
approval.  Under this agreement, both lenders agreed not to demand or accept any
payment  under the credit agreements, and not to take any enforcement actions of
any  kind  under  the agreements until April 30, 2001.  The $8 million loan from
the investor group will be converted to $6.4 million of Series A Preferred Stock
and  $1.6  million  of  Series A Convertible Notes with the Series A Convertible
Notes  converting  into  shares  of  Series  A  Preferred Stock upon shareholder
approval  of  an  amendment  to  the  Company's  certificate  of  incorporation
increasing the number of authorized shares.  The amounts due under the bank line
of  credit and the senior unsecured notes, which was approximately $40.7 million
including  accrued interest as of March 1, 2000, will be converted to Series B,C
and  D  Preferred  Stock and Series B, C and D Convertible Notes in an aggregate
amount  of  $22  million  with  the  remaining  portion  of the debt and accrued
interest  forgiven  by the lenders.  The issuance and conversion of these shares
and  notes  is  binding  and  scheduled  to  occur on the first day of the month
following  regulatory  approval, performance of the parties under the agreement,
forbearance  on the part of the lenders, and as long as the Company has not been
placed  in  bankruptcy  or  receivership.

During  June  1999  the  Company  completed  the sale of its former headquarters
office building for approximately $3.5 million, which was the carrying amount of
the  building  on  the  Company's  balance  sheet  as  of December 31, 1998. The
carrying  amount  of the building is reflected on the consolidated balance sheet
under  the  caption  "Assets  Held  for  Sale."

Effective  December  31,  1998,  rather than the Company exercising its right to
foreclose  on certain promissory notes (the "Notes"), the Company entered into a
Default  Forbearance  Agreement  and  an  Irrevocable Power of Attorney with the
issuer  of  those  notes (the "Issuer"), which will enable the Company to either
resell  the  assets or Notes relating to the practices. During 1999, the Company
reached  an  oral  agreement  with  the  Issuer  and  another  third  party (the
"Purchaser"),  under  which the Notes would be liquidated. Under this agreement,
the  Issuer  would  convey the dental practices that comprise the collateral for
the  Notes  to the Purchaser, in exchange for proceeds that would be paid to the
Company in satisfaction of the Notes.  Due to uncertainty of the Issuer of these
Notes  to  meet its contractual obligations to the Company (See RISK FACTORS and
Restatement)  the  Company  did not recognize the transactions that gave rise to
these  Notes  as  sales for accounting purposes and accordingly these Notes have
not  been  recorded  in  the Company's financial statements.  Based on this oral
agreement  with  the  Issuer, and other factors, the Company has determined that
the  value of the discontinued net assets being transferred underlying the Notes
has been impaired.  Accordingly, the Company recorded an additional loss of $6.4
million  included  in loss from operations of discontinued operations during the
nine  months  ended  September  30,  1999  to reduce the carrying value of these
assets  being transferred to their estimated net proceeds that would be realized
from  a  sale  of  these  assets.  During March 2000, the Company entered into a
definitive  agreement  with  respect  to  this  transaction,  which is currently
pending  regulatory  approval.

The  Company  incurred  a significant operating loss during 1999, in addition to
interest expense on outstanding debt, a reduction in the carrying value of notes
receivable,  impairment of discontinued net assets transferred under contractual
arrangements  and  the  valuation  allowance  against  deferred  tax assets. The
Company  borrowed  an  additional  $8  million  in  March  2000, and executed an
agreement  under  which  all  of  its  debt  will  be  converted  to equity upon
applicable  state  regulatory approval.  However, there can be no assurance that
the  Company  will  be  successful  in  returning  to  profitability.

In  December  1999,  a  shareholder lawsuit against the Company was filed, which
alleges that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  The  Company has directors and officers liability insurance and intends
to  vigorously  defend  this  litigation.  In  the  opinion  of  the  Company's
management, the ultimate outcome of this matter will not have a material adverse
effect  on  the  Company's  financial  position  or  results  of  operations.

Year  2000  Compliance

The  Year 2000 issue results from computer programs using two digits rather than
four  to define the applicable year. Any of the Company's computer programs that
have  time-sensitive  software  may recognize a date using "00" as the year 1900
rather  than  the  year  2000.  This  could  result  in  a  system  failure  or
miscalculations  causing disruption of operations, including among other things,
a  temporary  inability  to  process  transactions,  send invoices, or engage in
similar  normal  business  activities.


                                      -26-
<PAGE>
Company's  State  of  Readiness

The  Company relies heavily upon information technology ("IT") systems and other
systems  and  facilities such as telephones, building access control systems and
heating  and ventilation equipment ("embedded systems") to conduct its business.
The  Company  also has business relationships with dental health care providers,
financial institutions and other third parties ("Vendors") as well as regulators
and customers who are themselves reliant upon IT and embedded systems to conduct
their  business.

As  part  of  the  Company's proactive approach to automation, the Company began
planning  an  awareness  activity as early as January 1996 and incorporated Year
2000  compliance  into  its  business continuity plans. As a result, the Company
purchased  and  is  in the final implementation process of upgrading any and all
information  systems  software  and hardware. The implementation of such new and
upgraded  computer  information systems will recognize the Year 2000 and process
date data correctly, including the Company's manipulation of data when dates are
in the 20th or 21st century. The Company executed its initial steps in 1996 when
it  continued  to  enhance  its  information systems, including all hardware and
software products, individually and in combination, to better manage operational
resources  and  analysis  of  data. A review was also performed to determine the
future  needs  of  the  Company  and  to enhance technology to better enable the
Company to provide its services. In addition, as a foundation for developing and
executing  its  Year  2000 compliance program, SafeGuard utilized and integrated
Year  2000  compliance  programs developed by both Federal and State governments
and  corporate  industry  leaders. Moreover, SafeGuard developed a comprehensive
five-phase  approach  for all of its Year 2000 program activities and management
processes.  The  five  phases are included in the following table that indicates
the  percentage  completed  as  of  November  1998.

<TABLE>
<CAPTION>
                                                       ANTICIPATED
PROGRAM GOALS           START DATE   DATE COMPLETED  COMPLETION DATE
                        -----------  --------------  ---------------
<S>                     <C>          <C>             <C>
Planning and Awareness   1 Jan 1996      1 Jun 1997              N/A
                        -----------  --------------  ---------------

Assessment . . . . . .   1 Jun 1996      1 Jan 1998              N/A
                        -----------  --------------  ---------------

Renovation . . . . . .   1 Dec 1996      1 Jan 1999              N/A
                        -----------  --------------  ---------------

Validation . . . . . .   1 Jan 1997  In Process           1 Jun 1999
                        -----------  --------------  ---------------

Implementation . . . .   1 Jun 1996  In Process           1 Jun 1999
                        -----------  --------------  ---------------
</TABLE>

The  Company's  five-phase  comprehensive  approach  is  as  follows:

(1)     Phase  1: Planning and Awareness - identify all IT and other systems and
facilities  and  risk  rate  each  according  to  its potential business impact;

(2)     Phase  2: Assessment - identify IT and other systems and facilities that
utilize  date  functions  and  assessing  them  for  Year  2000  functionality;

(3)     Phase  3:  Renovation - reprogram or replace when necessary, inventoried
items  to  ensure  that  they  are  Year  2000  compliant;

(4)     Phase  4:  Validation - test the code modifications and new inventory of
other  associated  systems,  including  extensive  date  testing  and performing
quality  assurance  testing  to  ensure  successful  operation  in  a  post-1999
environment;  and

(5)     Phase  5:  Implementation  of  Year 2000 Compliant IT and other systems.

As  indicated  in  the  above-referenced  chart,  the  Company completed Phase 1
Planning  and Awareness on or about June 1, 1997, Phase 2 Assessment on or about
January  1,  1998  and Phase 3 Renovation of all of its IT and other systems and
related  facilities  on  or  about  January  1,  1999.  The  Company anticipates
completing  Phase 4 Validation and beginning Phase 5 Implementation of such Year
2000  Compliant  IT  and  other  systems  and  facilities  by  June  1999.

The  Company  has  inventoried  and risk rated substantially all of its embedded
systems.  The  results  of these processes indicate that embedded systems should
not  present  a  material Year 2000 risk to the Company. The Company's remaining
steps  include  testing  selected  embedded  systems  and  remediating  through
replacement  and/or repair and certifying systems that exhibit Year 2000 issues.
The Company is focusing its testing and facilities such as data centers, service
centers  and  communication  centers. The Company plans to complete the testing,
validation  and  implementation  of  these  systems  by  June  1999.

The  Company  has also inventoried and risk rated its systems. Substantially all
of  the  tested  systems  have  been  found  to  be  compliant.


                                      -27-
<PAGE>
As  part  of  the  Company's Year 2000 Compliance Program Planning/Awareness and
Assessment  phases,  the  Company documented the state and condition of existing
systems  and processes and conducted a thorough analysis of inventory and vendor
supplied  systems  and  subsystems.  The Company included information technology
systems  and  non-information  technology  systems.

The Company also faces the risk that one or more of its Vendors will not be able
to  interact  with  the Company due to the Vendor's inability to resolve its own
Year  2000  issues,  including  those  associated  with  its  own  external
relationships. The Company has completed its inventory of Vendors and risk rated
each  external  relationship based upon the potential business impact, available
alternatives  and  cost  of  substitution.  Although  the  Company is diligently
working  with  its  vendors  regarding  Year  2000  compliance,  there can be no
guarantee  that  all  of  the  Company's  vendors  will  be Year 2000 compliant.

The  Company has previously compiled a comprehensive list of any and all Vendors
and  Vendor  products,  which  was  included  in a Vendor identification matrix.
Although  the  Company  does  not  currently  rely  upon  external  Vendors  for
proprietary  software  or  data services, all other Vendors have been identified
and  have  either  stated  their  full  compliance  or  partial  compliance with
contingent  solutions to Year 2000 issues. The Company believes that its Vendors
with  which  it  has a material relationship are Year 2000 Compliant, based upon
such  vendor's  assurances.  Nonmaterial  Vendors  of the Company currently have
provided  either  full  and/or partial certification of compliance with the Year
2000  issue.  The  Company  will  continue  to  monitor  such nonmaterial Vendor
compliance  activity  in  order  to  determine  the  risk  to  overall  company
operations.

As  a  result  of  the  anticipated  execution of the Renovation, Validation and
Implementation phases of the Company's Year 2000 Compliance Program, the Company
believes  the  Year  2000 issue will not have a material impact on the Company's
results  or  operations.

Cost  to  Address  Company's  Year  2000  Issues

The  cost  the  Company  incurred  to address Year 2000 Compliance issues from a
historical  perspective  is  approximately  $2.5 million. Whereas, the estimated
cost  of  the Company's completion of the final phases of renovation, validation
and  implementation  is  estimated  to  be  approximately  $0.5 million. A large
majority  of  these  costs are expected to be incremental expenses that will not
recur  in  Year  2000  or  thereafter. The Company's current estimates primarily
reflect  increased  remediation and testing efforts. The source of funds for the
Year  2000 Compliance Program costs, including the percentage of the information
technology  budget  utilized  for  the  program  was  $3.0  million.  Year  2000
Compliance  is  critical  to  the Company. Therefore, the Company has redeployed
some  resources  from  non-critical  system  enhancements  to  address Year 2000
issues.  Due  to  the  importance  of  IT  systems  to  the  Company's business,
management  has  not  deferred  the  decision  to  make  non-critical  systems
enhancements Year 2000 ready. The Company does not expect these redeployments to
have  a  material  impact  on  the  Company's  financial  condition or result of
operations.

Risk  and  Contingency/Recovery  Planning

The  Company  reasonably  believes  that its Year 2000 Compliance Program, which
involves  the  phases  of  planning  and  awareness,  assessment,  renovation,
validation  and  implementation  should  prevent  the  Year  2000  from having a
material  effect  on  the Company's business or financial condition. However, if
the  Company's  Year  2000  issues were unresolved, potential consequences would
include,  among  other  possibilities,  the  inability  to accurately and timely
process  benefits  claims,  update  client  groups'  accounts, process financial
transactions,  bill  client  groups,  report  accurate  data  to  management,
shareholders, customers, regulators and others as well as business interruptions
or  shutdowns,  financial  losses,  reputational  harm,  increased  scrutiny  by
regulators and litigation related to Year 2000 issues. The Company is attempting
to limit the potential impact of the Year 2000 by monitoring the progress of its
own  Year  2000  project  and  those  of  its  critical  Vendors  by  developing
contingency/recovery  plans.

The  Company  has  begun to develop contingency/recovery plans aimed at ensuring
the  continuity  of  critical  business  functions before and after December 31,
1999.  As  part  of  that  process,  the Company has begun to develop reasonably
likely  failure scenarios for its critical IT systems and external relationships
and  the embedded systems. Once these scenarios are identified, the Company will
develop plans that are designed to reduce the impact on the Company, and provide
methods  of  returning  to  normal operations, if one or more of those scenarios
occur.  The  Company  expects  contingency/recovery planning to be substantially
complete  by  June  1999.

To  reduce  the  risk of the Company presented by the Year 2000, the Company has
also  increased  its  on-hand  supplies  of  inventory for printed documents and
materials  that  are  provided  to client groups, and has identified alternative
Vendors,  whether such Vendors have previously provided assurances that they are
fully Year 2000 Compliant or are in the process of becoming Year 2000 Compliant.
Therefore,  based upon the Company's proactive Year 2000 Compliance Program, the
Company  anticipates that the Year 2000 issue will not have a material impact on
the  Company's  results  or  operations.

The  Year 2000 issue results from computer programs using two digits rather than
four  to define the applicable year. Any of the Company's computer programs that
have  time-sensitive  software  may recognize a date using "00" as the year 1900
rather  than  the  year  2000.  This  could  result  in  a  system  failure  or
miscalculations  causing disruption of operations, including among other things,
a  temporary  inability  to  process  transactions,  send invoices, or engage in
similar  normal  business  activities.


                                      -28-
<PAGE>
The  Company relies heavily upon information technology ("IT") systems and other
systems  and  facilities such as telephones, building access control systems and
heating  and ventilation equipment ("embedded systems") to conduct its business.
The  Company  also has business relationships with dental health care providers,
financial institutions and other third parties ("Vendors") as well as regulators
and customers who are themselves reliant upon IT and embedded systems to conduct
their  business.

The  Company believes it has adequately modified its information systems so that
dates  in  the  year  2000  are  properly  recognized  by all of its significant
applications.  As  of  January  31,  2000,  the  Company  has  experienced  no
significant  impact  on its business related to the year 2000 issue, from either
its  own  information  systems  or  those  of  its  customers  or  vendors.

Impact  of  Inflation

Management believes that the Company's operations are not materially affected by
inflation.  The  Company  believes  that  a significant portion of its costs are
capitated  or fixed in nature and are directly related to membership levels, and
therefore  related  to  premium  levels.

ITEM 7A.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  Company  is  not  subject  to  material  risk from interest rate or foreign
currency  exchange  rate  fluctuations.

ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

The  Consolidated  Financial  Statements  and  the  related  Notes and Schedules
thereto  filed  as  part of this 1998 Annual Report on Form 10-K/A are listed on
the  accompanying  Index  to  Financial  Statements  on  page  F-1.

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

During  the  two (2) most recent fiscal years, there have been no changes in the
Company's independent auditors or disagreements with such auditors on accounting
principles  or  practices  or  financial  statement  disclosures.

                                    PART III

ITEM 10.     DIRECTORS  AND/OR  EXECUTIVE  OFFICERS  OF  THE  COMPANY

The  current  directors and/or executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name                       Age                              Position
                           ---  -----------------------------------------------------------------
<S>                        <C>  <C>
Steven J. Baileys, D.D.S.   45  Chairman of the Board of Directors and Chief Executive Officer(2)
John E. Cox . . . . . . .   47  President, Chief Operating Officer and Director(2)
Ronald I. Brendzel, J.D..   49  Senior Vice President, General Counsel, Secretary and Director(2)
Herb J. Kaufman, D.D.S. .   47  Senior Vice President and Chief Dental Officer
Kenneth E. Keating. . . .   35  Western Regional Vice President
Ronald B. Bolden. . . . .   33  Central Regional Vice President
Gordon W. Spiering. . . .   42  Eastern Regional Vice President
Judy M. Deal. . . . . . .   47  Vice President-Provider Relations
Thomas J. Fluegel . . . .   32  Vice President-Regional Support
Carlos Ferrera. . . . . .   35  Vice President-Information Technologies
Nancy Stokes. . . . . . .   61  Vice President-Quality Improvement Programs
Michael M. Mann, Ph.D.. .   59  Director(1)(2)
William E. McKenna. . . .   79  Director(1)(2)
George H. Stevens . . . .   45  Director(1)(2)
Bradford M. Boyd, D.D.S..   47  Director(1)(2)
<FN>


                                      -29-
<PAGE>
(1)     Member,  Compensation  and  Stock  Option  Committee,  Audit  Committee,  and  Nominating
Committee.

(2)     Directors  hold  office  from  the  Annual Meeting of Stockholders for staggered terms of
three  years  (until  re-elected  or  until  successors  are  elected and qualified), as follows:
</TABLE>

Dr. Baileys and Mr. Stevens             Class III    May, 1999
Mr. McKenna and Mr. Cox                 Class I      May, 2000
Mr. Brendzel, Dr. Mann and Dr. Boyd     Class II     May, 2001

Officers  are  elected  annually  and  serve  at  the  pleasure  of the Board of
Directors, subject to all rights, if any, under certain contracts of employment.

Dr.  Baileys  is Chairman of the Board of Directors and Chief Executive Officer.
He  was  President from 1981 until March 1997, Chief Executive Officer since May
1995,  and Chairman of the Board of Directors since September 1995. He was Chief
Operating  Officer  from  1981 until May 1995. From 1975 until 1981, Dr. Baileys
served in a variety of executive and administrative capacities with the Company.
From  September  30,  1996  through  March 31, 1998, Dr. Baileys was an officer,
director and 50% shareholder in the Islas Professional Dental Corporation, which
operated  a  dental  practice under contract to a subsidiary of the Company. Dr.
Baileys is also licensed to practice dentistry in the State of California. He is
also  a  member  of  the  Southern  California  chapter of the Young Presidents'
Organization.  Dr.  Baileys  is  the  brother-in-law  of  Mr.  Brendzel.

Mr.  Cox was appointed President and Chief Operating Officer, and was named as a
Director of the Company in March 1997. He was Executive Vice President and Chief
Operating  Officer  from May 1995 to March 1997. From 1985 to 1995, he served in
various  executive capacities for CIGNA Dental Health, including Vice President,
National Sales and Account Services, Western Regional President, Chief Financial
Officer,  and Controller. From 1981 to 1985, Mr. Cox served in various financial
capacities  for  Southeastern  Health  Services/Prucare-Prudential  Insurance
Company's  group  model  HMO  in  Atlanta,  Georgia.  He  is  the  Company's
representative  to  the  National Association of Dental Plans, and served on the
Board  of  Directors  the  California  Association  of  Dental  Plans.

