<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                            ______________________
                                        
                                   FORM 10-K
                                   ---------

    [ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                                        
                  For the fiscal year ended December 31, 1998

                                      or
                                        
   [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                                        
             For the transition period ___________ to ___________

                       COMMISSION FILE NUMBER:  0-23363
                                        
                        AMERICAN DENTAL PARTNERS, INC.
            (Exact name of registrant as specified in its charter)

          DELAWARE                                        04-3297858    
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                        AMERICAN DENTAL PARTNERS, INC.
                        301 Edgewater Place, Suite 320
                        WAKEFIELD, MASSACHUSETTS  01880
         (Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (781) 224-0880 / (781) 224-
                                  4216 (FAX)
                                  
                                        
          Securities registered pursuant to Section 12(b) of the Act:

                                             NAME OF EACH EXCHANGE
               Title of each class            ON WHICH REGISTERED
               -------------------            -------------------
                       None                           None

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

                         Common Stock, $0.01 par value
                         -----------------------------
                               (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.       X        YES          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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ X ]

The aggregate market value of the registrant's voting common stock held by non-
affiliates of the registrant was approximately $35,104,000 on March 1, 1999,
based on the closing price of such stock, as reported on the Nasdaq National
Market System.

The number of shares of Common Stock, $0.01 par value, outstanding as of March
1, 1999 was 7,466,880

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Definitive 1999 Proxy Statement for its 1999 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated
by reference in Part III of this Annual Report on Form 10-K.

================================================================================
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.
                                     INDEX
                                     -----
                                        
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Information Regarding Forward-looking Statements........................       3

PART I.
 
Item 1.   Business .....................................................       3
 
Item 2.   Properties....................................................      14
                                                                               
Item 3.   Legal Proceedings.............................................      15
                                                                               
Item 4.   Submission of Matters to a Vote of Security Holders...........      15
          

PART II.  
          
Item 5.   Market for Registrant's Common Equity and Related 
           Stockholder Matters..........................................      16
 
Item 6.   Selected Financial Data.......................................      17
          
Item 7.   Management's Discussion and Analysis of Financial Condition 
           and Results of Operations....................................      18
 
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk....      24
 
Item 8.   Financial Statements and Supplementary Data...................      25
 
Item 9.   Changes in and Disagreements with Accountants on Accounting 
           and Financial Disclosure.....................................      46
 

PART III.
 
Item 10.  Directors and Executive Officers of the Registrant............      46
          
Item 11.  Executive Compensation........................................      46
          
Item 12.  Security Ownership of Certain Beneficial Owners and 
           Management...................................................      46
          
Item 13.  Certain Relationships and Related Transactions................      46


PART IV.

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 
           8-K..........................................................      46
</TABLE> 

                                       2
<PAGE>
 
               INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
                                        

     Some of the information in this Report on Form 10-K contains "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The words "believe," expect," anticipate," "project," and
similar expressions, among others, identify forward-looking statements. Forward-
looking statements speak only as of the date the statement was made. Such
forward-looking statements are subject to uncertainties and other factors that
could cause actual results to differ materially from those projected,
anticipated or implied. Certain factors that might cause such a difference
include, among others, the Company's risks associated with its acquisition and
affiliation strategy, management of rapid growth, dependence upon affiliated
dental groups, dependence upon service agreements, government regulation of the
dental industry and year 2000 compliance issues. Additional risks, uncertainties
and other factors are set forth in the "Risk Factors" section of the Company's
Registration Statement on Form S-4 (File No. 333-56941).

                                    PART I
                                        
ITEM 1.   BUSINESS

OVERVIEW

     American Dental Partners, Inc. (the "Company") is a leading provider of
dental practice management services to multi-disciplinary dental group practices
in selected markets in the United States. The Company seeks to affiliate with
leading dental groups that provide a comprehensive range of dental care
services, have outstanding reputations for quality and have proven records of
financial performance. From November 1996 (the date of its first affiliation)
through December 31, 1998, the Company completed affiliations with 19 dental
group practices, and as of December 31, 1998, operated 103 dental facilities
with 830 operatories in eight states. The Company's growth has resulted
primarily from these affiliations, which consisted of three dental group
practice affiliations completed in 1996, six dental group practice affiliations
completed in 1997 and ten dental group practice affiliations completed in 1998.