Mr. Brendzel is Senior Vice President, General Counsel, Secretary and a Director
of the Company. He was Chief Financial Officer from April 1988 to May 1996, Vice
President-Corporate  Development  from  August  1980  until April 1986, and held
various  executive  and  administrative  positions  from  1978  until  1980. Mr.
Brendzel is a member of the California State Bar and is licensed to practice law
in  the  state  of California. He is also a member of the Knox-Keene Health Care
Service  Plan  Advisory  Committee,  which  assists the California Department of
Corporations  in  regulating  managed  care health plans. Mr. Brendzel is also a
former member of the Texas Health Maintenance Organization Solvency Surveillance
Committee  which  assists the Texas Department of Insurance in regulating health
maintenance  organizations.

Dr. Kaufman was appointed Senior Vice President and Chief Dental Officer for the
Company  in  January  1997.  From  January 1995 to January 1997, he was National
Dental  Director  for  CIGNA. From January 1996 to January 1997, Dr. Kaufman was
Chief  Executive Officer of CIGNA Dental Health of Arizona, Inc. Preceding that,
he  was  Regional Dental Director for the western region for CIGNA from February
1990 to January 1995. Prior thereto, Dr. Kaufman was CIGNA's Dental Director for
the  State  of  Arizona from April 1989 to February 1990. From September 1984 to
April  1989,  he  was  Dental  Director  and  Dental  Department Chair for CIGNA
Healthcare  of  Arizona,  Inc.  Dr.  Kaufman was in private dental practice from
August  1979 to August 1984. Prior thereto, Dr. Kaufman was a general dentist in
the United States Air Force from July 1976 to June 1979. Dr. Kaufman is licensed
to practice dentistry in the States of Arizona, California and Colorado. He is a
member  of the American Dental Association, Arizona Dental Association, National
Association of Dental Professionals, and California Association of Dental Plans.
He serves on the advisory board for Procter and Gamble, Health Services Advisory
Group,  the  Academy  for  Managed Care Dentistry Counsel, and on the faculty at
Northern  Arizona  University.

Mr.  Keating  is  the  Western  Regional  Vice  President  responsible  for  all
administrative  activities  of  the  Company for its Western region. He was Vice
President-Imprimis  and  Guards  Office  Operations for the Company from October
1995  until  October 1997. He was Vice President-SafeHealth Life Operations from
August  1995  until  October 1995 when he was appointed to his present position.
From March 1987 to July 1995, Mr. Keating served in various executive capacities
for  CIGNA  Dental  Health,  including  Director  of Sales and Account Services,
Director  of  Network  Development  and  Director  of  Staff  Model  Operations.

Mr.  Bolden  has  been  the  Central  Regional  Vice President for the Company's
Central  region  operations  since  April  1996. Prior to that, he served as New
Business  Manager  for  CIGNA  Healthcare  of California. From 1990 to 1994, Mr.
Bolden  served in various operational capacities for CIGNA Dental Health-Western
Region,  including Director, Provider Relations, Regional Sales Support Director
and  Provider  Relations  Manager.  He  obtained a Bachelor of Science degree in
Biology  from  Morehouse  College  in  1987.

Mr.  Spiering has been the Eastern Regional Vice President for the Company since
February  1998.  Prior  thereto,  he was a Vice President for Lee Hecht Harrison
from  1994  until 1998. From 1993 to 1994, he was President of Gordon Spiering &
Associates.  Preceding  that,  he  was  the  Marketing/Contracting  Manager  for
National  Consulting Group from 1990 until 1993. He served as a Case Manager for
Anon  Anew of Boca Raton, Inc. from 1986 to 1989. From 1985 to 1986, he was Vice
President  for  Trial  Consultant,  Inc.


                                      -30-
<PAGE>
Ms.  Deal was appointed Vice President-Provider Relations in October 1997. Prior
thereto,  she  was  Vice  President-Member and Provider Services for the Company
from  January 1996 until October 1997. From January 1995 until January 1996, she
was  Vice  President-Provider  Relations. Prior to joining the Company, Ms. Deal
was  the  Director  of  Provider Relations for CIGNA Dental Health from November
1988  to January 1995. Preceding that, Ms. Deal was the Dental Office Manager of
a  large  group  dental  practice  from  November  1974  to  November  1988.

Mr.  Fluegel was appointed Vice President-Regional Support in April 1998. He was
Director,  Acquisition & Business Integration from September 1996 to April 1998.
From  1988  to 1996, he served in various managerial capacities for CIGNA Dental
Health,  including  Director-  Sales  and  Account  Services,  Director-  Group
Administration,  Assistant  Director-Administrative  Development  and
Manager-Quality  Control.

Mr.  Ferrera  was  appointed  Vice  President-Information  Technologies  for the
Company  in  October  1997. Prior thereto, he was Vice President-SafeHealth Life
Operations  for  the  Company. He joined the Company in October 1995. From March
1988  to  October 1995, Mr. Ferrera served as Director of Provider Relations and
Product  Consultant  for  CIGNA  Dental  Health.  Preceding that, he was a Staff
Sergeant  in  the  United  States  Air  Force.

Ms.  Stokes  joined  the  company  in  September  1997 as Vice President-Quality
Improvement Programs. From August 1996 until September 1997, she was employed as
a  Health  Planning  Consultant,  Quality  Improvement  Manager  for the Arizona
Department of Health Services, Office of Oral Health, responsible for designing,
conducting, coordinating and documenting quality improvement reviews and program
evaluations  for all licensed prepaid dental plans operating in Arizona. Program
oversight  included  conducting site visits, tracking, analyzing, monitoring and
reporting  quality  improvement  efforts and outcomes. From September 1991 until
June  1996,  Ms.  Stokes  was  employed by CIGNA Dental Health where she was, at
various  times,  responsible  for  provider  recruitment,  specialty  referral
processing,  claim  analysis  and  adjudication,  and  was  director  of  member
services.

Dr.  Mann has been a Director of the Company since May 1987. He is also Chairman
of  Blue Marble Partners, and Chairman, President and Chief Executive Officer of
Blue  Marble  Development  Group,  Inc.  international corporate development and
consulting firms, and an Adjunct Professor of Industrial and Systems Engineering
at  the  University  of  Southern  California. He also serves as a member of the
Board  of  Examiners for the Malcolm Baldrige National Quality Award. During the
period  from  September  1987  to July 1988, Dr. Mann was a Senior Consultant of
Arthur  D.  Little,  Inc.  From August 1986 until September 1987, Dr. Mann was a
Partner  of Mann, Kavanaugh, Chernove & Associates, a business development firm.
He was President, Chief Executive Officer and a Director of Helionetics, Inc., a
defense, energy and signal information processing company, from December 1984 to
July 1986, and Executive Vice President from April to December 1984. Dr. Mann is
a  Director  of  Datum,  Inc.  and  Management  Technology,  Inc.

Mr.  McKenna  has  been  a  Director  of the Company since September 1983. Since
December 1977, Mr. McKenna has been a general partner of MCK Investment Company,
a  private  investment  company.  Mr.  McKenna  was  Chairman  of  the  Board of
Technicolor,  Inc.  from 1970 to 1976 and was formerly Chairman of the Board and
Chief  Executive  Officer  of  Hunt  Foods & Industries, Inc. and its successor,
Norton  Simon,  Inc.  From  1960 to 1967, Mr. McKenna was associated with Litton
Industries,  Inc.  as  a  Director  and  in  various executive capacities. He is
currently  a Director of California Amplifier, Inc., Midway Games, Inc., Drexler
Technology  Corporation,  and  WMS  Industries,  Inc.

Mr.  Stevens  has  been a Director of the Company since May 1989. Since 1982, he
has  been  President  of  Belle Haven Marina, Inc., a privately held leisure and
recreational  organization located in Virginia. He is also President of Kingfish
Corporation,  a  privately  held corporation which is engaged in the business of
chartering  pleasure  yachts in the mid-Atlantic region. Mr. Stevens is also the
owner  of  Mariner  Sailing  School  located  in Virginia. Mr. Stevens' combined
organization  is  the largest operator of recreational vessels in the Washington
D.C.  area.

Dr. Boyd has been a Director of the Company since May 1995. He has been licensed
to  practice  dentistry  in the State of California since 1983, and has been the
sole  proprietor  of Bradford M. Boyd, D.D.S., located in Lancaster, California.
Dr.  Boyd  also  is  a  private  investor. He is a member of the American Dental
Association,  California  Dental  Association,  and  San  Fernando Valley Dental
Society.  Dr. Boyd is also an officer of the Dental Foundation of California and
is  also  a member of the Board of Directors of High Desert Children's Dental, a
charity  organization providing free dental services to underprivileged children


                                      -31-
<PAGE>
ITEM  11.     EXECUTIVE  COMPENSATION

                       COMPENSATION OF EXECUTIVE OFFICERS

The  following  table  discloses  compensation  received  by the Company's Chief
Executive Officer and the four (4) remaining most highly paid executive officers
who  received  total  compensation  in excess of $100,000 for the previous years
ended  December  31,  1998,  1997  and  1996.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                          Annual                       Long Term
                                       Compensation               Compensation Awards
                                       ------------               -------------------
                                                               Other   Stock
Name and Principal Position        Year  Salary($)  Bonus($)  ($)(2)  Options
                                   ----  ---------  --------  ------  -------
<S>                                <C>   <C>        <C>       <C>     <C>
Steven J. Baileys, D.D.S.,. . . .  1998    400,000         *  1,260    70,000
Chairman of the Board of. . . . .  1997    400,000         *  1,260    50,000
Directors and . . . . . . . . . .  1996    400,000         *  1,260    25,000
Chief Executive Officer

John E. Cox, President and Chief.  1998    275,000         *      *    25,000
Operating Officer . . . . . . . .  1997    258,221         *      *    25,000
                                   1996    200,000         *      *    25,000

Ronald I. Brendzel, J.D., Senior.  1998    185,000         *    900     5,000
Vice President, General Counsel .  1997    185,000         *    900     5,000
and Secretary . . . . . . . . . .  1996    185,000         *    900    10,000

Herb J. Kaufman, D.D.S., Senior .  1998    165,530         *    249     7,500
Vice President and Chief Dental .  1997    153,907         *    249    25,000
Officer(1)

Kenneth E. Keating, Western . . .  1998    150,000         *      *     5,000
Regional Vice President . . . . .  1997    150,000         *      *     2,500
                                   1996    170,823         *      *     7,500
<FN>
*       None.
(1)     Joined  the  Company  on  January  5,  1997.
(2)     Represents  premiums  paid  for  life  insurance  policies for the named
individuals.
</TABLE>

        EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS

The  Company  has  written employment agreements with Steven J. Baileys, D.D.S.,
John  E.  Cox,  Ronald  I.  Brendzel,  J.D.,  and  Herb  J.  Kaufman, D.D.S. The
employment  agreements  for Dr. Baileys, Mr. Cox and Mr. Brendzel are for a term
through  May  31,  2000, and provide for an annual salary of $400,000, $275,000,
and  $185,000,  respectively.  The employment agreement for Dr. Kaufman is for a
term through January 5, 2002, and provides for an annual salary of $170,000. The
Company  may  terminate the agreements for cause. The employee may terminate his
agreement  for any reason. Should there be a change in control of the Company in
that  more  than  fifty  percent  (50%) of the Company's then outstanding common
stock  is  purchased  by  a  then  non-existing  stockholder,  and newly elected
Directors  constitute  a  majority  of  the  Company's  Board  of Directors, the
employee,  at  his  option,  may  terminate  his  employment. In such event, the
Company  would  be  obligated  to  pay  Dr. Baileys, Mr. Cox and Mr. Brendzel an
amount  equal  to three (3) times, and in the case of Dr. Kaufman, one (1) times
the  employee's then current salary and bonus, paid on or before the fifth (5th)
day following such change in control, along with the continuance of all employee
benefits  for  the  length  of  the  employment  agreement.

                                  STOCK OPTIONS

The  following  table contains information concerning the grant of stock options
pursuant  to  the  Stock  Option  Plan (the "Plan") during the fiscal year ended
December  31,  1998,  to  the  named  executives:


                                      -32-
<PAGE>
<TABLE>
<CAPTION>
                              STOCK OPTION GRANTS IN LAST FISCAL YEAR

                               Individual Grants                               Potential Realizable
                          -----------------------------                             Value at
                                           Percent of                             Assumed Annual
                           Number of         Total                                Rates of Stock
                           Securities     Options/SARs  Exercise or             Price Appreciation
                           Underlying      Granted to       Base     for Option Term(2)
                          Options/SARs     Employees       Price    Expiration  ------------------
         Name             Granted(#)(1)  In Fiscal Year  ($/Share)     Date      5%($)     10%($)
------------------------  -------------  --------------  ---------  ----------  --------  --------
<S>                       <C>            <C>             <C>        <C>         <C>       <C>
Steven J. Baileys, D.D.S         70,000            39.2     10.038     3/27/03   194,132   428,981
John E. Cox. . . . . . .         25,000            13.1      9.125     3/27/08   143,467   363,572
Herb J. Kaufman, D.D.S .          7,500             3.9      9.125     3/27/08    43,040   109,072
Ronald I. Brendzel, J.D.          5,000             2.6      9.125     3/27/08    28,693    72,714
Kenneth E. Keating . . .          5,000             2.6      9.125     3/27/08    28,693    72,714
<FN>
(1)     All  options  were  granted  under  the Plan. The options described in this column vest in
equal  one-third  (1/3) amounts over a three (3) year period following the date of grant. Unvested
options  terminate  upon  the  employee's  termination  from  the  Company  for  any  reason.

(2)     Potential  realizable  value is based on an assumption that the market price of the common
stock  of  $3.3125  as  of December 31, 1998, appreciates at the stated rate, compounded annually,
from  the  date of grant to the expiration date. These values are calculated based on requirements
promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of
future stock price appreciation. Actual gains, if any, are dependent on the future market price of
the  Company's  common  stock.
</TABLE>

                       STOCK OPTION EXERCISES AND HOLDINGS

The  following  information  is with respect to the named executive officers and
indicated  groups concerning the exercise of options during fiscal year December
31,  1998,  and  unexercised  options  held  as  of  December  31,  1998.

<TABLE>
<CAPTION>
                                     AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
                                               AND FISCAL YEAR END OPTION VALUES

                                          Shares                     Number of Securities        Value of Unexercised
                                         Acquired         Value     Underlying  Unexercised           In-the-Money
                Name                  on Exercise(#)   Realized($)    Options at FY-End(#)      Options at FY-End($)(1)(2)
------------------------------------  --------------  ------------  --------------------------  --------------------------
                                                                    Exercisable  Unexercisable  Exercisable  Unexercisable
<S>                                   <C>             <C>           <C>          <C>            <C>          <C>
Steven J. Baileys, D.D.S . . . . . .               *             *      183,333        111,667            0              0
John E. Cox. . . . . . . . . . . . .               *             *       75,000         50,000            0              0
Ronald I. Brendzel, J.D. . . . . . .               *             *       33,333         11,667            0              0
Herb J. Kaufman, D.D.S . . . . . . .               *             *        8,333         24,167            0              0
Kenneth E. Keating . . . . . . . . .               *             *        5,833          9,167            0              0
All executive officers as a group
  (10 persons) . . . . . . . . . . .               *             *      339,833        242,667            0              0
All directors who are not executive
  officers as a group (4 persons). .               *             *       81,333         26,667            0              0
All employees who are not executive
  officers as a group (29 persons) .               *             *       15,067         35,733            0              0
<FN>
*     None.

     (1)     Assumes  a  price  per  share  of  common stock of $3.3125 as of December 31, 1998. Gains are reported net of the
option  exercise  price,  but  before  any taxes associated with exercise. Actual gains, if any, on stock option exercises are
dependent  on  future  performance  of the common stock, as well as the optionee's continued employment throughout the vesting
period.

     (2)     No  stock  appreciation  rights  were  outstanding  at  the end of the 1998 fiscal year or exercised during that
year.
</TABLE>


                                      -33-
<PAGE>
ITEM  12.     SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT
              SECURITY  OWNERSHIP  OF  MANAGEMENT

The  following  table sets forth the beneficial ownership of the common stock of
as  of  April  1,  1999,  by  each director, each executive officer named in the
Summary  Compensation  Table  and all current directors and officers as a group.
All  shares  of  common  stock are subject to the named person's sole voting and
investment  power,  except  where  otherwise  indicated.

<TABLE>
<CAPTION>
                                                SHARES BENEFICIALLY   APPROXIMATE PERCENT
NAME                                                  OWNED(1)             OF CLASS
                                                --------------------  -------------------
<S>                                             <C>                   <C>
Steven J. Baileys, D.D.S.(2) . . . . . . . . .             1,982,099                 41.8
Ronald I. Brendzel, J.D.(3). . . . . . . . . .               136,573                  2.9
John E. Cox(4) . . . . . . . . . . . . . . . .                85,000                  1.8
William E. McKenna(5). . . . . . . . . . . . .                36,500                    *
Michael M. Mann, Ph.D.(6). . . . . . . . . . .                29,000                    *
George H. Stevens(7) . . . . . . . . . . . . .                24,350                    *
Herb J. Kaufman, D.D.S.(8) . . . . . . . . . .                16,768                    *
Bradford M. Boyd, D.D.S.(9). . . . . . . . . .                11,080                    *
Kenneth E. Keating(10) . . . . . . . . . . . .                 5,833                    *
All current directors and officers as a group
(12 persons) . . . . . . . . . . . . . . . . .             2,346,202                 49.4
<FN>
*     Less  than  one  percent  (1%).

(1)     Some of the stockholders included in this table reside in states having community
property  laws  under  which  the  spouse  of  a stockholder in whose name securities are
registered  may  be entitled to share in the management of their community property which
may include the right to vote or dispose of such shares, and includes options to purchase
334,834 shares of common stock exercisable as of April 1, 1999, or within sixty (60) days
thereafter.

(2)     The  shares indicated include options to purchase 183,333 shares of common stock,
700,767  shares  of  common  stock  representing 14.8% owned by the Baileys Family Trust,
303,000  shares of common stock representing 6.4% held in various trusts for relatives of
Dr.  Baileys, for both of which Dr. Baileys is Trustee and for which Dr. Baileys has sole
power  to  vote  the  securities,  but for both of which Dr. Baileys disclaims beneficial
ownership,  and  150,000  shares  of common stock representing 3.2% held by the Alvin and
Geraldine  Baileys  Foundation,  for which Dr. Baileys is an officer and director and for
which  Dr.  Baileys  has  shared  power to vote the securities, but for which Dr. Baileys
disclaims  beneficial  ownership.

(3)     Includes  options  to  purchase  25,000  shares  of  common  stock.

(4)     Includes  options  to  purchase  75,000  shares  of  common  stock.

(5)     Includes  options  to  purchase  29,000  shares  of  common  stock.

(6)     Represents  options  to  purchase  29,000  shares  of  common  stock.

(7)     Includes  options  to  purchase  24,000  shares  of  common  stock.

(8)     Includes  options  to  purchase  16,666  shares  of  common  stock

(9)     Includes  options  to  purchase  10,000  shares  of  common  stock.