     The Company's affiliation model is designed to create a partnership in
management between the Company and the affiliated dental group practice that
allows each party to maximize its strengths and retain its autonomy. When
affiliating with a dental group practice, the Company acquires substantially all
of its non-clinical assets and enters into a long-term service agreement to
manage the non-clinical aspects of the dental operations. The Company supports
its affiliated dental group practices with a broad range of services designed to
enhance practice revenue, improve operating efficiencies and expand operating
margins. The Company shares the best practices of its network with each
affiliate and provides assistance with information systems, budgeting, financial
reporting, facilities management, third-party payor contracting, supplies and
equipment procurement, quality assurance initiatives, billing and collecting
accounts receivable, marketing and recruiting, hiring and training support
staff.

     The Company's objective is to be the leading dental practice management
company in the United States. The Company's strategy for achieving this
objective is to: (i) expand into carefully selected and diverse geographic
markets which have favorable demographics and projected economic growth; (ii)
affiliate with leading dental group practices which have reputations for quality
care and proven records of financial performance; (iii) increase market
penetration in each of its markets through additional affiliations, recruitment
of dentists and new facility development; (iv) add value to each affiliated
dental group practice by assisting the practice in improving operating
performance; and (v) pursue various initiatives to ensure the highest quality of
care and service.


DENTAL CARE INDUSTRY

     The market for dental care is large, growing and highly fragmented. The
United States Health Care Financing Administration estimates that expenditures
for dental care were approximately $50.6 billion in 1997 and will reach
approximately $83.4 billion by 2005, representing a compound annual growth rate
of approximately 6.4%. The Company believes that the growth in expenditures for
dental care will continue to be driven by both increases in costs and increases
in demand for services due to: (i) improved dental benefits offered by
employers; (ii) increased availability and use of dental insurance, including
preferred provider organization ("PPO") plans and capitated managed care
plans; (iii) increased demand for dental care from an aging population; and (iv)
increased demand for cosmetic and preventative procedures. The Company believes
that this growth will benefit not only dentists, but companies that provide
services to the dental care industry, such as dental practice management

                                       3
<PAGE>
 
companies. However, the failure of any of the foregoing factors to materialize
could offset increases in demand for dental care, and any such increases may not
correlate with growth in the Company's business.

     Unlike many other sectors of the health care services industry, the dental
care industry is in the early stages of consolidation. Although dental care is
typically offered by solo practitioners, the trend towards group practice is
growing. According to the American Dental Association ("ADA"), in 1995, 11.8%
of the approximately 153,300 dentists in the United States were practicing in
groups of three or more, up from 4.1% in 1991. The Company believes this
consolidation trend will continue.

     Most dental care performed in the United States is categorized as general
dentistry. Based upon a 1990 survey by the ADA, general dentistry was estimated
to represent approximately 83% of all dental services performed in the United
States. General dentistry includes preventative care, diagnosis and treatment
planning, as well as procedures such as fillings, crowns, bridges, dentures and
extractions. Specialty dentistry, which includes orthodontics, periodontics,
endodontics, prosthodontics and pediatric dentistry, represented the remaining
17% of dental care services.

     Historically, dental care was not covered by insurers and consequently was
paid for by patients on a fee-for-service basis. An increasing number of
employers have responded to the desire of employees for enhanced benefits by
providing coverage from third party payors for dental care. These third party
payors offer indemnity insurance, PPO plans and capitated managed care plans.
Under an indemnity insurance plan, the dental provider charges a fee for each
service provided to the insured patient, which is typically the same as that
charged to a patient not covered by any type of dental insurance. The Company
categorizes indemnity insurance plans as fee-for-service plans. Under a PPO
plan, the dentist charges a discounted fee for each service provided based on a
schedule negotiated with the PPO. Under a capitated managed care plan, the
dentist receives a fixed monthly fee from the managed care organization for each
member covered under the plan who selects that dentist as his or her provider.
Capitated managed care plans also typically require a co-payment by the patient.

     The National Association of Dental Plans ("NADP") estimated that
approximately 147 million people, or approximately 55% of the population of the
United States, were covered by some form of dental care plan in 1997. This
compares with approximately 117 million people, or approximately 46% of the
population of the United States, in 1995 and approximately 96 million people, or
approximately 41% of the population of the United States, in 1990. Of the 147
million people with coverage, approximately 65% were covered by indemnity
insurance, approximately 18% were covered by capitated managed care plans and
approximately 17% were covered by PPO plans. The remaining approximately 120
million people, or approximately 45% of the population of the United States in
1997, did not have dental benefit coverage. The Company believes that the number
of people with dental benefits will continue to increase and that the majority
of this growth will be in PPO and capitated managed care plans. For instance,
according to the NADP, the number of people covered by capitated managed care
plans increased from 7.8 million in 1990 to 26.5 million in 1997, representing a
19.1% compound annual growth rate. Also, according to the NADP, the number of
people covered by PPO plans increased from 11.7 million in 1994 to 24.5 million
in 1997, representing a 27.9% compound annual growth rate.

     The Company believes that the increased prevalence of dental benefits and
the shift of those benefits from traditional fee-for-service to non-fee-for-
service plans has increased the complexity of operating a dental practice and
has led dental practices to begin to affiliate or consolidate with entities,
such as the Company, that: (i) allow dentists to focus on the clinical aspects
of dentistry by providing management resources to conduct the business and
administrative aspects of dentistry; (ii) provide information and operating
systems that are required to effectively manage in an increasingly complex
reimbursement environment; (iii) assist with third-party payor contracting; (iv)
realize economies of scale in purchasing and provide access to capital; and (v)
provide dentists the opportunity to realize value for their practices.


BUSINESS STRATEGY

     The Company's objective is to be the leading dental practice management
company in the United States. In order to achieve this objective, the Company's
business strategy is to:

          Expand into carefully selected markets. The Company plans to expand
     its network of affiliated dental group practices into carefully selected
     and diverse geographic markets. The Company focuses on markets that: (i)
     offer the opportunity to gain market share leadership; (ii) have a
     prevalence of dental group practices; (iii) have favorable demographics and
     projected economic growth; and (iv) have access to dental schools. To date,
     the Company has identified approximately 125 markets that currently meet
     its market selection criteria. The Company believes that operating in
     multiple markets increases the attractiveness of the Company and its
     affiliated dental group practices to third party payors who seek to
     contract with 

                                       4
<PAGE>
 
     dental providers that are strategically located in attractive markets and
     that offer a comprehensive range of multi-disciplinary dental care
     services.

          Affiliate with leading dental group practices. In entering a new
     market, the Company seeks to affiliate with a leading dental group practice
     in that market as a platform for expansion. A "platform" dental group
     practice is one which has a reputation for quality care, provides a
     comprehensive range of dental services, has a significant market presence
     and has a proven record of financial performance. The Company believes that
     by affiliating with leading dental group practices it will become more
     attractive to other practices, dentists and payors.

          Increase market penetration. The Company seeks to be the market share
     leader in each market in which it operates. After affiliating with a
     leading dental group practice, the Company seeks to increase its market
     share by assisting the affiliate in recruiting new general and specialty
     dentists, expanding its patient base and opening new facilities.
     Additionally, the Company may affiliate with other dental practices or with
     specialty group practices that complement the platform dental group
     practice.

          Add value to each affiliated dental group practice. The Company
     supports its affiliated dental group practices with a broad range of
     services designed to enhance their practice revenue, improve operating
     efficiencies and expand operating margins. The Company shares the best
     practices of its network with each affiliate and assists each affiliate
     with an analysis of its revenue and payor mix, capacity, utilization,
     staffing, scheduling and productivity. The Company also provides its
     affiliates assistance with information systems, budgeting, financial
     reporting, facilities management, third-party payor contracting, supplies
     and equipment procurement, quality assurance initiatives, billing and
     collecting accounts receivable, marketing and recruiting, hiring and
     training support staff.

          Focus on quality care. The Company pursues various initiatives to help
     its affiliates provide the highest quality of care and service. The
     Company's goal is to have each affiliated dental group practice become
     accredited by the Accreditation Association of Ambulatory Health Care, Inc.
     ("AAAHC"). Through its National Professional Advisory Forum, the Company
     provides its affiliated dental group practices with the opportunity to
     share clinical knowledge and best clinical practices. The Company also
     implements comprehensive patient satisfaction surveys administered by
     independent third parties. The Company believes that its focus on quality
     care enhances: (i) its affiliates' relationships with patients; (ii) its
     affiliates' ability to recruit dentists; (iii) the Company's ability to
     attract new dental groups as affiliates; and (iv) the Company's
     attractiveness to third party payors.

AFFILIATION PHILOSOPHY

     The Company believes that dental care is an important part of an
individual's overall health care. Because the practitioner is best qualified to
manage the clinical aspects of dentistry, the provision of dental care must be
centered around the dentist. However, current market trends in health care are
increasing the complexity of operating a dental practice. Consequently, dentists
are affiliating with professional practice managers who can manage the non-
clinical aspects of dentistry and provide the business skills that can improve
practice operating performance.

     The Company believes that, similar to other sectors of the health care
delivery system, the delivery of dental care is fundamentally a local business.
Therefore, the Company operates its business in a decentralized manner and
maintains the identity of the local affiliated practice. In each affiliation,
the Company strives to maintain the local culture of the affiliated group and
encourages it to retain the name of the practice, continue its presence in
community events, maintain its relationship with patients and local third party
payors and, to the extent possible, maintain the existing management
organization.