(10)     Represents  options  to  purchase  5,833  shares  of  common  stock.
</TABLE>

PRINCIPAL  STOCKHOLDERS

The following table sets forth information with respect to those persons who, to
the  Company's knowledge, beneficially owned five percent (5%) or more of common
stock  as of April 1, 1999, except with respect to the Baileys Family Trust, FMR
Corp.,  Brinson  Partners,  Inc.,  Dimensional  Fund Advisors, Inc., and T. Rowe
Price  Associates,  Inc.,  which  are  stated  as of December 31, 1998, based on
filings  made  with the Securities and Exchange Commission. For purposes of this
Annual  Report  on Form 10-K/A, beneficial ownership of securities is defined in
accordance  with  the  rules  and  regulations  of  the  Securities and Exchange
Commission  and  generally  means  the  power  to  vote or dispose of securities
regardless  of  any  economic  interest  therein.


                                      -34-
<PAGE>
<TABLE>
<CAPTION>
                                    APPROXIMATE AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER              OF BENEFICIAL OWNERSHIP(1)    PERCENT OF CLASS
                                    ------------------------------  ----------------
<S>                                 <C>                             <C>
Steven J. Baileys, D.D.S.(2) . . .                       1,982,099              41.8
Baileys Family Trust(3). . . . . .                         700,767              14.8
FMR Corp.(4) . . . . . . . . . . .                         462,700               9.8
Brinson Partners, Inc.(5). . . . .                         403,755               8.5
Dimensional Fund Advisors, Inc.(6)                         288,100               6.1
T. Rowe Price Associates, Inc.(7).                         264,100               5.6
All Principal Stockholders . . . .                       4,101,521              86.4
<FN>
(1)     Except  as  otherwise  stated  herein, the persons and entities named in the
table  have  sole  voting  and investment power with respect to all shares of common
stock  shown as beneficially owned by them, subject to community property laws where
applicable,  and  include  all  shares  held  of record on April 1, 1999, and shares
subject  to  options  outstanding and exercisable within sixty (60) days thereafter.

(2)     Steven  J.  Baileys, D.D.S., an officer and director of the Company, located
at  95  Enterprise,  Aliso  Viejo,  California 92656, has sole voting and investment
power  with respect to the shares indicated. The shares indicated include options to
purchase 183,332 shares of common stock, 700,767 shares of common stock representing
14.8% owned by the Baileys Family Trust, 303,000 shares of common stock representing
6.4%  held  in  various  trusts  for relatives of Dr. Baileys, for both of which Dr.
Baileys  is Trustee and for which Dr. Baileys has sole power to vote the securities,
but for both of which Dr. Baileys disclaims beneficial ownership, and 150,000 shares
of  common  stock  representing  3.2%  held  by  the  Alvin  and  Geraldine  Baileys
Foundation,  for  which  Dr.  Baileys  is an officer and director, and for which Dr.
Baileys has shared power to vote the securities, but for which Dr. Baileys disclaims
beneficial  ownership.

(3)     The  Baileys  Family  Trust  of which Steven J. Baileys, D.D.S., is Trustee,
owns 700,767 shares of the Company's common stock and has sole voting and investment
power  with  respect  to  the  shares indicated. The shares indicated do not include
303,000  shares  of  common  stock  representing  6.4%  held  in  various trusts for
relatives of Dr. Baileys, for which Dr. Baileys is Trustee and for which Dr. Baileys
has  sole  power  to  vote  the  securities,  but  for  which  Dr. Baileys disclaims
beneficial  ownership, and 150,000 shares of common stock representing 3.2%, held by
the  Alvin and Geraldine Baileys Foundation, for which Dr. Baileys is an officer and
director,  and  for  which  Dr. Baileys has shared power to vote the securities, but
which  Dr. Baileys disclaims beneficial ownership. The address of the Baileys Family
Trust  is  P.O.  Box  9109,  Newport  Beach,  California 92658. A Schedule 13G dated
February  10,  1999,  was  filed  with  the  Securities and Exchange Commission with
respect  to  such  shares.

(4)     These securities are owned by various individual and institutional investors
including Fidelity Low-Priced Stock Fund, which owns the shares indicated, for which
Fidelity  Management  and Research Company ("Fidelity") serves as investment advisor
with  power  to direct investments and/or sole has the power to vote the securities.
For  purposes  of the reporting requirements of the Securities Exchange Act of 1934,
Fidelity  is  deemed  to be a beneficial owner of such securities; however, Fidelity
expressly  disclaims  that  it is, in fact, the beneficial owner of such securities.
The  address  of  FMR  Corp. is 82 Devonshire Street, Boston, Massachusetts 02109. A
Schedule  13G  dated  February  12, 1999, was filed with the Securities and Exchange
Commission  with  respect  to  such  shares.

(5)     Brinson  Partners,  Inc.  ("BPI"),  a  wholly  owned  subsidiary  of Brinson
Holdings,  Inc. ("BHI") and Brinson Trust Company ("BTC"), a wholly owned subsidiary
of  BPI,  209  South La Salle, Chicago, Illinois 60604-1295 have the sole voting and
dispositive  power  of  the shares indicated. A Schedule 13G dated February 3, 1999,
was  filed  with the Securities and Exchange Commission with respect to such shares.

(6)     These  securities  are  owned by four institutional investment companies for
which  Dimensional  Fund Advisors, Inc. ("Dimensional") serves as investment advisor
with  power  to direct investments and/or has the sole power to vote the securities.
For  purposes  of the reporting requirements of the Securities Exchange Act of 1934,
Dimensional  is  deemed  to  be  a  beneficial  owner  of  such  securities; however
Dimensional  expressly  disclaims  that it is, in fact, the beneficial owner of such
securities.  The  address  of  Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue,
11th  Floor, Santa Monica, California 90401. A Schedule 13G dated February 11, 1999,
was  filed  with the Securities and Exchange Commission with respect to such shares.

(7)     These securities are owned by various individual and institutional investors
including  T.  Rowe  Price Small Cap Value Fund, Inc., and T. Rowe Price Associates,
Inc. which collectively own the shares indicated for which T. Rowe Price Associates,
Inc.  ("Price  Associates")  serves  as  investment  advisor  with  power  to direct
investments  and/or  has  the sole power to vote the securities. For purposes of the
reporting  requirements  of the Securities Exchange Act of 1934, Price Associates is
deemed  to  be  a  beneficial  owner  of  such securities; however, Price Associates
expressly  disclaims  that  it is, in fact, the beneficial owner of such securities.
The  address  of  T.  Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore,
Maryland  21202.  A  Schedule  13G  dated  February  11,  1999,  was  filed with the
Securities  and  Exchange  Commission  with  respect  to  such  shares.
</TABLE>


                                      -35-
<PAGE>
ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

On September 30, 1996, the Company sold to Islas Professional Dental Corporation
("Islas"),  a  dental  practice  (the  "Practice")  owned by a subsidiary of the
Company  in  the  aggregate amount of $1,131,000. Steven J. Baileys, D.D.S., the
Company's  Chairman of the Board of Directors and Chief Executive Officer, owned
a  fifty percent (50%) interest in Islas, which secured two (2) promissory notes
to  a  subsidiary of the Company in the amount of the purchase price. Said notes
are  payable  in equal monthly installments over a thirty (30) year period and a
five  (5)  year  period,  respectively,  and bear interest at eight and one half
percent  (8.5%).  The  Practice  is also under contract to provide services to a
subsidiary  of  the  Company.  During  fiscal  year 1998, the Company paid Islas
$205,263 under said contract. The sale of the Practice was reviewed and approved
by  the  independent  members  of  the Board of Directors on September 27, 1996,
which took into consideration information provided to it concerning the value of
the  Practice  as  an  ongoing business owned by the Company contrasted to being
owned  by  an independent dentist, the sale price of dental practices of similar
size  and  scope, and the sale of other dental practices owned by the Company to
unrelated  parties.  The  action  of  the  independent  members  of the Board of
Directors  in  approving the sale of the Practice was ratified by the full Board
of  Directors  of the Company on September 27, 1996. The Practice was sold to an
unrelated  third  party  effective  on March 31, 1998, for the assumption of the
obligation  referred  to  above.

                                     PART IV

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

ITEM  14(A)  (1)  -  (2)  AND  (D).
FINANCIAL  STATEMENTS  AND  FINANCIAL  STATEMENT  SCHEDULE

The  consolidated  financial  statements  and  financial  statement  schedule of
SafeGuard  Health  Enterprises, Inc. filed as part of this 1998 Annual Report on
Form 10-K/A are listed in the accompanying Index to Financial Statements on Page
F-1.

ITEM  14(A)  (3)  AND  (C).
EXHIBITS

An  "Exhibit  Index"  has  been filed as part of this 1998 Annual Report on Form
10-K/A  beginning on Page E-1. All Exhibits are either attached hereto or are on
file  with  the  Securities  and  Exchange  Commission.

ITEM  14(B).
REPORTS  ON  FORM  8-K

Reports  on  Form 8-K concerning the Company's wholly-owned subsidiary's sale of
all  of  its  thirty-four  (34)  orthodontic  practices  and  related assets and
liabilities  and  the  appointment  of  Robert  J.  Pommersheim as Interim Chief
Financial  Officer,  replacing Thomas C. Tekulve, C.P.A., who resigned to pursue
other  interests,  were  filed with the Securities and Exchange Commission on or
about  April  1,  1998  and December 14, 1998, respectively. Reports on Form 8-K
concerning the Company's restructuring of its debt to its lenders, the execution
of an definitive agreement with an investor group to invest $40 million into the
Company,  the notification from NASDAQ that the Company's shares of common stock
were  to be delisted from the NASDAQ as of the close of business on September 1,
1999,  the  execution  of several amendments to the definitive agreement with an
investor group to invest $40 million into the Company, and the announcement that
the  Company  believes  its  revenue  and  its earnings for the quarter and nine
months  ended September 30, 1999, which were announced on October 21, 1999, were
overstated  by  a  material  amount  and that the Company expects to restate its
financial  statements  for  the  years ended December 31, 1998 and 1997 and such
financial statements and independent auditors' report should not be relied upon,
were filed with the Securities and Exchange Commission on or about June 4, 1999,
July  2,  1999,  September  16,  1999,  October  6, 1999, and November 16, 1999,
respectively.  The  Reports on Form 8-K mentioned in this Item 14(b), are hereby
incorporated  herein  to  this  1998 Annual Report on Form 10-K/A for the period
ended  December  31,  1998,  as  is  set  forth  in  full  herein.


                                      -36-
<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.

                       SAFEGUARD HEALTH ENTERPRISES, INC.



     By: /s/  James  E.  Buncher              Date:          April  14,  2000
         --------------------------                 -------------------------
     James E. Buncher
     President and Chief Executive Officer
     (Principal Executive Officer)


     By: /s/  Dennis  L.  Gates               Date:          April  14,  2000
         --------------------------                 -------------------------
     Dennis  L.  Gates
     Senior Vice President, Chief Financial
     Officer and Director
     (Principal Accounting 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.



     By: /s/  James  E.  Buncher              Date:          April  14,  2000
         --------------------------                 -------------------------
     James E. Buncher
     President, Chief Executive Officer
     and Director



     By: /s/  Steven  J.  Baileys             Date:          April  14,  2000
         --------------------------                 -------------------------
     Steven J. Baileys, D.D.S.
     Chairman of the Board  f Directors



     By: /s/  Ronald  I.  Brendzel            Date:          April  14,  2000
         --------------------------                 -------------------------
     Ronald I. Brendzel, J.D.
     Senior Vice President, General Counsel,
     Secretary and Director



     By: /s/  Dennis  L.  Gates               Date:          April  14,  2000
         --------------------------                 -------------------------
     Dennis L.  ates
     Senior Vice President, Chief Financial
     Officer  and  Director



     By:                                      Date:
         --------------------------                 -------------------------
     Jack  R.  Anderson
     Director



     By:                                      Date:
         --------------------------                 -------------------------
     Leslie  B.  Daniels
     Director


                                      -37-
<PAGE>
<TABLE>
<CAPTION>
                                           EXHIBIT INDEX


         NUMBER
EXHIBIT    OF
NUMBER   COLUMNS                                    DESCRIPTION
-------  -------  --------------------------------------------------------------------------------
<C>      <S>      <C>
    2.1  One      Plans of Acquisition(8)
    3.1  One      Articles of Incorporation(4)
    3.2  One      Bylaws(4)
   10.1  One      1984 Stock Option Plan(3)
   10.2  One      Stock Option Plan Amendment(1)
   10.3  One      Stock Option Plan Amendment(5)
   10.4  One      Stock Option Plan Amendment(6)
   10.5  One      Amended Stock Option Plan(10)
   10.6  One      Corporation Grant Deed, dated December 21, 1984, relating to a property located
                  at 505 North Euclid Avenue, Anaheim, California(2)
   10.7  One      Employment Agreement, as Amended, dated May 25, 1995, between
                  Steven J. Baileys, D.D.S. and the Company.(7)
   10.8  One      Employment Agreement, as Amended, dated May 25, 1995, between
                  Ronald I. Brendzel and the Company.(7)
   10.9  One      Employment Agreement dated May 25, 1995, between John E. Cox and
                  the Company.(7)
  10.10  One      Form of Rights Agreement, dated as of March 22, 1996, between
                  the Company and American Stock Transfer and Trust Company, as Rights Agent.(7)
  10.11  One      Employment Agreement dated January 5, 1997, between
                  Herb J. Kaufman, D.D.S. and the Company.(10)
  10.12  One      Credit Agreement dated September 25, 1996, between
                  Bank of America National Trust and Savings Association and the Company.(9)
  10.13  One      Stock Purchase Agreement between Consumers Life Insurance
                  Company and SafeGuard Health Enterprises, Inc. dated March 6, 1997(11)
  10.14  One      Purchase Agreement between Associated Dental Services, Inc.
                  and Guards Dental, Inc. dated August 1, 1997(11)
  10.15  One      Purchase agreement between Pacific Coast Dental, Inc. and
                  Guards Dental, Inc. dated August 1, 1997(11)
  10.16  One      Form of Note Purchase Agreement dated as of September 30, 1997,
                  and form of Promissory Note(12)
  10.17  One      Form of Master Asset Purchase Agreement effective as of
                  April 1, 1998, and Form of Promissory Note without exhibits.(13)
  10.18  One      Default Forbearance Agreement and Irrevocable Power of Attorney(14)
  10.19  One      Credit Agreement dated January 29, 1998, between
                  Silicon Valley Bank and the Company.(15)
   21.1  One      Subsidiaries of the Company
   23.1  One      Independent Auditors' Consent
   27.1  One      Financial Data Schedule
<FN>
_________________________________________
(1)    Incorporated  by  reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Registration  Statement on Form S- filed on September 12, 1983 (File No. 2-86472).
(2)    Incorporated  by  reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Registration  Statement  on  Form S-1 filed on August 22, 1985 (File No. 2-99663).
(3)    Incorporated  by  reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Registration  Statement  on  Form  S-1  filed  on July 3, 1984 (File No. 2-92013).
(4)    Incorporated  by  reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Annual  Report  of  Form  10-K  for  the  period  ended  December  31,  1987.
(5)    Incorporated  by  reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Annual  Report  of  Form  10-K  for  the  period  ended  December  31,  1989.
(6)    Incorporated  by  reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Annual  Report  of  Form  10-K  for  the  period  ended  December  31,  1992.
(7)    Incorporated  by  reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Annual  Report  of  Form  10-K  for  the  period  ended  December  31,  1995.
(8)    Incorporated  by  reference herein to Exhibit D filed as an exhibit to the Company's Report
on  Form  8-K  dated  September  27,  1996.
(9)    Incorporated  by  reference herein to Exhibit E filed as an exhibit to the Company's Report
on  Form  8-K  dated  September  27,  1996.
(10)    Incorporated  by reference herein to the exhibit of the same number filed as an exhibit to
the  Company's  Annual  Report  on  Form  10-K  for  the  period  ended  December  31,  1996.
(11)    Incorporated  by  reference  to  the exhibit of the same number filed as an exhibit to the
Company's  quarterly  statement  on  Form  10-Q  for  the  period  ended  June  30,  1997.
(12)    Incorporated  by  reference  herein  to  Exhibit 99.1 filed as an exhibit to the Company's
Report  on  Form  8-K  dated  October  7,  1997.
(13)    Incorporated  by reference herein to Exhibit F filed as an exhibit to the Company's Report
on Form 8-K dated April 1, 1998. 14 Referenced, disclosed and filed as an exhibit to the Company's
Annual  Report  on  Form  10-K  for  the  period  ended  December  31,  1998.
(14)    Incorporated  by  reference  and disclosed and filed as an exhibit to the Company's Annual
Report  on  Form  10-K  for  the  period  ended  December  31,  1998.
(15)    Incorporated by reference and disclosed in the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1998 and filed as an exhibit to the Company's Annual Report on Form
10-K  for  the  period  ended  December  31,  1998.
</TABLE>


                                      E-1
<PAGE>
<TABLE>
<CAPTION>
                       SAFEGUARD HEALTH ENTERPRISES, INC.
                                AND SUBSIDIARIES
                          INDEX TO FINANCIAL STATEMENTS


                                                    Page
                                                    -----------
<S>                                                 <C>
Independent Auditors' Report.. . . . . . . . . . .  F-2

Financial Statements (As Restated)

  Consolidated Statements of Financial Position. .  F-3

  Consolidated Statements of Operations. . . . . .  F-4

  Consolidated Statements of Stockholders' Equity.  F-5

  Consolidated Statements of Cash Flows. . . . . .  F-6

  Notes to Consolidated Financial Statements . . .  F-7 to F-23

Financial Statement Schedule (As Restated)

  Schedule II - Valuation and Qualifying Accounts.  S-1
<FN>
All  other  schedules  are omitted where they are not applicable or the required
information  is shown in the consolidated financial statements or notes thereto.
</TABLE>


                                      F-1
<PAGE>
INDEPENDENT  AUDITORS'  REPORT

To  the  Board  of  Directors  and Shareholders of SafeGuard Health Enterprises,
Inc.:

We  have  audited the accompanying consolidated statements of financial position
of  SafeGuard  Health  Enterprises,  Inc. and subsidiaries (the "Company") as of
December  31,  1998  and  1997,  and  the  related  consolidated  statements  of
operations,  stockholders' equity, and cash flows for each of the three years in
the  period  ended  December  31,  1998.  Our audits also included the financial
statement  schedule  listed  in the Index at Item 14. These financial statements
and  financial  statement  schedule  are  the  responsibility  of  the Company's
management.  Our  responsibility  is  to  express  an  opinion  on the financial
statements  and  financial  statement  schedule  based  on  our  audits.

We  conducted  our  audits  in  accordance  with  generally  accepted  auditing
standards.  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,  such consolidated financial statements present fairly, in all
material  respects, the financial position of SafeGuard Health Enterprises, Inc.
and  subsidiaries  as  of  December  31, 1998 and 1997, and the results of their
operations  and their cash flows for each of the three years in the period ended
December  31,  1998 in conformity with generally accepted accounting principles.
Also,  in  our  opinion,  such  financial statement schedule, when considered in
relation  to  the  basic  consolidated  financial  statements  taken as a whole,
presents  fairly  in  all  material  respects the information set forth therein.