     The Company's affiliation model is designed to create a partnership in
management between the Company and the affiliated dental group practice that
allows each party to maximize its strengths and retain its autonomy. Under the
Company's affiliation model, the affiliated dental group continues to own its
practice and has sole purview over the clinical aspects of the practice while
the Company manages the business aspects of the practice. This affiliation model
is consistent across practices and, even where permitted by law, the Company
does not employ practicing dentists.

     The Company believes that the core values of a business partnership are
shared governance and shared financial objectives and has structured its
affiliation model to achieve these goals. Shared governance is achieved by the
formation of a joint policy board for each affiliated dental group practice
which is comprised of an equal number of representatives from the Company and
the affiliated dental group practice. Together, members of the policy board
develop strategies and decide on major business initiatives for the practice.
Shared financial objectives are achieved through the joint implementation of a
budgeting process that establishes the financial performance standards for the
dental practice.

                                       5
<PAGE>
 
     The organizational structure of a dental group practice before and after
its affiliation with the Company is generally as follows:

     BEFORE AFFILIATION                        AFTER AFFILIATION
---------------------------- --------------------------------------------------

                                                 Joint Policy
                                                     Board


                             Dentist-owned          Service        ADP-owned
          Dental              Professional         Agreement   Management Sevice
          Group               Corporation          (40 year)      Organization
                                 (PC)                                 (MSO)



MARKET AND GROUP SELECTION

  Market Selection

  The Company has well-defined market selection criteria. The Company defines
potential markets with reference to one or more Metropolitan Statistical Areas
("MSAs"). An MSA is generally a geographic area consisting of a city of at
least 50,000 people, together with adjacent communities that have a high degree
of economic and social integration with the population center. In 1996, there
were 316 MSAs in the United States. The Company typically focuses on markets
with a population of at least 250,000 people that: (i) offer the opportunity to
gain market share leadership; (ii) have a prevalence of dental group practices;
(iii) have favorable demographics and projected economic growth; and (iv) have
access to dental schools. The Company has identified approximately 125 MSAs that
currently meet its market selection criteria.


  Group Selection

  The Company seeks to affiliate with leading dental group practices in each
selected market. The Company focuses on group practices because they have
greater potential to be market share leaders. Group practices are also more
likely to have implemented quality assurance and peer review policies and
procedures and are better positioned to operate in an increasingly complex
reimbursement environment. When entering a new market, the Company seeks to
affiliate with a platform dental group with a: (i) reputation for quality care;
(ii) comprehensive range of dental care services; (iii) significant market
presence; and (iv) proven record of financial performance. The Company believes
that, although a limited number of platform dental group practices exist within
any given market, there are a significant number of such groups nationwide.

  Affiliation Process

  Once the Company has identified a potential affiliate within a market, the
Company's management seeks to determine whether the group practice and the
Company share a common philosophy about the dental industry and common strategic
goals and objectives. To this end, the Company conducts a series of meetings,
site visits and presentations with the potential affiliate about the industry,
the Company and its affiliation model. The Company believes that the existence
of shared philosophical values is a critical element of the affiliation's
ultimate success.

  If the Company and a potential affiliate determine that they share common
values, goals and objectives, the Company then undertakes a preliminary due
diligence review of clinical, operating and financial information. Based upon
this review, the Company formulates an offer outlining the basic terms and
conditions of the affiliation which, if accepted by the dental group practice,
is generally embodied in a letter of intent between the parties.

                                       6
<PAGE>
 
  Upon signing a letter of intent, the Company and its representatives begin a
thorough review of the potential affiliate's clinical systems, processes,
facilities and compliance with licensing and credentialing requirements, as well
as performing legal and accounting due diligence. Acquisition, service and other
agreements are then prepared and the transaction is closed. Generally, the
process of identifying an acceptable affiliation candidate to closing the
transaction takes approximately twelve months.

  Potential Affiliations

  The Company is constantly discussing potential affiliations with dental group
practices that meet the Company's group selection criteria, which may be at
various stages at any point in time.  There can be no assurance that the Company
will consummate any of these potential affiliations.