As  discussed  in  Note  1 to the consolidated financial statements, the Company
changed  its  method of accounting for recognizing revenue relating to providing
orthodontic  health care services in 1996.  Also, as discussed in Note 15 to the
consoldidated  financial statements, the accompanying 1998 and 1997 consolidated
financial statements and financial statement schedule have been restated for the
effects  of  certain  transactions  related  to  the  sale  of  the  Company's
discontinued  dental  operations.


/S/ DELOITTE  &  TOUCHE  LLP

Costa  Mesa,  California
April  15,  1999  (Except  for  Note  15  for  which  the date is March__, 2000)


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                   SAFEGUARD HEALTH ENTERPRISES, INC.
                                            AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                 ($000'S OMITTED, EXCEPT PER SHARE DATA)


December 31,                                                                          1998       1997
                                                                                  -----------  ---------
                                                                                 (As Restated, see Note 15)
<S>                                                                               <C>        <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  3,256   $  3,652
Investments available-for-sale, at estimated fair value. . . . . . . . . . . . . .     2,959      5,557
Investments held-to-maturity, at amortized cost. . . . . . . . . . . . . . . . . .        --      3,697
Accounts receivable, net of allowances of $1,942 in 1998 and
  $1,061 in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,345      5,260
Notes receivable, current portion. . . . . . . . . . . . . . . . . . . . . . . . .        --      1,878
Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       485        132
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . .     1,017      1,029
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        67        533
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,562         --
                                                                                  -----------  ---------

  Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    14,691     21,738

Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . .     6,105      9,351
Investments available-for-sale, at estimated fair value. . . . . . . . . . . . . .     4,225         --
Investments held-to-maturity, at amortized cost. . . . . . . . . . . . . . . . . .        --      5,656
Notes receivable-long term, net of allowances of $3,561 in
  1998 and $2,205 in 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,523      4,783
Assets of discontinued operations transferred under contractual arrangements, net.     8,950      2,478
Net assets of discontinued operations. . . . . . . . . . . . . . . . . . . . . . .        --      4,062
Goodwill, net of accumulated amortization of $1,563 in 1998 and
  $815 in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    27,914     29,556
Intangibles and covenant not-to-compete, net of accumulated
  amortization of $2,059 in 1998 and $2,297 in 1997. . . . . . . . . . . . . . . .     3,893      4,978
Deferred income taxes - long-term. . . . . . . . . . . . . . . . . . . . . . . . .     8,415      1,236
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       240        247
                                                                                  -----------  ---------

                                                                                    $ 77,956   $ 84,085
                                                                                  ===========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  8,000   $  8,500
Current portion of note payable. . . . . . . . . . . . . . . . . . . . . . . . . .     1,894      1,692
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . .    10,905      5,193
Reserves for dental claims . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,558      3,631
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,022      1,177
                                                                                  -----------  ---------

  Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . .    25,379     20,193

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    32,500     32,500
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        --      1,394
Accrued compensation agreement . . . . . . . . . . . . . . . . . . . . . . . . . .       311        383
Commitments and contingencies (Notes 6, 11 and 16)

Stockholders' equity:
Preferred stock - $.01 par value; 1,000,000 shares authorized,
  no shares issued or outstanding. . . . . . . . . . . . . . . . . . . . . . . . .        --         --
Common stock - $.01 par value; 30,000,000 shares authorized; 4,747,000
  shares issued and outstanding in 1998 and 1997, at stated value. . . . . . . . .    21,509     21,509
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16,734     26,672
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . .      (354)      (443)
Treasury stock, at cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (18,123)   (18,123)
                                                                                  -----------  ---------

  Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . .    19,766     29,615
                                                                                  -----------  ---------

                                                                                    $ 77,956   $ 84,085
                                                                                  ===========  =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                          SAFEGUARD HEALTH ENTERPRISES, INC.
                                   AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF OPERATIONS
                        ($000'S OMITTED, EXCEPT PER SHARE DATA)


Years ended December 31,                                   1998       1997      1996
                                                         ---------  --------  --------
(As Restated, see Note 15)
<S>                                                      <C>        <C>       <C>
Health care revenues. . . . . . . . . . . . . . . . . .  $ 97,449   $95,350   $72,709

Expenses:
Health care services. . . . . . . . . . . . . . . . . .    66,020    65,702    54,534
Selling, general, and administrative. . . . . . . . . .    36,259    25,103    16,292
Loss on impairment of assets. . . . . . . . . . . . . .     2,397        --        --
                                                         ---------  --------  --------

  Total expenses. . . . . . . . . . . . . . . . . . . .   104,676    90,805    70,826
                                                         ---------  --------  --------

(Loss) income from operations . . . . . . . . . . . . .    (7,227)    4,545     1,883
Other income. . . . . . . . . . . . . . . . . . . . . .       624     1,316       984
Interest expense. . . . . . . . . . . . . . . . . . . .    (4,311)   (2,871)     (485)
                                                         ---------  --------  --------

(Loss) income before (benefit) provision for income
  taxes, discontinued operations and cumulative effect
  of accounting change. . . . . . . . . . . . . . . . .   (10,914)    2,990     2,382
(Benefit) provision for income taxes. . . . . . . . . .    (3,406)    1,371       980
                                                         ---------  --------  --------

(Loss) income from continuing operations
  before cumulative effect of accounting change . . . .    (7,508)    1,619     1,402
                                                         ---------  --------  --------

Discontinued operations and cumulative effect
  of accounting change:
Loss from operations to be disposed of (net of income
  tax benefit of $1,554 in 1998, $4,736 in 1997 and
  $616 in 1996 and net of after tax deferred loss
  of $621 in 1996). . . . . . . . . . . . . . . . . . .    (2,430)   (7,408)     (852)
Gain on disposal of orthodontic and
  dental practices (net of income tax expense of
  $189 in 1997 and $1,088 in 1996). . . . . . . . . . .        --       296     1,678
Cumulative effect of change in accounting principle-
  orthodontic operations, net of tax of $536 in 1996. .        --        --       824
                                                         ---------  --------  --------

(Loss) income from discontinued operations and
  cumulative effect of accounting change. . . . . . . .    (2,430)   (7,112)    1,650
                                                         ---------  --------  --------

  Net (loss) income . . . . . . . . . . . . . . . . . .  $ (9,938)  $(5,493)  $ 3,052
                                                         =========  ========  ========

Basic (loss) earnings per share:
  (Loss) income from continuing operations. . . . . . .  $  (1.58)  $  0.34   $  0.30
  (Loss) income from discontinued operations. . . . . .     (0.51)    (1.50)     0.17
  Cumulative effect of change in accounting principle .        --        --      0.17
                                                         ---------  --------  --------

  Net (loss) income . . . . . . . . . . . . . . . . . .  $  (2.09)  $ (1.16)  $  0.64
                                                         =========  ========  ========

Diluted (loss) earnings per share:
  (Loss) income from continuing operations. . . . . . .  $  (1.58)  $  0.33   $  0.28
  (Loss) income from discontinued operations. . . . . .     (0.51)    (1.45)     0.17
  Cumulative effect of change in accounting principle .        --        --      0.17
                                                         ---------  --------  --------

  Net (loss) income . . . . . . . . . . . . . . . . . .  $  (2.09)  $ (1.12)  $  0.62
                                                         =========  ========  ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                    SAFEGUARD HEALTH ENTERPRISES, INC.
                                             AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                             ($000'S OMITTED)

                                                                            Accumulated
                                                                               Other
                                      Number of Shares                     Comprehensive
                                                          Common   Retained    (Loss)     Treasury
                                      Common   Treasury    Stock   Earnings    Income     Stock     Total
                                      -------  ---------  -------  ---------  --------  ---------  -------
<S>                                   <C>      <C>        <C>      <C>        <C>       <C>        <C>
January 1, 1996. . . . . . . . . . .   7,979     (3,275)  $21,092  $  29,113  $  (153)  $(18,123)  $31,929
Comprehensive income:
Net income . . . . . . . . . . . . .                                   3,052                        3,052
Unrealized holding gains
  arising during the year. . . . . .                                              124
Less:  reclassification adjustment
  for gains included in net income .                                              (68)
                                                                              ---------
Net unrealized gain on
  investment securities
  available-for-sale, net
  of tax of $36. . . . . . . . . . .                                                56                 56
                                                                                                   -------
Total comprehensive income . . . . .                                                                3,108
Exercise of stock options
  (includes $33 tax benefits). . . .      12                  163                                      163
                                      -------  ---------  -------  ---------  --------  ---------  -------

December 31, 1996. . . . . . . . . .   7,991     (3,275)   21,255     32,165      (97)   (18,123)   35,200
Comprehensive (loss) income:
Net loss (as restated, see Note 15).                                 (5,493)                       (5,493)
Unrealized holding losses
  arising during the year. . . . . .                                             (357)
Less:  reclassification adjustment
  for losses included in net income.                                               11
                                                                              --------
Net unrealized loss on
  investment securities
  available-for-sale, net
  of tax benefit of $221 . . . . . .                                              (346)              (346)
                                                                                                ---------
Total comprehensive loss (as
  restated, see Note 15) . . . . . .                                                               (5,839)
Exercise of stock options
  (includes $121 tax benefits) . . .      31                  254                                      254
                                      -------  ---------  -------  ---------  --------  ---------  -------

December 31, 1997 (as restated,
  see Note 15) . . . . . . . . . . .   8,022     (3,275)   21,509     26,672     (443)   (18,123)   29,615
Comprehensive (loss) income:
Net loss (as restated, see Note 15).                                  (9,938)                      (9,938)
Unrealized holding losses
  arising during the year. . . . . .                                            (161)
Less:  reclassification adjustment
  for losses included in net income.                                             250
                                                                              --------
Net unrealized gain on
  investment securities
  available-for-sale, net
  of tax of $57. . . . . . . . . . .                                                        89         89
                                                                                                   -------
Total comprehensive loss (as
  restated, see Note 15) . . . . . .                                                               (9,849)
                                      -------  ---------  -------  ---------  --------  ---------  -------

December 31, 1998 (as
  restated, see Note 15) . . . . . .   8,022     (3,275)  $21,509  $  16,734  $  (354)  $(18,123)  $19,766
                                      =======  =========  =======  =========  ========  =========  =======

                          See accompanying Notes to Consolidated Financial Statements.
</TABLE>


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                                 SAFEGUARD HEALTH ENTERPRISES, INC.
                                          AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          ($000'S OMITTED)

(As Restated, see Note 15)
Year ended December 31,                                               1998       1997       1996
                                                                    ---------  ---------  ---------

<S>                                                                 <C>        <C>        <C>
Cash flows from operating activities:
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . .  $ (9,938)  $ (5,493)  $  3,052
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Loss from discontinued operations. . . . . . . . . . . . . . . . .     2,430      7,408        852
Gain on disposal of discontinued orthodontic and dental practices.        --       (296)    (1,678)
Gain on sale of property and equipment . . . . . . . . . . . . . .        --         --         (7)
Loss on impairment of assets . . . . . . . . . . . . . . . . . . .     2,397         --         --
Depreciation and amortization. . . . . . . . . . . . . . . . . . .     3,505      2,284      2,350
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . .    (2,349)    (1,380)     1,408
Changes in operating assets and liabilities, net
  of effects of acquisitions:
  Accounts and current notes receivable, net . . . . . . . . . . .       912       (105)    (1,478)
  Income taxes receivable. . . . . . . . . . . . . . . . . . . . .      (353)       (88)        34
  Prepaid expenses and other current assets. . . . . . . . . . . .       449       (299)      (419)
  Accounts payable and accrued expenses. . . . . . . . . . . . . .     4,281        134       (111)
  Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . .      (155)       625        357
  Reserves for dental claims . . . . . . . . . . . . . . . . . . .       (73)       801      1,067
                                                                    ---------  ---------  ---------

  Net cash provided by continuing operations . . . . . . . . . . .     1,106      3,591      5,427
  Net cash used in discontinued operations . . . . . . . . . . . .    (2,779)    (5,183)    (6,297)
                                                                    ---------  ---------  ---------

  Net cash (used in) provided by operating activities. . . . . . .    (1,673)    (1,592)       870
                                                                    ---------  ---------  ---------

Cash flows from investing activities:
Purchase of investments available-for-sale . . . . . . . . . . . .   (10,169)    (9,386)   (14,218)
Proceeds from sales/maturity of investments available for sale . .    11,319      9,903     21,892
Purchase of investments held-to-maturity . . . . . . . . . . . . .        --     (8,104)    (5,977)
Proceeds from maturity of investments held-to-maturity . . . . . .     4,906      5,063      3,940
Purchases of property and equipment. . . . . . . . . . . . . . . .    (2,357)    (2,118)    (3,029)
Proceeds from sale of property and equipment . . . . . . . . . . .        --         --          7
Payments received on notes receivable. . . . . . . . . . . . . . .        92        265         --
Issuance of notes receivable . . . . . . . . . . . . . . . . . . .      (750)        --         --
Cash paid for businesses acquired, net of cash acquired. . . . . .        --     (1,203)   (20,320)
Additions to intangibles and other assets. . . . . . . . . . . . .        --     (2,109)      (127)
                                                                    ---------  ---------  ---------

  Net cash provided by (used in) investing activities -
  continuing operations. . . . . . . . . . . . . . . . . . . . . .     3,041     (7,689)   (17,832)
  Net cash used in discontinued operations . . . . . . . . . . . .        --       (684)    (1,670)
                                                                    ---------  ---------  ---------

  Net cash provided by (used in) investing activities. . . . . . .     3,041     (8,373)   (19,502)
                                                                    ---------  ---------  ---------

Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . .     8,000     40,500     19,000
Proceeds from exercise of stock options. . . . . . . . . . . . . .        --        133        130
Payments on accrued compensation agreement . . . . . . . . . . . .       (72)       (30)        --
Payments on bank debt. . . . . . . . . . . . . . . . . . . . . . .        --    (27,000)        --
Payments on notes payable and long-term debt . . . . . . . . . . .    (9,692)      (692)      (298)
                                                                    ---------  ---------  ---------

  Net cash (used in) provided by financing activities. . . . . . .    (1,764)    12,911     18,832
                                                                    ---------  ---------  ---------

Net (decrease) increase in cash. . . . . . . . . . . . . . . . . .      (396)     2,946        200
Cash and cash equivalents at beginning of year . . . . . . . . . .     3,652        706        506
                                                                    ---------  ---------  ---------

Cash and cash equivalents at end of year . . . . . . . . . . . . .  $  3,256   $  3,652   $    706
                                                                    =========  =========  =========

Supplemental disclosure of non-cash activities:
Tax benefit from exercise of stock options . . . . . . . . . . . .  $     --   $    121   $     33
Supplementary information:
Cash paid during the year for:
  Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  4,008   $  2,872   $    485
  Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .  $     --   $     --   $    619
Purchase of businesses acquired (Notes 1 and 3):
Fair value of assets acquired. . . . . . . . . . . . . . . . . . .  $     --   $ 17,342   $ 25,697
Less: cash acquired. . . . . . . . . . . . . . . . . . . . . . . .        --     (5,455)      (201)
Less: note payable issued. . . . . . . . . . . . . . . . . . . . .        --     (9,500)    (3,576)
Less: liabilities assumed. . . . . . . . . . . . . . . . . . . . .        --     (1,184)    (1,600)
                                                                    ---------  ---------  ---------

Cash paid for business acquired. . . . . . . . . . . . . . . . . .  $     --   $  1,203   $ 20,320
                                                                    =========  =========  =========
</TABLE>

See  accompanying  Notes  to  Consolidated  Financial  Statements.


                                      F-6
<PAGE>
                       SAFEGUARD HEALTH ENTERPRISES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1:  ORGANIZATION  AND  SIGNIFICANT  ACCOUNTING  POLICIES

SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Company"), is a
holding  company  that  manages  what  is,  collectively,  one  of  the  largest
publicly-traded  Dental  HMO  plans  in  the United States. The Company provides
managed  care and indemnity dental benefits for approximately 1,000,000 members,
through  a panel of independent primary care dental offices and specialists, and
a  preferred  provider  organization  panel.  Operations  are  conducted through
wholly-owned subsidiaries in 27 states and the District of Columbia. The Company
was  founded  as  a  non-profit entity in California in 1974, and converted to a
for-profit  entity  at  the  end  of  1982.  In  1992,  the  Company  acquired a
California-based  indemnity  insurance  company  licensed  to transact insurance
business  and  currently holds a certificate of authority in 14 states. In 1996,
the  Company acquired a Texas-based managed dental care company and in 1997, the
Company  acquired  a  Florida-based  managed  dental  care company. In 1997, the
Company  acquired Consumers Life Insurance Company of North Carolina, renamed it
SafeHealth Life Insurance Company, Inc. ("SafeHealth, Inc."), and redomesticated
it  to  Texas.  That  company  is  licensed  in  16  states.

In  January  1998, the Company merged one of the Advantage affiliates, Advantage
Dental  HealthPlans,  Inc., a Missouri corporation, into SafeGuard Health Plans,
Inc.,  a  Missouri corporation. In May 1998, the Company initiated the merger of
SafeHealth,  Inc.,  into  its  affiliate,  SafeHealth  Life Insurance Company, a
California  corporation  ("SafeHealth"), as part of a strategic plan to simplify
business operations from an administrative, financial and legal perspective. The
merger  of  SafeHealth,  Inc.  into  SafeHealth  will  also  release  surplus
requirements  of  the  no longer existing entity, SafeHealth, Inc. The merger is
subject to regulatory approval from both the California and Texas Departments of
Insurance.  In  December 1998, the Company received approval from the California
Department  of  Insurance  and in March 1999, regulatory approval from the Texas
Department  of  Insurance.

The  accompanying  financial  statements  have  been prepared on a going concern
basis,  which  contemplates  the  realization  of assets and the satisfaction of
liabilities in the normal course of business. The Company's financial statements
do not include any adjustments relating to the recoverability and classification
of  recorded asset amounts or the amounts and classification of liabilities that
might  be necessary should the Company be unable to continue as a going concern.
As  shown  in  the financial statements, during the year ended December 31, 1998
and  1997,  the  Company  incurred  net losses of $9.9 million and $5.5 million,
respectively,  and  net  cash  used by operating activities was $1.7 million and
$1.6  million,  respectively.  As  of  December  31, 1998, the Company's current
liabilities  exceeded  its  current  assets by $10.7 million. As of December 31,
1999,  the  Company  was in violation of certain financial covenants relating to
its  two  major  lenders  and  was  $4.5  million  below  the  minimum  capital
requirements  for  one  of  its  regulated  subsidiaries.