AFFILIATED NETWORK

  From November 1996 (the date of its first affiliation) through December 31,
1998, the Company has affiliated with 19 dental practices in eight states. The
following table lists the affiliations completed by the Company as of December
31, 1998:

<TABLE>
<CAPTION>
                                               Dental
              State/Affiliation              Facilities  Operatories (1)                   Market(s)          Affiliation Date
------------------------------------------   ----------  ---------------                   ---------          ----------------
<S>                                          <C>         <C>               <C>                                <C>
ARIZONA                                      
  Associated Dental Care Providers........        6              51        Phoenix and Tucson                 January 1998

LOUISIANA                                                                   
  Lakeside Dental Care....................        1              28        Metairie                           March 1997
  Leroy S. Crapanzano, D.D.S..............        1               5        Hammond                            April 1998
  
MARYLAND                                                                   
  Mintz & Pincus Dental Group.............        2              35        Oxon Hill and Waldorf              September 1998

MINNESOTA                                                                  
  Park Dental.............................       30             220        Minneapolis / St. Paul             November 1996
  Orthocare Group.........................       17              85        Minneapolis / St. Paul             October 1997
                                             
PENNSYLVANIA                                                               
  Soster Dental Group.....................        4              29        Pittsburgh                         May 1997
  Indiana Dental Group....................        2               9        Indiana                            July 1998
  Westmore Dental Group...................        1              13        Mt. Pleasant                       September 1998

TEXAS                                                                      
  Longhorn Dental.........................        8              47        Austin and Killeen                 December 1996
  Malcolm R. Scott, D.D.S.................        1               6        San Marcos                         March 1997
  TSC Dental Centers......................        3              28        Houston                            June 1998

VIRGINIA                                                                   
  Reston Dental Group.....................        1              39        Reston                             June 1998

WISCONSIN                                                                  
  Smileage Dental Care....................       13             126        Appleton, Green Bay, Kenosha
                                                                           Madison and Milwuakee              December 1996
  Northpoint Dental Group.................        2              28        Milwaukee                          July 1997
  Wilkens Dental Group....................        4              30        Milwaukee                          October 1997
  Family Care Dental Centers..............        5              40        Janesville, Kenosha and Racine     April 1998
  John E. Carey, D.D.S. and                                                          
   James J. Peterman, D.D.S................       1               7        Madison                            April 1998     
  St. Croix Valley Orthodontics...........        1               4        Hudson                             November 1998  
                                                ---             ---         
  Total...................................      103             830         
                                                ===             ===         
</TABLE>   

___________
(1) An operatory is an area where dental care is performed and generally
    contains a dental chair, a hand piece delivery system and other essential
    dental equipment.

                                       7
<PAGE>
 
MARKET PENETRATION

  After affiliating with a platform dental group practice, the Company's
strategy is to increase its market penetration by increasing the market share of
its existing affiliated dental group and by affiliating with other leading
dental groups that complement or add to the dental care provided by its existing
affiliate.

  Increase Existing Groups' Market Share

  Upon completing an affiliation, the Company prepares a thorough operating
evaluation of the affiliate which builds upon its operational due diligence.
Based on this evaluation, the Company prepares a plan for increasing the
affiliate's market penetration. This plan may include one or more of the
following methods: (i) opening new facilities that are conveniently located in
highly populated areas within the MSA or in contiguous MSAs; (ii) recruiting
additional general and specialty dentists that will complement or enhance the
dental care provided by each affiliated dental group; (iii) expanding physical
capacity by adding new operatories at existing facilities; (iv) increasing the
utilization of existing physical capacity by expanding hours of operation; and
(v) growing its affiliate's patient base through increased marketing efforts and
expanded relationships with third party payors.

  Affiliations in Existing Markets

  The Company also increases its market penetration by affiliating with other
leading general dentistry group practices and specialty dental group practices
that complement the platform dental group practice in a given market. These
practices are selected in much the same manner as the platform dental group
practice. The Company identifies those practices which have an outstanding
reputation for quality and provide the type of dental care which will complement
or add to the dental care offered by the platform dental group in that market.

OPERATIONS

  Operating Structure

  The Company operates under a decentralized organizational structure. At the
facility level, where permitted by applicable state law, the Company generally
employs the dental hygienists, dental assistants and administrative staff. At
each facility, a practice manager typically oversees the day-to-day business
operations. The practice manager and administrative staff are responsible for,
among other things, facility staffing, patient scheduling, on-site patient
invoicing and ordering office and dental supplies. The Company believes local
office scheduling is crucial because it allows each practice to accommodate the
needs of its patients and increase the productivity of its dentists.

  In each market, the Company has a local management team that supervises the
operations of one or more affiliates. This team provides support in areas such
as recruiting, hiring and training facility staff, developing and implementing
quality assurance programs, developing and implementing operating policies and
procedures, billing and collecting accounts receivable, processing payroll,
information systems, accounting, marketing and facilities development and
management.

  Each local management team reports to one of the Company's operating vice
presidents. An operating vice president is responsible for monitoring the
operating performance of multiple affiliated dental groups in multiple markets.
Each operating vice president participates as a member of the policy board of
the affiliated dental groups for which he or she has management oversight
responsibilities. The operating vice presidents are responsible for overseeing
the development of operating plans and annual budgets and monitoring actual
results. Additionally, the Company supports each of its dental group practices
with analysis of the capacity, utilization and productivity of each dental
facility. This analysis assists each practice in improving its operating
performance from both a clinical and financial perspective.

  On a national level, the Company supports its affiliated network in several
ways. The Company assists its affiliates with: (i) sharing best clinical
practices through its National Professional Advisory Forum; (ii) evaluating and
negotiating third party payor contracts; (iii) designing, locating and leasing
new facilities; (iv) developing budgets and implementing accounting and
financial systems; and (v) developing and implementing practice management and
other information systems. The Company also takes advantage of economies of
scale by contracting for various goods and services. For example, the Company
has arranged for national contracts for the purchase of dental supplies and
equipment, professional, casualty, and general liability insurance and payroll
processing.

                                       8
<PAGE>
 
  National Professional Advisory Forum

  The Company has organized the National Professional Advisory Forum ("NPAF")
to provide guidance to its affiliated dental group practices with respect to the
clinical aspects of dentistry. Leading dentists from the Company's affiliated
dental groups are selected to participate in the NPAF. The NPAF meets three
times per year and provides a forum for dentists to share the best clinical
practices of their respective dental groups and an opportunity for them to build
professional relationships with other dentists affiliated with the Company.
These dentists, as a result of their affiliation with the Company, share common
long-term goals. This enables the discussion at the NPAF to be more open than it
may be in other professional settings. While the primary emphasis of the NPAF is
on the clinical aspects of dentistry, it also provides the Company's management
an opportunity to communicate with affiliated dentists. This enables the Company
to continue to build strong, mutually beneficial partner relationships with its
affiliated dental groups.

  Payor Relationships and Reimbursement Mix

  The Company and its affiliates believe that clinical and economic decisions
should be made separately. However, the Company recognizes that the source of
payment for services affects operating and financial performance. The Company
assists its affiliates in analyzing their revenue and payor mix on an ongoing
basis and recommends methods by which the affiliated dental group practices can
improve operating efficiency by improving their revenue and payor mix. As a
general rule, the Company believes that growth in a market is best facilitated
where the payor mix of its affiliates mirrors the payor mix for that market. The
Company assists each of its affiliated dental groups in evaluating and
negotiating third-party payor contracts on a local, regional and national level.
The aggregate payor mix percentage of the Company's affiliated practices was
approximately 39% fee-for-service, 12% PPO plans and 49% capitated managed care
plans for the year ended December 31, 1998.

  The Company believes it is advantageous to be affiliated with dental groups
that have successfully provided care to patients under all reimbursement
methodologies. Since a shift is taking place in the dental benefits market from
traditional fee-for-service to PPO and capitated managed care dental plans, the
Company believes that its affiliates' experience in operating under all of these
plans provides them with a competitive advantage.  Most of the Company's
affiliated dental groups have provided care under traditional fee-for-service
plans and non-fee-for-service plans. Several of the Company's affiliated dental
groups have been providing care to patients with capitated managed care dental
benefits for more than 20 years.


  Facilities Development and Management

  The Company believes an inviting professional environment is a critical aspect
of overall patient satisfaction. Each of the Company's facilities is constructed
to be warm, attractive and inviting to the patients in addition to being highly
functional. The Company's dental facilities have from three to 39 operatories,
and typically accommodate general and specialty dentists, dental hygienists and
dental assistants, a business manager and a receptionist. Generally, the
Company's facilities are either stand alone or located within a professional
office building or medical facility and range in size from approximately 1,500
to 10,000 square feet.

  The Company works with each of its affiliated dental groups in analyzing
utilization of existing capacity and identifying facility upgrade and expansion
priorities. The Company also provides its affiliates guidance in the site
selection process. The Company initially constructs each facility as appropriate
for the market and adds and equips additional operatories as necessary through a
capacity and utilization analysis.

  The Company uses architectural design services to improve the facility design
process and to further ensure that all facilities are properly constructed and
meet the standards set forth by the AAAHC. To this end, the Company works with
each affiliated dental group to establish a defined set of standards for each
facility, such as operatory design and dental equipment, which are consistent
with the desires of the dental group. The Company believes such facility
standards are necessary to speed the site development process and create
consistency across newly developed facilities, leading to enhanced staff and
provider productivity.