Management  believes  that  the  Company's  continuation  as  a going concern is
dependent  upon  its  ability  to  generate  sufficient  cash  flow  to meet its
obligations  on  a  timely  basis, to comply with the terms and covenants of its
financing  agreements,  to  obtain  additional financing as may be required, and
ultimately  to attain profitable operations. As further discussed in Note 16, on
March 1, 2000 the Company entered into an agreement with its primary lenders and
an  investor  group.  Under  this  agreement  all  the  Company's  debt  will be
converted  to  equity,  and  the  Company  was  able to cure its minimum capital
deficiency.  Also,  in connection with this agreement the Company obtained a new
chief  executive  officer  and  certain  new  directors.  Management's  plans to
continue  as  a going concern and to return the Company to profitability include
plans  to  increase premium rates, reduce certain types of non-standard provider
payments,  reduce  the  number  of  its  employees  by  consolidating  certain
administrative  functions  in  one  location,  reduce the amount of office space
used,  and  reduce  various  other selling, general and administrative expenses.
Management's  plans  also  include  enhanced  programs  for  customer retention,
increasing  the  efficiency  of its provider network and streamlining operations
with  a  focus  toward strengthening customer service.  Management believes that
the  results  of  its  plans,  and  with  the agreement reached on March 1, 2000
discussed  above, that the Company will be able to meets its ongoing obligations
on  a  timely  basis  and  return  to  profitable  operations.

Basis  of  Consolidation

The  consolidated  financial  statements include the accounts of the Company and
its  subsidiaries.  Significant intercompany accounts and transactions have been
eliminated  in  consolidation.

Revenue  and  Cost  Recognition

Premiums  collected  for  health  care revenues are recognized in the period for
which  the member is entitled to service. Related costs for health care services
are  expensed  in  the  period  the  Company  provides  such  service.


                                      F-7
<PAGE>
On  January  1,  1996,  the  Company  changed its method of recognizing revenues
relating  to  providing  orthodontic  health  care  services to the proportional
performance  method.  This  change  in method of revenue recognition resulted in
orthodontic  practice  revenues  being  recognized  based  on the ratio of costs
incurred  to  total  estimated costs, which better matches revenues and expenses
over  the  life  of  an orthodontic contract. Previously, the Company recognized
revenue  ratably  over  the  life  of the contract on a straight-line basis. The
Company  believes  the  proportional  performance  method  provides for a better
matching  of  expenses  to revenues over the life of each individual orthodontic
contract.  As  a  result,  the  Company  recorded  a  total  earned but unbilled
receivable  of  approximately  $1.9 million in 1997 and $2.6 million in 1996. Of
the $2.6 million in 1996, $1.35 million represented cumulative effect, ($824,000
net  of  taxes,  or  $.17  per  share)  as  of  January 1, 1996. The orthodontic
practices  were  disposed  of  on  April  1,  1998.  (See  Note  2).

Investments

In  accordance  with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting  for  Certain  Investments in Debt and Equity Securities, the Company
has  classified  its  investment  portfolio  into  "available-for-sale"  and
"held-to-maturity"  categories. Investments classified as available-for-sale are
carried  at  fair value and unrealized gains or losses, net of applicable income
taxes,  are  reported  in  accumulated  other  comprehensive  income, a separate
caption  of stockholders' equity. Investments classified as held-to-maturity are
carried  at  amortized  cost.  At  December  31,  1998, the Company recorded net
unrealized  gains of $146,000 and increased stockholders' equity by $89,000 (net
unrealized  gains, less deferred income taxes of $57,000). At December 31, 1997,
the  Company  recorded  net  unrealized  losses  of  $567,000  and  decreased
stockholders'  equity  by  $346,000 (net unrealized losses, less deferred income
taxes  of  $221,000).  At December 31, 1996, the Company recorded net unrealized
gains  of  $92,000 and increased stockholders' equity by $56,000 (net unrealized
gains,  less  deferred  income  taxes  of  $36,000).

Investments  consist  principally  of variable-rate, interest-bearing tax-exempt
investments;  taxable  bonds;  equity  securities; treasury bills and notes; and
certificates  of deposit with original maturities greater than three months. The
adjusted cost of specific securities sold is used to compute the gain or loss on
sale  of  investments.

During  1998,  the  Company transferred approximately $4.2 million of securities
from  the  held-to-maturity  category  to  the available-for-sale category. This
amount represented the amortized cost of the securities at the date of transfer.
The  estimated  fair  value  of  those securities was approximately $4.4 million
resulting in a net unrealized gain of $0.1 million (net of tax of $0.1 million),
which  was reported in other comprehensive income.  The change in classification
was  a  result  of  a change in management's ability to hold these securities to
maturity date related to a change in the Company's liquidity as discussed above,
which  could  not have been predicted when the held-to-maturity investments were
purchased.  In  order  to have the flexibility to respond to changes in interest
rates  and  to take advantage of changes in the availability of and the yield on
alternative  investments,  management  determined  that  the reclassification of
these  securities  as  available-for-sale  was  appropriate.

Fair  Value  of  Financial  Instruments

The  Company's balance sheet includes the following financial instruments: cash,
investments,  accounts  and  notes  receivable,  accounts  payable,  short  and
long-term  debt.  The  Company  considers  the carrying amounts in the financial
statements to approximate the fair value for these financial instruments because
of  the  relatively  short period of time between origination of the instruments
and their expected realization for current items. Due to current payment trends,
notes  receivable  have  been  written  down  to  management's  estimate  of net
realizable  value which approximates fair value. The fair value of the Company's
long-term  debt  approximated  its  carrying  value.

Property  and  Equipment

Property  and  equipment are recorded at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the
respective  property  and  equipment as follows: buildings - 30 years; leasehold
and  building  improvements  -  5  to  25  years;  furniture, fixtures and other
equipment - 3 to 10 years. Expenditures for maintenance and repairs are expensed
as  incurred, while major improvements which extend the estimated useful life of
an  asset  are  capitalized.  Upon  the  sale or other retirement of assets, the
accounts  are  relieved  of  the  cost  and related accumulated depreciation and
amortization,  and  any  resultant  gain  or  loss  is  recognized.

In  March  1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121,  Accounting  for  the  Impairment  of  Long-Lived Assets and for Long-Lived
Assets  to  Be  Disposed  Of,  which became effective for fiscal years beginning
after  December  15,  1995.  SFAS  No.  121  requires  impairment  losses  to be
recognized  for  long-lived  assets  used  in  operations  when  indicators  of
impairment  are  present  and  the undiscounted cash flows are not sufficient to
recover  the  assets'  carrying  amount.  The  impairment  loss  is  measured by
comparing  the  fair value of the assets to their carrying amount. The statement
also  requires that assets to be disposed of be written down to fair value, less
selling  costs.  The  Company  adopted  this  statement  in  fiscal year 1996 as
required,  and  its  adoption did not have a significant effect on the Company's
financial  position  or  results  of  operations.


                                      F-8
<PAGE>
Intangibles

License acquisition costs associated with the purchase of an indemnity insurance
company  in October 1992 and another in August 1997 are amortized over a 20-year
period.  Goodwill  related to the acquisition of First American Dental Benefits,
Inc.  ("First  American")  in  September  1996  and Advantage Dental HealthPlans
("Advantage")  in  May  1997  is  being amortized over a period of 40 years. The
covenants  not-to-compete  related  to  the  acquisition  of  First American and
Advantage  are  being  amortized  over a 5-year period. The Company periodically
evaluates  whether  events  and circumstances have occurred which may affect the
estimated  useful  lives  or  the recoverability of the remaining balance of its
intangibles.  At  December  31,  1998, the Company's management believed that no
material  impairment  of  goodwill  or  other  intangible  assets  existed.

Income  Taxes

The  Company  accounts  for  income  taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. This statement requires the recognition of deferred
tax  assets and liabilities for the future consequences of events that have been
recognized in the Company's financial statements or tax returns. The measurement
of  the  deferred  items  is  based on enacted tax laws. In the event the future
consequences  of  differences  between the financial reporting basis and the tax
basis  of  the  Company's assets and liabilities result in a deferred tax asset,
SFAS  No. 109 requires an evaluation of the probability of being able to realize
the  future benefits indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion
or  all  of  the  deferred  tax  asset  will  not  be  realized.

401(k)  Plan

The Company maintains a 401(k) plan which allows for a pre-tax contribution from
an employee's earnings. Employees are eligible to participate in the 401(k) plan
upon  completion  of  six  months  of service with the Company. Under the 401(k)
plan,  an  employee  may defer up to 15 percent of his or her gross compensation
each  pay  period  and  the  Company  may,  at  its  option,  make an additional
discretionary  contribution  to  be  allocated  among  employees  in the plan in
proportion  to  the  compensation  deferred. Employees are 100 percent vested in
their  interest  in  the  401(k)  plan  at  all  times. The Company did not make
contributions  in  1998  or  1997.  The Company also maintains a pre-tax medical
insurance  option within the meaning of Section 125 of the Internal Revenue Code
for  its  employees  insuring  dependents.

Use  of  Estimates  in  Preparation  of  Financial  Statements

The  preparation  of  financial statements in conformity with generally accepted
accounting principles 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  revenues  and  expenses during the reporting period.
Actual  results  could  differ  from  those  estimates.

The  Company  is responsible for paying claims submitted by dentists for certain
types of dental services provided to patients who have purchased dental coverage
from  the Company. Estimates of the liability for reported claims are determined
primarily  by  evaluation  of  individual  reported  claims.  Estimates  of  the
liability  for  claims  incurred  but  not  reported  are  based  on  actuarial
projections  of  historical developments with respect to the probable number and
nature  of such claims.  Although the Company considers its actual experience to
date and industry data in determining such reserves, assumptions and projections
as  to future events are necessary, and ultimate losses may differ significantly
from  the  amounts  provided.  Methods  for  making  such  estimates  and  for
establishing the resulting liabilities are continually reviewed and updated, and
any  resulting  adjustments  are reflected in the results of current operations.
Management  believes  that, in the aggregate, the reserves for dental claims are
adequate.

Net  (Loss)  Income  Per  Share

(Loss)  earnings  per share are stated in accordance with the provisions of SFAS
No. 128, Earnings Per Share. Basic earnings per share excludes the effect of all
potentially  dilutive securities. Diluted earnings per share includes the effect
of  all  potentially  dilutive  common  securities (see Note 9). At December 31,
1998,  options  to purchase 769,800 shares of common stock at a weighted average
exercise  price  of  $10.58  were  outstanding  but  were  not  included  in the
computation  of  diluted  loss  per  share as their effect on loss per share was
antidilutive.  At  December  31,  1997 and 1996, options to purchase 150,350 and
23,500  shares,  respectively,  of  common  stock at a weighted average exercise
price of $11.13 and $10.29, respectively, were outstanding but were not included
in  the  computation  of  diluted  EPS  because  the options' exercise price was
greater  than  the  average  market  price  of the common shares.  (See Note 9).


                                      F-9
<PAGE>

The  weighted  average  number  of basic and dilutive shares outstanding and the
related  earnings  per  share  for  the years ended December 31, were as follows
(000's  omitted,  except  per  share  data):

<TABLE>
<CAPTION>
                                                  1998                           1997                              1996
                                              -----------                      ---------                         -------
                                        Net     Number   Per-share    Net      Number     Per-share     Net     Number    Per-share
                                       loss   of shares    amount     loss     of shares    amount     income   of shares    amount
---------------------------------  -----------  ---------  -------  -----------  ---------  --------  ----------  ---------  ------
<S>                                <C>          <C>        <C>      <C>          <C>        <C>       <C>         <C>        <C>
Basic (loss) earnings per share .  $   (9,938)      4,747  $(2.09)  $   (5,493)      4,723  $ (1.16)  $    3,052      4,711  $0.64

Effect of Dilutive Securities
Options . . . . . . . . . . . . .          --          --      --          176          --      229

Diluted (loss) earnings per share  $   (9,938)      4,747  $(2.09)  $   (5,493)      4,899  $ (1.12)  $    3,052      4,940  $0.62
</TABLE>


Regulatory  Requirements  and  Restricted  Deposits

Pursuant to various state regulations, certain of the Company's subsidiaries are
required  to  hold restricted deposits. As of December 31, 1998 and December 31,
1997,  the  Company  held  restricted deposits of $6.0 million and $9.0 million,
respectively,  which  are  included in investments. Additionally, the Company is
required  to  maintain  minimum capital and surplus balances. As of December 31,
1998  and  December  31,  1997,  these  subsidiaries were in compliance with all
regulatory  requirements.  (See  Note  16).

Reclassifications

Certain  prior year amounts have been reclassified to conform with the financial
statement  presentation  for  the  year  ended  December  31,  1998.

Stock  Options

In  October  1995,  the  FASB  issued  SFAS  No. 123, Accounting for Stock-Based
Compensation, which requires adoption of the disclosure provisions no later than
years  beginning  after  December  15, 1995, and adoption of the recognition and
measurement  provisions  for  non-employee  transactions  no  later  than  after
December  15,  1995.  The new standard defines a fair value method of accounting
for  stock  options  and  other equity instruments. Under the fair value method,
compensation  cost  is measured at the grant date based on the fair value of the
award  and  is  recognized  over the service period which is usually the vesting
period.

Pursuant  to  the new accounting standard, companies are encouraged, but are not
required,  to adopt the fair value method of accounting for employee stock-based
transactions.  Companies  are  also  permitted  to  continue to account for such
transactions  under  Accounting  Principles Board Opinion No. 25, Accounting for
Stock  Issued  to  Employees,  but  are  required  to  disclose in a note to the
financial  statements  pro  forma  net  income  and earnings per share as if the
Company  had  applied  the  new method of accounting. The Company has determined
that  it  will  not  change  to  the  fair value method and will continue to use
Accounting  Principles  Board  Opinion No. 25 for measurement and recognition of
employee  stock-based  transactions.  (See  Note  9).

Recent  Accounting  Pronouncements

In  June  1997,  the  FASB  issued SFAS No. 130, Reporting Comprehensive Income,
which  becomes  effective  for fiscal years ending after December 15, 1997. SFAS
No.  130  requires that all components of comprehensive income be displayed with
the  same  prominence  as  other  financial  statements.

In  June  1997,  the  FASB  issued SFAS No. 131, Disclosure About Segments of an
Enterprise  and  Related  Information,  which becomes effective for fiscal years
ending  after  December  15,  1997.  SFAS No. 131 requires that future financial
statements contain disclosures about products and services, geographic areas and
major  customers  related  to  its  reportable  operating  segments.

The  Company  adopted  SFAS  Nos.  130  and  131  in  1998.

In  June  1998,  the  FASB  issued  SFAS  No.  133,  Accounting  for  Derivative
Instruments  and  Hedging  Activities,  which becomes effective for fiscal years
beginning  after June 15, 2000, as amended. SFAS No. 133 requires that an entity
recognize  all  derivatives  as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company does
not  expect  the  adoption  of  SFAS No. 133 to have a significant impact on the
Company's  financial  position  or  results  of  operations.


                                      F-10
<PAGE>
NOTE  2:  DISCONTINUED  OPERATIONS

General  Dental  Practices
On October 21, 1996, the Company implemented a strategic plan to sell all of the
general  dental  practices  owned  by  the  Company.  The  assets sold consisted
primarily  of  accounts  receivable, supply inventories, equipment and leasehold
improvements.  Each practice sold could enter into a contract with the Company's
practice  management  subsidiary,  whereby  the  Company  would  provide certain
services  to  support  the operation of their practice, including administrative
support.  The  Company  discontinued  its  practice  management  subsidiary  and
terminated  these  agreements  in  1998.

Through  June  1997,  the  Company  sold  fifteen  general  dental  practices to
purchasers  in  exchange  for  consideration  consisting  of  $10.4  million  of
long-term  promissory  notes.  In September 1997, the Company sold the remaining
practices  to  Pacific Coast Dental, Inc., Associated Dental Services, Inc., and
affiliated  dentists  (the  "Purchasers" or "PCD") in exchange for consideration
consisting  of  $8.0  million  of  long-term  promissory  notes.

During  1997 and 1998, of the fifteen practices previously sold to parties other
than  PCD,  four  of  these  practice  were  conveyed to PCD in exchange for the
assumption  of  the  promissory notes payable to the Company. At the time of the
conveyances  of  these  practices  to  PCD,  the related promissory notes had an
aggregate  carrying  value of $1.9 million on the Company's balance sheet, which
exceeded  the  historical cost of the net assets of the related dental practices
by  $1.4  million.

Orthodontic  Practices
On  February  26,  1998,  the  Company  announced  the  discontinuance  of  its
orthodontic  practices.  The  assets  of  the  orthodontic  practices  consisted
primarily  of  accounts  receivable, supply inventory and dental equipment,which
were sold on April 1, 1998, pursuant to the terms of the definitive Master Asset
Purchase Agreement (the "Agreement") dated and effective as of April 1, 1998, by
and  among  the  Company  and PCD.  The orthodontic practices were sold for  $15
million,  represented  by  an  8 1/2% 30-year promissory note and secured by all
current  and future assets of the Purchasers, including those assets transferred
under  the Agreement made by PCD. Among other provisions, the Agreement includes
a  long  term  commitment  to  continue  to  provide orthodontic services to the
members  of  SafeGuard  Health  Plans,  Inc.

In  connection  with the sale of the general dental and orthodontic practices to
PCD, the Company committed  to lend PCD certain amounts for working capital.  As
of  December  31, 1997 and 1998 the working capital loans to PCD amounted to $.8
million  and  $1.6  million,  respectively.

In  a  subsequent  review of the facts and circumstances related to this matter,
and  based  upon  no  new  information  that  was not otherwise available to the
Company  at  the  time  when  it  entered into these transactions, the Company's
management  concluded  that  PCD  did not have sufficient resources to repay the
promissory  notes  from  sources  other  than  the  operations  of the purchased
practices.  Accordingly,  the  related  promissory notes and the working capital
loans  have  not been recorded in the financial statements.  The historical cost
of  the  net  assets of the practices sold to PCD are reflected on the Company's
balance  sheet  under the caption "Assets of discontinued operations transferred
under  contractual  arrangements."  The  financial statements do not reflect any
gains  on these sale transactions, and do not reflect any interest income on the
related  promissory  notes.  In  addition,  the carrying value of the promissory
notes related to the four practices that were also transferred to PCD from other
purchasers,  was reduced to the historical cost of the net assets of the related
practices.  The  working capital loans were fully reserved at the time the loans
were  made  and  the  Company  has no further obligation to provide such working
capital  loans.  Interest payments received of $ .3 million have been applied to
reduce  the  historical  cost  of  the  net  assets  transferred.

Net  assets  of  discontinued  operations  at December 31, 1997, which represent
orthodontic  practices  subsequently transferred to  PCD, are shown at their net
book  value  (in  000's),  and  consisted  of  the  following:

Accounts  receivable,  net                        $1,896
Supplies  inventory                                  270
Leasehold  improvements  and  equipment,  net      2,478
Other                                                168
Legal  reserves                                     (750)
                                                   -----
                                                  $4,062
                                                  ======


                                      F-11
<PAGE>
Operating  and  transactional  results  of  discontinued  general  dental  and
orthodontic  practices
In 1996, operating losses of the discontinued general dental practices, prior to
the  measurement  date  of  October  21,  1996,  were $1.6 million, net of a tax
benefit  of  $1.0  million.  This  amount  is  included  in  the  accompanying
consolidated statements of operations under the caption "Loss from operations to
be  disposed  of."  The  operating  losses subsequent to the measurement date in
1996  were  recognized  in  the  consolidated statements of operations up to the
amount  of  the  net  gain  on  disposal of the dental practices, which was $1.3
million, net of tax expense of $0.8 million, for 1996. The remaining losses of $
 .6  million, net of tax expense of $ .4 million  for the year ended December 31,
1996,  were  deferred  as  an  asset until the completion of the sale of all the
dental  practices  as  of  September  30,  1997.

Operating  income  for  the  years  ended  December  31,  1996  and  1997 of the
orthodontic  practices  were $2.0 million and $1.1 million, respectively, net of
tax  expense of $1.2 million and $.7 million, respectively. Operating losses for
the  year  ended  December 31, 1998 were $.6 million, net of tax benefits of $.4
million.  These amounts are included in the accompanying consolidated statements
of  operations  under  the  caption  "Loss  from  operations to be disposed of."

In  1996 and 1997, the Company recognized gain on the disposal of general dental
practices  of $1.7 million and $0.3 million, respectively, net of tax expense of
$1.1  million  and  $0.2  million,  respectively.

Net assets of discontinued operations transferred to PCD, which are reflected on
the Company's balance sheet under the caption "Assets of discontinued operations
transferred  under  contractual  arrangements"  yielded  losses during the years
ended  December  31, 1997 and 1998 and are included under the caption "Loss from
operations  to  be  disposed of" in the amount of $8.5 million and $1.8 million,
respectively,  net  of  income  tax  benefit  of  $5.4 million and $1.1 million,
respectively.

NOTE  3:  BUSINESS  ACQUISITIONS

Effective  September  27,  1996, the Company completed the acquisition of all of
the  outstanding  shares of First American, a privately-held managed dental care
company  based  in  Dallas,  Texas,  and a related marketing entity, for a total
consideration  of  $23.6  million,  plus  assumed  liabilities  of $1.6 million,
acquisition  costs  of  $0.3  million  and acquired cash of $0.2 million. Of the
purchase  price,  $20  million  was paid at closing (which included a $1 million
holdback account) and an aggregate sum of $3.6 million over three years pursuant
to  non-competition  agreements  entered into between the Company and the former
owners of First American. The Company financed the acquisition of First American
through a credit agreement with Bank of America. First American provides managed
dental  care  services  through  a  network  of  approximately 1,100 dental care
providers  to  approximately  175,000 members in Texas. The acquisition of First
American  was  accounted  for  using  the purchase method of accounting with the
results  of  operations  of  the businesses acquired included from the effective
date  of  the  acquisition.  The  acquisition  resulted in excess cost over fair
market  value  of  net assets acquired of $21.5 million which is being amortized
over  its  useful  life  which  is  estimated to be 40 years. The acquisition is
included  as part of the Company's consolidated financial statements, subsequent
to  September  27,  1996.

Effective  May  9,  1997,  the  Company  completed the acquisition of all of the
outstanding  shares  of  Advantage, a privately held managed dental care company
based  in Fort Lauderdale, Florida for a total consideration of $10 million plus
assumed  liabilities  of $1.2 million, and acquired cash of $0.8 million. Of the
purchase  price,  cash was paid at closing consisting of a $0.5 million holdback
account  and the Company is obligated to pay an aggregate sum of $1 million over
two  years  pursuant  to  a  non-competition  agreement entered into between the
Company  and the former owner of Advantage. The Company financed the acquisition
of  Advantage  through  a  note from the seller for $8.5 million which had a due
date,  with extensions, of April 2, 1998. Advantage provides managed dental care
services  through  a  network  of  approximately  800  dental  care providers to
approximately  125,000  members  in  Florida,  Missouri  and  several  other
southeastern  states.  The  acquisition of Advantage was accounted for using the
purchase  method  of accounting with the results of operations of the businesses
acquired  included  from  the effective date of the acquisition. The acquisition
resulted  in  excess  cost over fair market value of net assets acquired of $9.2
million  which  is being amortized over its useful life which is estimated to be
40  years.  The  acquisition  is  included as part of the Company's consolidated
financial  statements,  subsequent  to  May  9,  1997.

Effective  August  1997,  the  Company  completed  the acquisition of all of the
outstanding  shares  of  Consumers  Life  Insurance  Company  of  North Carolina
("Consumers"), a privately held dental indemnity insurance company with licenses
in  sixteen  states.  The  Company  purchased  the licenses and obtained all the
statutory  deposits  held  on  behalf  of  Consumers  for a cash payment of $3.2
million  and capitalized Consumers with total capital and surplus of $5 million.
The  acquisition  of  Consumers  was  accounted for using the purchase method of
accounting  with  the  results of operations of the businesses acquired included
from  the  effective  date  of  the  acquisition.

Unaudited  pro  forma  results  (in $000's) of operations of the Company for the
twelve months ended December 31, 1997 and December 31, 1996, are included below.
Such pro forma presentation has been prepared assuming that the acquisitions had
occurred  as  of  January  1,  of  each  period.


                                      F-12
<PAGE>
                                                      1997       1996
                                                    --------   -------
Revenues                                            $97,808    $77,990
Net  income  (loss)                                  (5,023)     1,705
Net  (loss)  income  per  diluted  common  share     $(1.03)     $0.35

The pro forma results include, (1) the historical accounts of the Company and of
the  acquired  businesses;  (2)  and  pro  forma  adjustments,  including  the
amortization  of the excess purchase price over the fair value of the net assets
acquired,  the  amortization for the non-compete agreements entered into between
the  Company  and the former owners of First American and Advantage, interest on
related  debt,  and  the applicable income tax effects of these adjustments. The
pro  forma  results  for the year ended December 31, 1997, include the effect of
adjustments  recorded  subsequent  to  the  purchase  of  First  American by the
Company.  Substantially  all  of  the  adjustments were one-time in nature. Such
adjustments  will  be applied to the applicable holdback funds maintained by the
Company in connection with this acquisition. The pro forma results of operations
are not necessarily indicative of actual results which may have occurred had the
operations  of  the  acquired  companies  been  combined  in  prior  years.

NOTE  4:  COMPOSITION  OF  CERTAIN  BALANCE  SHEET  ACCOUNTS

Investments

The following table summarizes the Company's investments as of December 31, 1998
(in  $000's).  The estimated fair value of investments is based on quoted market
prices.

<TABLE>
<CAPTION>
                                       Cost/        Gross       Gross      Estimated
                                     Amortized    Unrealized  Unrealized     Fair
                                       Cost         Gains       Losses       Value
                                   ------------  -----------  -----------  ----------
<S>                                <C>           <C>          <C>          <C>
Classified as available-for-sale:
U.S. government and its agencies.  $      3,538  $       100   $      --   $    3,638
State obligations . . . . . . . .           674           32          --          706
Corporate bonds . . . . . . . . .           376           --         (57)         319
Equity securities . . . . . . . .         2,715           --        (665)       2,050
Funds and other short-term
  municipal obligations . . . . .           448           23          --          471
                                   ------------  -----------  -----------  ----------

  Total available-for-sale. . . .  $      7,751  $       155  $     (722)  $    7,184
                                   ============  ===========  ===========  ==========
</TABLE>

The  contractual  maturities  of  investments as of December 31, 1998, are shown
below  (in  $000's). Expected maturities may differ from contractual maturities:

<TABLE>
<CAPTION>
                                        Cost/Amortized Cost   Estimated Fair Value
                                        --------------------  ---------------------
<S>                                     <C>                   <C>
Classified as available-for-sale:
Due in one year or less. . . . . . . .  $                904  $                 909
Due after one year through five years.                 2,642                  2,731
Due after five years through ten years                   873                    833
Due after ten years. . . . . . . . . .                   616                    661
Equity securities. . . . . . . . . . .                 2,716                  2,050
                                        --------------------  ---------------------

Total available-for-sale . . . . . . .  $              7,751  $               7,184
                                        ====================  =====================
</TABLE>


                                      F-13
<PAGE>
The following table summarizes the Company's investments as of December 31, 1997
(in  $000's).  The estimated fair value of investments is based on quoted market
prices.

<TABLE>
<CAPTION>
                                           Cost/     Gross       Gross     Estimated
                                        Amortized  Unrealized  Unrealized    Fair
                                           Cost      Gains       Losses      Value
                                        ---------  ----------  ----------  ---------
<S>                                     <C>        <C>         <C>         <C>
Classified as available-for-sale:
U.S. government and its agencies . . .  $     553  $        8  $      --    $    561
State obligations. . . . . . . . . . .      1,000          --         --       1,000
Corporate bonds. . . . . . . . . . . .        184          --        (60)        124
Equity securities. . . . . . . . . . .      3,885         132       (806)      3,211
Funds and other short-term
Municipal obligations. . . . . . . . .        661          --         --         661
                                        ---------  ----------  ----------  ---------

Total available-for-sale . . . . . . .      6,283         140       (866)      5,557
                                        ---------  ----------  ----------  ---------

Classified as held-to-maturity:
U.S. Government and its agencies . . .      7,847          39         (2)      7,884
State obligations. . . . . . . . . . .        702          24         --         726
Municipal obligations. . . . . . . . .        449          20         --         469
Corporate bonds. . . . . . . . . . . .        353          --         --         353
Funds and other short-term obligations          2          --         --           2
                                        ---------  ----------  ----------  ---------

Total held-to-maturity . . . . . . . .      9,353          83         (2)      9,434
                                        ---------  ----------  ----------  ---------

  Total. . . . . . . . . . . . . . . .  $  15,636  $      223  $    (868)  $  14,991
                                        =========  ==========  ==========  =========
</TABLE>

The  Company  computes  its  realized gains and losses from sales of investments
based  on  specific  identification.

Gross  realized  gains on sales of investment securities were $815,000 and gross
realized  losses  were  $1,225,000  for the year ended December 31, 1998.  Gross
realized  gains  on  sales  of  investment  securities  were  $155,000 and gross
realized  losses  were  $173,000  for  the  year ended December 31, 1997.  Gross
realized  gains  on  sales  of  investment  securities  were  $149,000 and gross
realized  losses  were  $38,000  for  the  year  ended  December  31,  1996.

Property  and  Equipment

<TABLE>
<CAPTION>
The Company's property and equipment consist of the following (in 000's):

December 31,                                                                 1998      1997
                                                                           --------  --------
<S>                                                                        <C>       <C>
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    --   $   644
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . .      165     5,579
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . .      520       402
Furniture, fixtures and other equipment . . . . . . . . . . . . . . . . .    9,203    10,050
Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . .       --       265
                                                                           --------  --------

                                                                           $ 9,888    16,940
Less - accumulated depreciation and amortization. . . . . . . . . . . . .   (3,783)   (7,589)
                                                                           --------  --------

                                                                           $ 6,105   $ 9,351
                                                                           ========  ========
</TABLE>


                                      F-14
<PAGE>
Accounts  Payable  and  Accrued  Expenses

The Company's accounts payable and accrued expenses consist of the following (in
$000's):

<TABLE>
<CAPTION>
December 31,             1998     1997
                        -------  ------
<S>                     <C>      <C>
Accounts payable . . .  $ 4,918  $1,457
Accrued compensation .      296      71
Accrued interest . . .      984     681
Other accrued expenses    4,707   2,984
                        -------  ------

                        $10,905  $5,193
                        =======  ======
</TABLE>

NOTE  5:  NOTES  PAYABLE  AND  LONG-TERM  DEBT

Notes  payable  and  long-term  debt  consisted  of  the  following (in $000's):

<TABLE>
<CAPTION>
December 31,             1998      1997
                       --------  ---------
<S>                    <C>       <C>
Bank line of credit .  $ 8,000   $     --
Note payable. . . . .       --      8,500
Senior notes payable.   32,500     32,500
Other notes . . . . .    1,894      3,086
                       --------  ---------
Less: current portion   (9,894)   (10,192)
                       --------  ---------

Long-term debt. . . .  $32,500   $ 33,894
                       ========  =========
</TABLE>

On  May 13, 1997, under the terms of the Company's acquisition of Advantage (see
Note  3),  the  Company  issued an unsecured $8.5 million promissory note to the
seller.  This  note  was  repaid  during  April  1998.

On  September  30,  1997,  the  Company  completed  a private placement of $32.5
million  in  long-term debt consisting of eight-year unsecured senior notes. The
Company  used  the  proceeds  to  repay  long-term  indebtedness and for general
corporate  purposes.  The  senior notes have a principal payment of $6.5 million
due each year starting on September 30, 2001. The interest rate for the loan was
fixed  at  7.91%  at  December  31,  1998.

On  January  29,  1998, the Company entered into an $8 million revolving working
capital credit facility with Silicon Valley Bank (the "Bank"). The interest rate
for  the facility, as amended, was established at the bank's prime rate plus 1.5
percent  (7.75%  at  December 31, 1998). The loan is secured by a first priority
security  interest  in  all  of  the personal property of the Company, including
accounts  receivable,  fixed assets and intangibles and a negative pledge on the
stock  of  the  Company's  subsidiaries  and  on  the real property owned by the
Company.

In  connection  with  both  the  senior  notes and the bank loan, the Company is
subject  to  certain  financial  and  operational  debt  covenants.  The Company
obtained  waivers for lack of compliance with such covenants through the date of
the  restructure of these obligations.  See Note 16 for more discussion of notes
payable  and  long-term  debt.

NOTE  6:  LEASE  OBLIGATIONS

The  Company  leases  administrative  offices,  computer equipment and furniture
under  various  non-cancelable  operating leases.  Rental expense (in 000's) was
$1,501,  $1,217 and $2,201 in 1998, 1997 and 1996, respectively.  Future minimum
rental  payments  required  under  operating  leases  that  have  the initial or
remaining  lease  terms  in  excess  of one year as of December 31, 1998, are as
follows  (in  000's):

Year  ending  December  31:

1999 . . . .  $3,682
2000 . . . .   3,624
2001 . . . .   3,351
2002 . . . .   2,522
2003 . . . .   1,993
  Thereafter   8,436


                                      F-15
<PAGE>
NOTE  7:  INCOME  TAXES

The  Company's  (benefit  from)  provision for federal and state income taxes is
as follows (in $000's):

<TABLE>
<CAPTION>
Year ended December 31,                                               1998      1997     1996
                                                                    --------  --------  -------
<S>                                                                 <C>       <C>       <C>
(Benefit) provision for income taxes due to continuing operations:
Taxes currently payable:
  Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (31)  $ 1,585   $  936
  State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       11       407      343
Deferred income taxes:
  Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (2,667)     (483)    (233)
  State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (719)     (138)     (66)
                                                                    --------  --------  -------

                                                                    $(3,406)  $ 1,371   $  980
                                                                    ========  ========  =======

(Benefit) provision due to:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . .  $(3,406)  $ 1,371   $  980
Discontinued operations. . . . . . . . . . . . . . . . . . . . . .   (1,554)   (4,547)   1,008
                                                                    --------  --------  -------

                                                                    $(4,960)  $(3,176)  $1,988
                                                                    ========  ========  =======
</TABLE>

A  reconciliation  of the federal income tax (benefit) provision at the expected
statutory  rate  compared  to  the actual income tax provision is as follows (in
$000's):

<TABLE>
<CAPTION>
Year ended December 31,            1998           1997         1996
                                 --------        -------      -------
<S>                      <C>       <C>      <C>      <C>    <C>    <C>
Expected. . . . . . . .  $(3,820)  (35.0%)  $1,047   35.0%  $834   35.0%
State taxes, net of
Federal effect. . . . .     (497)    (4.5)     158    5.3    181    7.6
Tax-free income . . . .      (19)    (0.2)     (35)  (1.2)   (99)  (4.2)
Non-deductible
  amortization. . . . .      254      2.3      186    6.2     47    2.0
Dental office transfer.      670      6.1
Other . . . . . . . . .        6       .1       15    0.5     17    0.7
                         --------  -------  -------  -----  -----  -----

                         $(3,406)  (31.2%)  $1,371   45.8%  $980   41.1%
                         ========  =======  =======  =====  =====  =====
</TABLE>

<TABLE>
<CAPTION>
The major components of the Company's deferred taxes are as follows (in $000's):

December 31, . . . . . . . . . . . . . . . . . .    1998     1997
<S>                                               <C>      <C>
                                                  -------  -------

Current deferred tax assets (liabilities):
Policy reserves. . . . . . . . . . . . . . . . .  $  459   $  784
Amortization of prepaid expenses . . . . . . . .     (23)     (87)
State income taxes . . . . . . . . . . . . . . .    (501)    (100)
Other. . . . . . . . . . . . . . . . . . . . . .     132      (64)
                                                  -------  -------

  Net current deferred tax asset . . . . . . . .      67      533
                                                  -------  -------

Non-current deferred tax assets (liabilities):
Reserve for revenue adjustments. . . . . . . . .   1,697      607
Depreciation and amortization. . . . . . . . . .    (875)    (748)
Gain on sale of dental offices . . . . . . . . .   5,200      939
Unrealized loss on investments . . . . . . . . .      97      283
Amortization of intangibles. . . . . . . . . . .      43       30
Net operating loss . . . . . . . . . . . . . . .   2,253       --
Other. . . . . . . . . . . . . . . . . . . . . .      --      125
                                                  -------  -------

  Net non-current deferred tax asset (liability)   8,415    1,236
                                                  -------  -------

  Net deferred tax asset (liability) . . . . . .  $8,482   $1,769
                                                  =======  =======
</TABLE>

As  of  December  31,  1998,  the Company has not recorded a valuation allowance
against  deferred  tax assets as management believed it was more likely than not
that  such  assets  will  be  realized. The Company has net operating loss carry
forwards for federal and state purposes of $5,674,000 and $3,667,000 which begin
to  expire  in  2018  and  2003,  respectively.


                                      F-16
<PAGE>
NOTE  8:  OTHER  INCOME

Other  income  consists  principally  of interest income and dividends earned on
investments,  as  follows  (in  $000's):


Year ended December 31,  1998    1997    1996
                         -----  -------  -----
Interest income . . . .  $ 268  $1,326   $ 809
Dividend income . . . .     --      12      61
Other . . . . . . . . .    356     (22)    114
                         -----  -------  -----

                         $ 624  $1,316   $ 984
                         =====  =======  =====

NOTE  9:  CAPITAL  STOCK

Stock  Information

Thirty  million  shares  of  common  stock, $.01 par value, have been authorized
since  the  Company's  reincorporation  in  Delaware in August 1987. One million
shares of Preferred Stock, $.01 par value, are authorized but no preferred stock
has  been  issued.  The  Board  of  Directors may, without stockholder approval,
establish  rights, terms, preferences and privileges for these preferred shares.

Stock  Transactions

Since  October  1986,  the  Company  has,  at  various times, announced plans to
repurchase  up  to  a total of 4,510,888 shares of its common stock through open
market  or  private  transactions. As of December 31, 1998, a total of 3,819,088
shares had been acquired. A total of 544,300 shares acquired prior to August 24,
1987, have been retired as required by California law. Shares acquired after the
August 24, 1987 reincorporation in Delaware are being held as treasury stock, at
an  average cost of $5.54 per share. The Company has a current authorization for
the  repurchase  of  up  to an additional 691,800 shares of the Company's common
stock  which  may  be  made  from  time to time in either open market or private
transactions.