  Budgeting and Planning; Financial Information Systems

  The Company assists each affiliate with budgeting and planning. The Company
and each affiliate develop a strategic plan for increased market penetration on
an annual basis. The Company and each affiliated dental group then jointly
develop a budget which sets specific goals for revenue growth, operating
expenses and capital expenditures. Once a budget has been approved, the 

                                       9
<PAGE>
 
Company measures the financial performance of each affiliated dental group on a
monthly basis and compares actual performance to budget.

  The Company's financial information system enables it to measure, monitor and
compare the financial performance of affiliated dental groups on a standardized
basis across its entire network. The system also allows the Company to track and
control costs and facilitates the accounting and financial reporting process.
This financial system is installed in all affiliated dental group practices.
Historically, the Company has converted all affiliates to its system within 90
days of affiliation and intends to continue this practice with new affiliates.

  Practice Management Systems

  The Company uses various dental practice management software systems to
facilitate patient scheduling, to invoice patients and insurance companies, to
assist with facility staffing and for other practice related activities. In
connection with its affiliation with Park Dental, the Company acquired the
rights to Comdent, a proprietary practice management software system which has
been used and continuously enhanced at Park Dental since 1987. The Company
believes that Comdent's scheduling, electronic data interchange and data
management features are superior to others that are commercially available. In
addition, Comdent is scalable and capable of accommodating large multi-site
dental group practices. The Company intends, when appropriate, to convert its
affiliated dental group practices to the Comdent practice management software
system. The Company is also developing a data warehouse and decision support
system to analyze information across its entire network.

AFFILIATION STRUCTURE

  Service Agreement

  The Company has entered into a service agreement with each of its affiliated
professional corporations ("PCs") pursuant to which the Company performs all
administrative, non-clinical aspects of such PC's dental practice. The Company
expects that each new affiliated PC will enter into a similar service agreement
or become a party to an existing service agreement at the time of its
affiliation. The Company is dependent on its service agreements for the vast
majority of its operating revenue. The termination of one or more of these
service agreements could have a material adverse effect on the Company.

  The Company is responsible for providing all services necessary for the
administration of the non-clinical aspects of the dental operations. These
services include assisting its affiliates with information systems, budgeting
and financial reporting, facilities management, third-party contracting,
supplies and equipment procurement, quality assurance initiatives, billing and
collecting accounts receivable, marketing and recruiting, hiring and training
support staff.

  The PC is responsible for recruiting and hiring all of the dentists necessary
to provide dental care. The Company does not assume any authority,
responsibility, supervision or control over the provision of dental care to
patients. The service agreement requires the PC to enter into an employment or
independent contractor agreement with each dentist retained by the PC. The
service agreement also requires the PC to implement and maintain quality
assurance and peer review programs, maintain professional and comprehensive
general liability insurance covering the PC and each of its dentists and abide
by non-competition and confidentiality provisions.

  The Company and each PC establish a joint policy board which is responsible
for developing and implementing management and administrative policies for the
dental operation. The policy board consists of an equal number of
representatives designated by the Company and the PC. The policy board members
designated by the PC must be licensed dentists employed by the PC. The policy
board's responsibilities include the review and approval of all renovation and
expansion plans and capital equipment expenditures with respect to the dental
facilities affiliated with the PC, all annual capital and operating budgets, all
advertising and marketing services, the long-term strategic and short-term
operational goals, objectives, and plans for the dental facilities and staffing
plans regarding provider and support personnel for the dental facilities. The
policy board also reviews and monitors the financial performance of the PC with
respect to the attainment of the PC's budgeted goals. The policy board also has
the authority to approve or disapprove any merger or combination with, or
acquisition of, any dental practice by the PC. Finally, the policy board reviews
and makes recommendations with respect to contractual relationships between the
PC and third-party payors. However, the PCs have final approval over matters
relating to dental care including all third-party payor contracts and fee
practices and schedules.