Stock  Plans

The  Company's  Stock  Option  Plan  (the  "Plan") authorizes both incentive and
non-qualified stock options to be granted in an aggregate amount up to 1,700,000
shares  of  common  stock. Options may be granted to executive officers or other
key  employees  of  the  Company; non-employee directors of the Company are also
eligible  but  only  for  nonqualified options. The option price must, at least,
equal  fair  market value on the date the option is granted. The Plan is divided
into  a  discretionary  program  for  key employees and an automatic program for
non-employee  directors.  The Plan is administered by the Compensation and Stock
Option  Committee  of  the  Board  of  Directors.

All  stock options granted by the Company to employees through December 31, 1998
were  incentive  stock  options.  The  following  is  a  summary of stock option
transactions:

<TABLE>
<CAPTION>
Year ended December 31,                        1998       1997       1996
                                             ---------  ---------  ---------
<S>                                          <C>        <C>        <C>
Outstanding at beginning of year. . . . . .   643,517    510,817    397,500
Granted . . . . . . . . . . . . . . . . . .   178,000    169,500    132,300
Canceled. . . . . . . . . . . . . . . . . .   (51,717)    (6,134)    (6,987)
Exercised . . . . . . . . . . . . . . . . .        --    (30,666)   (11,996)
                                             ---------  ---------  ---------

Outstanding at end of year. . . . . . . . .   769,800    643,517    510,817
                                             =========  =========  =========

Exercisable at end of year. . . . . . . . .   455,066    349,895    296,056
                                             =========  =========  =========

Weighted average exercise price of options:
Granted . . . . . . . . . . . . . . . . . .  $   8.78   $  12.59   $  16.67
Canceled. . . . . . . . . . . . . . . . . .  $  12.45   $  14.83   $  11.27
Exercised . . . . . . . . . . . . . . . . .        --   $   4.35   $  11.66
Outstanding . . . . . . . . . . . . . . . .  $  10.58   $  11.13   $  10.29
Excercisable. . . . . . . . . . . . . . . .  $  10.10   $   9.17   $   7.46
</TABLE>


                                      F-17
<PAGE>
The  following table summarizes information concerning stock options at December
31,  1998:

<TABLE>
<CAPTION>
                   Number      Weighted Average                      Number
Range of         Outstanding      Remaining      Weighted Average  Exercisable   Weighted Average
Exercise Price    12/31/98     Contractual Life   Exercise Price     12/31/98     Exercise Price
                -------------  ----------------  ----------------  ------------  -----------------
<S>             <C>            <C>               <C>               <C>           <C>
$ 4.25- $7.25         150,000              2.74  $           4.80       134,000  $            4.77
  9.00- 10.04         228,500              8.14              9.57        73,000               9.66
 10.25- 13.06         251,400              7.05             11.25       163,133              11.01
 15.75- 15.75          61,400              7.23             15.75        40,933              15.75
 17.33- 20.75          78,500              7.65             18.35        44,000              18.24
                -------------                                      ------------
                      769,800              6.90  $          10.58       455,066  $           10.10
                =============                                      ============
</TABLE>

The  estimated  fair  value  of options granted during 1998, 1997, and 1996, was
$5.93,  $4.56, and $4.84 per share, respectively. The Company applies Accounting
Principles  Board  Opinion  No. 25 and related Interpretations in accounting for
the  Plan.  No  compensation  cost  has  been  recognized  for  the  Plan.  Had
compensation  cost  for  the Plan been determined based on the fair value at the
grant  dates  for  awards  under the Plan consistent with the method of SFAS No.
123, the Company's net income (loss) and earnings (loss) per share for the years
ended December 31, 1998, 1997 and 1996, would have been revised to the pro forma
amounts  indicated  below:

<TABLE>
<CAPTION>
                                        1998       1997     1996
                                      ---------  --------  ------
<S>                                   <C>        <C>       <C>
Net income (loss) (in $000's)
  As reported. . . . . . . . . . . .  $ (9,938)  $(5,493)  $3,052
  Pro forma. . . . . . . . . . . . .   (10,325)   (5,846)   2,855
Diluted net income (loss) per share
  As reported. . . . . . . . . . . .  $  (2.09)  $ (1.17)  $  .62
  Pro forma. . . . . . . . . . . . .  $  (2.17)  $ (1.19)  $  .58
</TABLE>


Under  SFAS  No.  123,  the  fair  value  of  stock-based awards to employees is
calculated  through  the  use  of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options  without  vesting  restrictions,  which  significantly  differ  from the
Company's stock option awards. These models also require subjective assumptions,
including  future  stock volatility and expected time to exercise, which greatly
affect  the  calculated values. The fair value of options granted under the Plan
was  estimated on the date of grant using the Black-Scholes option-pricing model
with  the  following  weighted-average  assumptions  used:  no  dividend  yield,
expected  volatility  of  50%  in  1998, 38% in 1997, and 25% in 1996, risk free
interest  rate  of  approximately  6%,  and an average expected life of four (4)
years.

NOTE  10:  IMPAIRMENT  OF  ASSETS

During  the  third  quarter of 1998, the Company moved its corporate and western
region  operations  from  its  fully-owned  building  in Anaheim, CA to a leased
facility  in  Aliso  Viejo,  CA.  As  a  result  of this relocation, the Company
marketed  the  building  and its related assets in Anaheim. Those assets include
the  land, building, and various building improvements. During the first quarter
of  1999,  the  Company received a written offer for these assets. Based on this
offer  and  as required by SFAS No. 121, the Company wrote down the value of the
building  by  $569,000 and accrued closing costs of $188,000, as of December 31,
1998.  The book value of these assets was $3,562,000 at December 31, 1998 and is
recorded  as  "Assets  held  for  sale"  on  the  balance  sheet.

During  the  fourth  quarter  of  1998,  the  Company, in an effort to liquidate
assets,  offered  to  reduce  the principal amount of the notes due from certain
parties  to  whom  it had sold dental practices (other than PCD, as discussed in
Note  2)  in  exchange  for  current  cash payment in satisfaction of the notes.
Thus,  the  Company  provided  a reserve of $1.9 million at December 31, 1998 to
reflect  the  impact of its decision to actively pursue liquidation of the notes
receivable.


NOTE  11:  COMMITMENTS  AND  CONTINGENCIES

The Company is a defendant in various litigation arising in the normal course of
business.  In the opinion of management, the ultimate outcome of such litigation
or  any  other  contingencies  would not have a material effect on the Company's
consolidated  financial  position  or  results of operations.  See also Note 16.


                                      F-18
<PAGE>
The  Company has employment agreements with various executive officers requiring
an  annual  payment  of  the  following  (in  $000's):

     Year  ending  December  31,
     1999     $1,140
     2000     551
     2001     155
     2002     39
     2003     --


NOTE  12:  RESERVES  FOR  DENTAL  CLAIMS

Activity  in  the  liability  for dental indemnity insurance policy reserves and
specialists  claims  expense  is  summarized  as  follows  (in  $000's):

<TABLE>
<CAPTION>
                                                   Specialist
                               Policy Reserves    Claims Expense    Total
                              -----------------  ----------------  --------
<S>                           <C>                <C>               <C>
Balance at January 1, 1997    $          2,120   $         1,010   $ 3,130
Incurred related to:
Current year -- 1997                    18,100             8,126    26,226
Prior years                                (13)              (22)      (35)
                              -----------------  ----------------  --------

  Total incurred                        18,087             8,104    26,191
Paid related to:
Current year -- 1997                    15,950             6,645    22,595
Prior years                              2,107               988     3,095
                              -----------------  ----------------  --------

  Total paid                            18,057             7,633    25,690
                              -----------------  ----------------  --------

Balance at December 31, 1997  $          2,150   $         1,481   $ 3,631
                              =================  ================  ========

Incurred related to:
Current year -- 1998          $         16,909   $         7,251   $24,160
Prior years                                794              (338)      456
                              -----------------  ----------------  --------

  Total incurred                        17,703             6,913   $24,616
Paid related to:
Current year -- 1998                    14,636             5,966    20,602
Prior years                              2,944             1,143     4,087
                              -----------------  ----------------  --------

  Total paid                            17,580             7,109    24,689
                              -----------------  ----------------  --------

Balance at December 31, 1998  $          2,273   $         1,285   $ 3,558
                              =================  ================  ========
</TABLE>


NOTE  13:  BUSINESS  SEGMENT  INFORMATION

The  Company  is engaged in the operation of Dental HMO and indemnity/PPO dental
plans.  The  operation  of  the  General  Dental  Practices  and the Orthodontic
Practices  have  both been discontinued. The last of the discontinued operations
were  divested  effective  April  1,  1998.  The  identifiable  assets  for  the
discontinued  operations  have been segregated on the Consolidated Statements of
Financial  Position  as  "Net  assets of discontinued operations."  (See Note 2:
Discontinued Operations). Following the April 1, 1998 divestiture, the Company's
sole  line  of  business  is  providing  dental  benefits  to  employer  groups,
associations  and  individuals.


NOTE  14:  UNAUDITED  SELECTED  QUARTERLY  INFORMATION

Unaudited  quarterly results of operations for the years ended December 31, 1998
and  1997  are  set  forth in the tables below ($000's omitted, except per share
data.)  The  quarterly  results  should  be read in conjunction with the audited
Consolidated  Financial  Statements  of  the  Company.
Restatements:


                                      F-19
<PAGE>
Subsequent to the issuance of the Company's financial statements for each of the
quarters  ended  March  31, 1998, June 30, 1998, and September 30, 1998, and for
the  six months ended June 30, 1998 and the nine months ended September 30, 1998
the Company's management determined that certain prepaid expenses, fixed assets,
accrued  liabilities and deferred revenue balances were not properly stated.  As
a  result,  the  quarterly  financial  statements for each of the quarters ended
March  31,  1998,  June 30, 1998, and September 30, 1998, and for the six months
ended  June  30,  1998  and  the  nine months ended September 30, 1998 have been
restated  from  the  amounts  previously  reported.

As  discussed  in Note 15, subsequent to the issuance of the Company's financial
statements  for  the  year  ended  December  31,  1998, the Company's management
determined that the accounting treatment applied to certain sale transactions of
discontinued  orthodontic and general dental practices that occurred during 1998
and  1997 required modification. As a result, the quarterly financial statements
for  each  of  the  quarters  ended September 30, 1997, March 31, 1998, June 30,
1998,  and  September 30, 1998, and the financial statements for the nine months
ended  September 30, 1997 and the six months ended June 30, 1998 and nine months
ended  September  30,  1998  have  been  restated  from  the  amounts previously
reported.

Each  line  item  in  the  Company's  balance  sheet or income statement that is
affected  by  the  restatements  discussed  above  is  shown in the table below.

Fourth  Quarter  Adjustments:

During its year end evaluation in 1998, the Company determined that certain aged
accounts  receivable  balances  were  uncollectible and accordingly, recorded an
increase  to  its  reserves  for  doubtful  accounts in the amount of $3,500,000
(before  a tax effect of $1,225,000) during the quarter ended December 31, 1998.

As  a result of its year end evaluation in 1997, the Company increased its claim
reserves  by  $1.5  million,  which  resulted in a $1.5 million charge to pretax
earnings  in  the  fourth  quarter of 1997.  In addition, the Company recorded a
pre-tax  charge of $7.2 million related to discontinued operations in the fourth
quarter  of  1997.

Reclassifications:

Revenues  and  expenses related to the Company's orthodontic operations for each
of the quarters ended March 31, 1997, June 30, 1997, and September 30, 1997 have
been reclassified to reflect them as discontinued operations.  Each line item in
the  Company's  income  statement that is affected by these reclassifications is
shown  in  the  table  below.

The  effects  of  the  restatements,  adjustments,  and  reclassifications  on
previously  filed  interim  financial  statements  are as follows (in thousands,
except  per  share  data):

<TABLE>
<CAPTION>
                                               At March 31, 1998     At June 30, 1998    At September 30, 1998
                                                 As                    As                   As
                                             previously     As     previously     As     previously     As
                                              reported   restated   reported   restated   reported   restated
                                              ---------  ---------  ---------  ---------  ---------  ---------
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>
Assets

Accounts and notes receivable. . . . . . . .  $   7,894  $   7,614  $   9,477  $   9,288  $  11,235  $  10,469
Prepaids and other current assets. . . . . .      1,378      1,021      1,361        923      1,003        565
Net assets of discontinued operations. . . .      5,143      4,523         --         --         --         --
Assets of discontinued operations
  transferred under contractual arrangements         --      2,465         --      8,950         --      8,950
Property & equipment, net. . . . . . . . . .      9,729      9,684     10,184      9,998     10,598      9,557
Notes receivable-long term . . . . . . . . .     12,389      4,645     21,753         --     22,778        825
Deferred income taxes. . . . . . . . . . . .         --      1,094         --      1,315         --        191
Deferred income taxes - long term. . . . . .      1,608      1,683         --      4,738         --      5,041

Total assets . . . . . . . . . . . . . . . .  $  88,796  $  83,384  $  91,630  $  82,238  $  88,570  $  77,849

                                      F-20
<PAGE>
Liabilities and stockholders' equity

Accounts payable and accrued expenses. . . .  $   3,484  $   3,552  $   5,907  $   6,043  $   3,751  $   4,454
Income taxes payable . . . . . . . . . . . .        427        221         --         --         --         --
Deferred revenues. . . . . . . . . . . . . .      1,198      1,198      1,341      1,441        949      1,049
Deferred income taxes. . . . . . . . . . . .      1,000         --      2,789        976      2,837        561
Retained Earnings. . . . . . . . . . . . . .     30,479     26,205     32,401     24,586     31,778     22,530

Total Liabilities and Stockholders' Equity .  $  88,796  $  83,384  $  91,630  $  82,238  $  88,570  $  77,849
</TABLE>

<TABLE>
<CAPTION>
                                           Three Months Ended  Three Months Ended  Three Months Ended  Three Months Ended
                                             March  31,  1998     June  30, 1998   September 30, 1998   December 31, 1998
                                                As                   As                  As                As
                                            previously    As     previously   As     previously   As    previously    As
Statements of operations                     reported  restated  reported  restated  reported  restated  reported  restated
                                             --------  --------  --------  --------  --------  --------  ---------  --------

<S>                                          <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>
Revenue                                      $24,395   $24,396   $24,540   $24,440   $24,004   $23,504   $ 24,510   $25,109
Health care expenses                          16,431    16,431    16,288    16,288    16,539    16,539     16,762    16,762
Selling, general and administrative            6,830     7,300     6,567     7,172     7,567     7,920     16,528    13,867
Other income (loss)                              970       766       534       (35)      199      (948)       638       841
Loss on impairment of assets                      --        --        --        --        --        --    (11,165)   (2,397)
Interest expense                                (922)     (922)     (973)     (973)   (1,020)   (1,020)    (1,396)   (1,396)
                                             --------  --------  --------  --------  --------  --------  ---------  --------

Income (loss) from continuing

  operations before tax                        1,182       509     1,246       (28)     (923)   (2,923)   (20,703)   (8,472)
Provision (benefit) for income taxes             519       233       538        25      (300)     (988)    (7,395)   (2,676)
                                             --------  --------  --------  --------  --------  --------  ---------  --------

Income (loss) from continuing
  operations                                     663       276       708       (53)     (623)   (1,935)   (13,308)   (5,796)
Income (loss) from discontinued

  operations                                      --      (742)     (620)   (1,566)       --      (122)        --        --
Gain on disposal of discontinued

  operations                                      --        --     1,834        --        --        --        252        --
                                             --------  --------  --------  --------  --------  --------  ---------  --------

Net income (loss)                            $   663   $  (466)  $ 1,922   $(1,619)  $  (623)  $(2,057)  $(13,056)  $(5,796)
                                              ========  ========  ========  ========  ========  ========  =========  =======

Basic Earnings (Loss) Per Share

Income (loss) from continuing operations
  per share                                  $  0.14   $  0.06   $  0.15   $ (0.01)  $ (0.13)  $ (0.41)  $  (2.80)  $ (1.22)
Income (loss) from discontinued operations
  per share                                       --     (0.16)     0.26     (0.46)       --      (.02)       .05        --
                                              --------  --------  --------  --------  --------  --------  ---------  -------

Net income (loss) per share                  $  0.14   $ (0.10)  $  0.41   $ (0.47)  $ (0.13)  $ (0.43)  $  (2.75)  $ (1.22)
                                             ========  ========  ========  ========  ========  ========  =========  ========

Weighted average shares                        4,747     4,747     4,747     4,747     4,747     4,747      4,747     4,747

Diluted Earnings (Loss) Per Share

Income (loss) from continued
  operations per share                       $  0.14   $  0.06   $  0.15   $ (0.01)  $ (0.13)  $ (0.41)  $  (2.80)  $ (1.22)

Income (loss) from discontinued

  operations per share                            --     (0.15)     0.25     (0.46)       --      (.02)       .05        --
                                             --------  --------  --------  --------  --------  --------  ---------  --------

Net income (loss) per share                  $  0.14   $ (0.09)  $  0.40   $ (0.47)  $ (0.13)  $ (0.43)  $  (2.75)  $ (1.22)
                                             ========  ========  ========  ========  ========  ========  =========  ========

Weighted average shares                        4,820     4,820     4,802     4,747     4,747     4,747      4,747     4,747
</TABLE>


                                      F-21
<PAGE>
<TABLE>
<CAPTION>

                                    At September 30, 1997
                                         As
                                    previously     As
                                     reported   restated
                                     ---------  ---------
<S>                                  <C>        <C>
Balance Sheet

Accounts and notes receivable . . .  $  11,398  $  11,309
Notes receivable-long term. . . . .     15,423      6,599
Assets of discontinued operations
transferred under contractual
arrangements, net . . . . . . . . .         --      2,478
Deferred income taxes - long-term .         --      2,510

Total assets. . . . . . . . . . . .     94,780     90,855

Retained earnings . . . . . . . . .     35,958     32,033

Total liabilities and stockholders'
  equity. . . . . . . . . . . . . .     94,780     90,855
</TABLE>

<TABLE>
<CAPTION>

                                    Three Months Ended  Three Months Ended  Three Months Ended  Three Months Ended
                                     March  31,  1998     June  30, 1998   September 30, 1998   December 31, 1998
                                         As                   As                  As                As
                                     previously    As     previously   As     previously   As    previously    As
Statements of operations              reported  restated  reported  restated  reported  restated  reported  restated
                                      --------  --------  --------  --------  --------  --------  ---------  --------
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenues                              $25,053   $22,942   $25,610   $23,488   $26,843   $24,491   $17,844   $24,429

Health care expenses                   16,998    15,671    17,132    15,546    17,961    16,255    13,611    18,230
Selling, general and administrative     5,749     5,749     6,104     6,104     6,597     6,597     6,653     6,653
Other income                              298       281       395       335       795       190       144       510
Interest expense                         (497)     (497)     (627)     (627)     (836)     (836)     (911)     (911)
                                      --------  --------  --------  --------  --------  --------  --------  --------
Income (loss) from continuing

operations before tax                   2,107     1,306     2,142     1,546     2,244       993    (3,187)     (855)
Provision for income taxes                877       561       906       654       917       438    (1,205)     (282)
                                      --------  --------  --------  --------  --------  --------  --------  --------
Income (loss) from continuing

operations                              1,230       745     1,236       892     1,327       555    (1,982)     (573)
Income (loss) from discontinued

operations                               (754)     (269)     (566)     (222)   (3,291)   (3,153)    1,056    (3,764)
Gain on disposal of discontinued
operations                                754       754       566       566     3,291        --    (5,216)   (1,024)
                                      --------  --------  --------  --------  --------  --------  --------  --------
Net income (loss)                     $ 1,230   $ 1,230   $ 1,236   $ 1,236   $ 1,327   $(2,598)  $(6,142)  $(5,361)
                                      ========  ========  ========  ========  ========  ========  ========  ========

Basic income per share:

Net income (loss) from continuing

operations per share                  $  0.26   $  0.16   $  0.26   $  0.19   $  0.28   $  0.12   $ (0.42)  $ (0.15)
Net income (loss) from discontinued

operations per share                       --      0.10        --      0.07        --     (0.67)    (0.89)    (1.01)
                                      --------  --------  --------  --------  --------  --------  --------  --------

Net income (loss) per share           $  0.26   $  0.26   $  0.26   $  0.26   $  0.28   $ (0.55)  $ (1.31)  $ (1.16)
                                      ========  ========  ========  ========  ========  ========  ========  ========

Weighted average shares                 4,717     4,717     4,717     4,717     4,717     4,717     4,693     4,693

Diluted income per share:

Net income (loss) per continuing

operations per share                  $  0.25   $  0.15   $  0.25   $  0.18   $  0.27   $  0.11   $ (0.42)  $ (0.15)
Net income (loss) from discontinued
operations per share                       --      0.10        --      0.07        --     (0.64)    (0.89)    (1.01)
                                      --------  --------  --------  --------  --------  --------  --------  --------

Net income (loss) per share           $  0.25   $  0.25   $  0.25   $  0.25   $  0.27   $ (0.53)  $ (1.31)  $ (1.16)
                                      ========  ========  ========  ========  ========  ========  ========  ========

Weighted average shares                 4,928     4,928     4,882     4,882     4,888     4,888     4,693     4,693
</TABLE>


                                      F-22
<PAGE>
NOTE  15.  RESTATEMENT

BACKGROUND  INFORMATION  AND  ORIGINAL  ACCOUNTING
In  September 1997, the Company sold several general dental practices to Pacific
Coast  Dental,  Inc.,  Associated Dental Services, Inc., and affiliated dentists
(the  "Purchasers"  or  "PCD")  in exchange for consideration consisting of $8.0
million  of  long-term  promissory  notes.  In  the  Company's  1997  financial
statements, the Company recorded a gain on sale of discontinued dental practices
of  $3.3 million (net of income taxes of $2.1 million) on this sale transaction.
In  April 1998, the Company sold several orthodontic practices to the Purchasers
in  exchange  for  consideration  consisting  of  $15.0  million  of  long-term
promissory  notes.  In  the  Company's  1998  financial  statements, the Company
recorded  a  gain  of  $2.1  million  (net of income taxes of $1.3) on this sale
transaction.

The Company also sold four other general dental practices to other purchasers in
exchange for consideration consisting of long-term promissory notes. During 1997
and  1998,  the  purchasers  of  these  practices  conveyed the practices to the
Purchasers in exchange for the assumption of the promissory notes payable to the
Company.  At  the  time of the conveyances of these practices to the Purchasers,
the  related promissory notes had an aggregate carrying value of $1.9 million on
the  Company's  balance  sheet,  which  exceeded  the historical cost of the net
assets  of  the  related  dental  practices  by  $1.4  million.

In  connection  with the sale of the general dental and orthodontic practices to
the  Purchasers the Company committed to lend the Purchasers certain amounts for
working  capital.  As of December 31, 1997 and 1998 the working capital loans to
the  Purchasers amounted to $850,000 and $1.6 million, respectively. During 1997
and  1998,  the  Company  originally  recorded  an aggregate of $192,000 (net of
income  taxes  of  $123,000)  and  $1 million (net of income taxes of $670,000),
respectively,  of  interest  income relating to all the various notes receivable
from  the  Purchasers.

The  Company  previously recorded various reserves against the promissory notes,
the working capital loans, and the accrued interest on these obligations, during
1997  and  1998,  in  an  aggregate  amount  of  $1.9 million and $14.4 million,
respectively.  The  Company  also  received  during  1997 and 1998, $227,000 and
$38,000,  respectively,  of  interest payments from the Purchasers. As a result,
the total carrying value of all the amounts receivable from the Purchasers as of
December  31,  1998  was  $12.2  million in the previously reported consolidated
balance  sheet.  Of  the  $16.3  million  of total reserves that were previously
recorded,  $4.8  million  were  included in the calculation of the gains on sale
discussed  above, and $7 million were charged to expense (net of income taxes of
$4.5  million)  subsequent  to  the  dates  of the respective sale transactions.

Restatement
Subsequent to these transactions, the Purchasers defaulted on the amounts due to
the  Company.  In  a subsequent review of the facts and circumstances related to
this  matter, and based upon no new information that was not otherwise available
to  the  Company  at  the  time  when  it  entered  into these transactions, the
Company's  management  has concluded that as of the date of the initial sale the
Purchasers  did  not have sufficient resources to repay these notes from sources
other  than  the  operations  of  the  purchased  practices.  As  a  result, the
accompanying  1998 and 1997 financial statements have been restated from amounts
previously  reported  to  reverse the sales transactions to PCD discussed above,
and  the  related  promissory  notes and the working capital loans have not been
recognized  in the restated financial statements. The historical cost of the net
assets  sold  in all of the sale transactions discussed above, less the interest
payments  received  from  the Purchasers, have been recorded on the consolidated
balance  sheets under the caption "Assets of discontinued operations transferred
under  contractual  arrangements."  As of December 31, 1998, the balance in this
caption  was $9.0 million, compared to a carrying value of $12.2 million for the
promissory  notes  and  working capital loans in the previously issued financial
statements.  As  of  December  31,  1997,  the  balance in this caption was $2.5
million,  compared  to a carrying value of $7.6 million for the promissory notes
and  working  capital  loans in the previously issued financial statements.  The
restated  financial  statements  do  not  reflect  any  gains  on  these  sale
transactions,  and  do not reflect any interest income on the related promissory
notes.  In  addition,  the carrying value of the promissory notes related to the
four  practices  that were also transferred to the Purchasers was reduced to the
historical  cost  of the net assets of the related dental practices, at the time
of  the  transfers. The working capital loans are fully reserved at the time the
loans  were  made  and  the  Company  has  no further obligation to provide such
working  capital  loans.  Interest payments received have been applied to reduce
the  historical  cost  of the net assets transferred.  This accounting treatment
more  appropriately  reflects  the  economic  substance  of the transactions, as
distinct  from  the  legal  form  of  the  transactions.


                                      F-23
<PAGE>
The  effects  of  the restatement are as follows (in thousands, except for share
data):

<TABLE>
<CAPTION>
                                                        1998                 1997
                                                   As                   As
                                               previously     As     previously     As
As of December 31,                             reported   restated   reported   restated
                                               ---------  ---------  ---------  ---------
<S>                                            <C>        <C>        <C>        <C>
Accounts receivable, net of allowance . . . .  $   4,641  $   3,345  $   5,349  $   5,260
Notes receivable - current. . . . . . . . . .     10,892         --      1,878      1,878
Prepaid expenses and other current assets . .        478      1,017      1,029      1,029
Deferred income taxes - current . . . . . . .      6,672         67      1,047        533
Notes receivable - long term. . . . . . . . .      4,083      3,523     12,327      4,783
Assets of discontinued operations transferred
    under contractual arrangements. . . . . .         --      8,950         --      2,478
Deferred income taxes - long term . . . . . .        539      8,415         --      1,236

Total assets. . . . . . . . . . . . . . . . .  $  79,944  $  77,956  $  88,518  $  84,085

Deferred income taxes . . . . . . . . . . . .  $      --  $      --  $   1,289  $      --
Retained earnings . . . . . . . . . . . . . .     18,722     16,734     29,816     26,672
Total liabilities and
   stockholder equity . . . . . . . . . . . .  $  79,944  $  79,956  $  88,518  $  84,085
</TABLE>


                                      F-24
<PAGE>
<TABLE>
<CAPTION>
                                                 1998                     1997
                                            As                       As
                                        previously      As       previously       As
Year ended December 31,                 reported     restated     reported     restated
                                      ------------  -----------  -----------  -----------
<S>                                   <C>           <C>          <C>          <C>
Revenues . . . . . . . . . . . . . .  $    97,449   $   97,449   $   95,350   $   95,350
Health care expenses . . . . . . . .       66,020       66,020       65,702       65,702
Selling, general and administrative.       37,492       36,259       25,103       25,103
Loss on impairment of assets . . . .      (11,165)      (2,397)          --           --
Other income . . . . . . . . . . . .        2,341          624        1,632        1,316
Interest expense . . . . . . . . . .       (4,311)      (4,311)      (2,871)      (2,871)
Income (loss) from continuing
   operations before tax . . . . . .      (19,198)     (10,914)       3,306        2,990
Provision for income taxes . . . . .       (6,638)      (3,406)       1,495        1,371
Income (loss) from continuing
   operations. . . . . . . . . . . .      (12,560)      (7,508)       1,811        1,619
Income (loss) from discontinued
   operations. . . . . . . . . . . .         (620)      (2,430)      (3,555)      (7,408)
Gain (loss) on disposal of
   discontinued operations . . . . .        2,086           --         (605)         296
                                      ------------  -----------  -----------  -----------

  Net income (loss). . . . . . . . .  $   (11,094)  $   (9,938)  $   (2,349)  $   (5,493)
                                      ============  ===========  ===========  ===========


Basic earnings (loss) per share

Income (loss) from continuing
   operations per share. . . . . . .  $     (2.66)  $    (1.58)  $     0.38   $     0.34
Income (loss) from discontinued
   operations per share. . . . . . .         0.31        (0.51)       (0.88)       (1.50)
                                      ------------  -----------  -----------  -----------

  Net loss per share . . . . . . . .  $     (2.35)  $    (2.09)  $    (0.50)  $    (1.16)
                                      ============  ===========  ===========  ===========

Weighted average shares. . . . . . .        4,747        4,747        4,723        4,723


Diluted earnings (loss) per share

Income (loss) from continuing
   operations per share. . . . . . .  $     (2.66)  $    (1.58)  $     0.37   $     0.33
Income (loss) from discontinued
   operations per share. . . . . . .         0.31        (0.51)       (0.85)       (1.45)
                                      ------------  -----------  -----------  -----------

  Net loss per share . . . . . . . .  $     (2.35)  $    (2.09)  $    (0.48)  $    (1.12)
                                      ============  ===========  ===========  ===========

Weighted average shares. . . . . . .        4,747        4,747        4,899        4,899
</TABLE>

NOTE  16.  SUBSEQUENT  EVENTS  (UNAUDITED)

The  consolidated  financial  statements  have  been prepared on a going concern
basis,  which  contemplates  the  realization  of assets and the satisfaction of
liabilities in the normal course of business. The Company's financial statements
do not include any adjustments relating to the recoverability and classification
of  recorded asset amounts or the amounts and classification of liabilities that
might  be necessary should the Company be unable to continue as a going concern.
As  shown  in the financial statements, during the years ended December 31, 1998
and  1997,  the  Company  incurred  net losses of $9.9 million and $5.5 million,
respectively,  and  net  cash  used by operating activities was $1.7 million and
$1.6  million,  respectively.  As  of  December  31, 1998, the Company's current
liabilities  exceeded  its  current  assets by $10.7 million. As of December 31,
1999 the Company was in violation of certain financial covenants relating to its
two  major  lenders.  As  of  December  31,  1999,  the  net worth of one of the
Company's  subsidiaries,  SafeHealth Life Insurance Company ("SafeHealth Life"),
was below the required regulatory minimum capital and surplus by $4.5 million. A
significant  portion of the proceeds from the Company's new loan entered into on


                                      F-25
<PAGE>
March  1,  2000, as described below, was used to resolve this regulatory capital
deficiency.

Management  believes  that  the  Company's  continuation  as  a going concern is
dependent  upon  its  ability  to  generate  sufficient  cash  flow  to meet its
obligations  on  a  timely  basis, to comply with the terms and covenants of its
financing  agreements,  to  obtain  additional financing as may be required, and
ultimately to attain profitable operations. As further discussed below, on March
1,  2000  the  Company entered into an agreement with its primary lenders and an
investor  group.  Under  this agreement all the Company's debt will be converted
to  equity,  and  the  Company  was able to cure its minimum capital deficiency.
Also,  in  connection  with  this  agreement  the  Company  obtained a new chief
executive  officer and certain new directors.  Management's plans to continue as
a  going  concern  and  to  return the Company to profitability include plans to
increase  premium rates, reduce certain types of non-standard provider payments,
reduce  the  number  of  its  employees  by consolidating certain administrative
functions  in  one  location, reduce the amount of office space used, and reduce
various  other selling, general and administrative expenses.  Management's plans
also include enhanced programs for customer retention, increasing the efficiency
of  its  provider  network  and  streamlining  operations  with  a  focus toward
strengthening  customer  service.  Management  believes  that the results of its
plans, and with the agreement reached on March 1, 2000 discussed above, that the
Company  will  be  able  to  meets its ongoing obligations on a timely basis and
return  to  profitable  operations.

On  May  28,  1999, the Company and its primary lenders, Silicon Valley Bank and
John  Hancock  Mutual  Life  Insurance  Company  ("John  Hancock"),  executed
restructured credit agreements with respect to the revolving credit facility and
the  senior notes, respectively. The restructured agreements provide for changes
in  interest  rates  and  modifications to the financial covenants and reporting
requirements,  as  well as specific principal repayments. In connection with the
execution  of  the restructured agreements, the Company obtained waivers for all
prior  and  existing  defaults  and  events of default under the previous credit
agreements through May 28, 1999. In connection with the restructured agreements,
the Company issued warrants to purchase 382,000 shares of common stock for $4.51
per  share  to  John  Hancock.  The  warrants  were exercisable at any time from
January  1,  2000  to  December  31,  2003.

As  of  June  29,  1999, the Company entered into a definitive agreement with an
investor group, subject to regulatory and stockholder approvals, under which the
investor group would purchase $20 million of convertible preferred stock and $20
million  of  convertible  subordinated debentures from the Company. However, the
agreement  with  the investor group was terminated in February 2000. On March 1,
2000,  the  Company  entered  into an agreement with both of its lenders and the
same  investor  group, under which the investor group loaned $8.0 million to the
Company.  Under  this  agreement,  the  investor  group and the existing lenders
agreed to convert the $8.0 million loan, the outstanding balance of $7.0 million
under  the  revolving  credit  facility,  and  the  outstanding balance of $32.5
million  under  the  senior  notes  to  convertible  preferred stock, subject to
regulatory approval. In addition, the warrants to purchase 382,000 shares of the
Company's  common  stock that were issued to the holder of the senior notes were
cancelled. Under this agreement, both lenders agreed not to demand or accept any
payment  under the credit agreements, and not to take any enforcement actions of
any  kind  under  the  agreements  until  April  30,  2001.

During  1999,  the  Company  reached  an  oral  agreement  with  the issuer (the
"Issuer")  of  certain  promissory  notes held by the Company (the "Notes"), and
another  third  party  (the  "Purchaser"),  under  which  the  Notes  would  be
liquidated.  Under  this agreement, the Issuer would convey the dental practices
that  comprise  the  collateral  for the Notes to the Purchaser, in exchange for
proceeds  that would be paid to the Company in satisfaction of the Notes. Due to
uncertainty of the Issuer's ability to meet its obligations under the Notes, the
Company  did  not  recognize these transactions as sales for accounting purposes
and  accordingly  has not recorded the related promissory notes in its financial
statements  (see Note 15).  Based on this oral agreement with the Issuer and the
Purchaser  and other factors, the Company has determined that the carrying value
of  the  discontinued  net  assets  related  to  the  Notes  has  been impaired.
Accordingly,  the  Company  recorded  an  additional  loss  from  disposal  of
discontinued  operations  of  $6.5  million  before income taxes during the nine
months  ended September 30, 1999 to reduce the carrying value of these assets to
their  estimated  net  realizable value.  During March 2000, the Company entered
into a definitive agreement with respect to this transaction, which is currently
pending  regulatory  approval.

During  June  1999  the  Company  completed  the sale of its former headquarters
office building for approximately $3.5 million, which was the carrying amount of
the  building  on  the  Company's  balance  sheet  as  of December 31, 1998. The
carrying  amount  of the building is reflected on the consolidated balance sheet
under  the  caption  "Assets  Held  for  Sale."

In  September  1999  the  Company's  common  stock  was  removed from the NASDAQ
National  Market due to the Company's inability to meet the relevant minimum net
tangible  worth  requirement.

During  the  quarter  ended September 30, 1999, the Company recorded a charge to
earnings  to  establish  a  valuation allowance against its deferred tax assets.
The amount of the allowance is equal to the total amount of its net deferred tax
assets, which was $8.5 million at December 31, 1998.  The Company's deferred tax
assets  have  been  fully reserved due to uncertainty about whether they will be
realized  in  the  future,  primarily  due  to  operating losses incurred by the
Company  in  1998  and 1999, and the existence of significant net operating loss
carry-forwards  for  tax  purposes.


                                      F-26
<PAGE>
In  December  1999,  a  shareholder lawsuit against the Company was filed, which
alleges that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  The  Company has directors and officers liability insurance and intends
to  vigorously  defend  this  litigation.  In  the  opinion  of  the  Company's
management, the ultimate outcome of this matter will not have a material adverse
effect  on  the  Company's  financial  position  or  results  of  operations.


                                      F-27
<PAGE>
<TABLE>
<CAPTION>
                                 SAFEGUARD HEALTH ENTERPRISES, INC.
                                          AND SUBSIDIARIES
                                             SCHEDULE II
                                  VALUATION AND QUALIFYING ACCOUNTS
                                  DECEMBER 31, 1998, 1997 AND 1996
                                             (in $000's)


                                      Balance at   Charged to    Charged to                Balance at
Beginning Cost and                     Beginning    Cost and       Other                      End
Classification                          of Year     Expenses    Accounts(1)    Write Offs   of Year
                                      -----------  -----------  ------------  ------------  --------
<S>                                   <C>          <C>          <C>           <C>           <C>
1996:
Allowance for doubtful accounts:
Accounts receivable. . . . . . . . .  $       260  $       615  $         62  $      (406)  $    531

1997:
Allowance for doubtful accounts:
Accounts receivable. . . . . . . . .  $       531  $     1,058  $         --  $      (528)  $  1,061

Long-term notes receivable (as
  restated, see Note 15 to the
  consolidated financial statements)  $        --  $     2,205  $         --  $        --   $  2,205

1998:
Allowance for doubtful accounts:
Accounts receivable. . . . . . . . .  $     1,061  $     1,733  $         --  $      (851)  $  1,942
Long-term notes receivable (as
  restated, see Note 15 to the
  consolidated financial statements)  $     2,205  $     2,020  $         --  $      (664)  $  3,561

<FN>
(1)     Represents  balance  forward  from First American, which was charged to the opening goodwill
balance.
</TABLE>


                                      F-28
<PAGE>