  The PC reimburses the Company for actual expenses incurred on its behalf in
connection with the operation and administration of the dental facilities and
pays fees to the Company for management services. The Company's service fees
typically consist of a fixed monthly fee and an additional variable fee. The
fixed monthly fee is determined prior to each 

                                       10
<PAGE>
 
affiliation and annually thereafter by agreement of the Company and the
affiliated dental group in a formal budgeting process. To the extent that there
is operating income after payment of the fixed monthly fee, reimbursement of
expenses incurred in connection with the operation and administration of the
dental facilities and payment of provider expenses, an additional variable fee
is paid to the Company in the amount of such excess up to budgeted operating
income and 50% of such excess over budgeted operating income. Under certain
service agreements, the Company's service fees consist of a variable monthly fee
which is based upon a specified percentage of the amount by which the PC's
adjusted gross revenue exceeds expenses incurred in connection with the
operation and administration of its dental facilities. In those situations, no
additional variable fee is applicable. The PC is also responsible for provider
expenses, which generally consist of the salaries, benefits, and certain other
expenses of the dentists. Pursuant to the terms of the service agreements, the
Company bills patients and third party payors on behalf of the affiliated PCs.
Such funds are applied in the following order of priority: reimbursement of
expenses incurred in connection with the operation and administration of the
dental facilities; repayment of advances, if any, made by the Company to the PC;
payment of the monthly fee; payment of provider expenses; and payment of the
additional variable fee.

  Each of the Company's current service agreements is for an initial term of 40
years and automatically renews for successive five-year terms, unless terminated
by notice given at least 120 days prior to the end of the initial term or any
renewal term. In addition, the service agreement may be terminated earlier by
either party upon the occurrence of certain events involving the other party,
such as its dissolution, bankruptcy, liquidation, or its failure to perform its
material duties and obligations under the service agreement. In the event a
service agreement is terminated, the related affiliated dental practice is
generally required to purchase, at the Company's option, the unamortized balance
of intangible assets at the current book value, as well as all related other
assets associated with the affiliated dental practice.


  Employment Agreements with Dentists

  The service agreements require that all dentists practicing full-time at the
dental facilities enter into employment agreements with their respective PCs.
The employment agreements with dentists who are owners of the PCs generally are
for a specified initial term of up to five years and may not be terminated by
the dentists without cause during such initial term. The employment agreements
with other dentists may be for terms up to 18 months. Such employment agreements
are usually terminable by either party upon advance written notice, which may be
90 days in some cases, and are terminable by the PC for cause immediately upon
written notice to the dentist. Such agreements typically contain non-competition
provisions which prohibit the dentist from engaging in the practice of dentistry
or otherwise performing professional dental services within a specified
geographic area, usually a specified number of miles from the relevant dental
facility, following termination. The non-competition restrictions are generally
for one to two years following termination.


COMPETITION

  The dental practice management industry, currently in its formative stage, is
highly competitive and is expected to become more competitive. The Company
competes with other dental practice management companies with respect to
providing management services to dentists, as well as those seeking to affiliate
with existing dental practices through service agreement arrangements. The
Company believes that the principal factors of competition between dental
practice management companies are their affiliation methods and models, the
reputation of their existing affiliates, the scope of their dental care
networks, their management expertise and experience, the sophistication of their
management information, accounting, finance and other systems and their
operating methods. The Company believes that it competes effectively with other
dental practice management companies with respect to these factors.


GOVERNMENT REGULATION

  General

  The practice of dentistry is highly regulated, and the operations of the
Company and its affiliated dental practices are subject to numerous state and
federal laws and regulations. Furthermore, the Company may become subject to
additional laws and regulations as it expands into new markets. There can be no
assurance that the regulatory environment in which the Company and its
affiliated dental group practices operate will not change significantly in the
future. The ability of the Company to operate profitably will depend, in part,
upon the Company and its affiliated dental group practices obtaining and
maintaining all necessary licenses, certifications and other approvals and
operating in compliance with applicable laws.

                                       11
<PAGE>
 
  State Regulation

  Every state imposes licensing and other requirements on individual dentists
and dental facilities and services. Except for Wisconsin, the laws of the states
in which the Company currently operates prohibit, either by specific statutes,
case law or as a matter of general public policy, entities not wholly owned or
controlled by dentists, such as the Company, from practicing dentistry, from
employing dentists and, in certain circumstances, dental assistants and dental
hygienists, or from exercising control over the provision of dental services.
Many states prohibit or restrict the ability of a person other than a licensed
dentist to own, manage or control the assets, equipment or offices used in a
dental practice. The laws of some states prohibit the advertising of dental
services under a trade or corporate name and require all advertisements to be in
the name of the dentist. A number of states also regulate the content of
advertisements of dental services and the use of promotional gift items. These
laws and their interpretation vary from state to state and are enforced by
regulatory authorities with broad discretion.

  There are certain regulatory issues associated with the Company's role in
negotiating and administering managed care contracts. To the extent that the
Company or any affiliated dental group practice contracts with third party
payors, including self-insured plans, under a capitated or other arrangement
which causes the Company or such affiliated dental group practice to assume a
portion of the financial risk of providing dental care, the Company or such
affiliated dental group practice may become subject to state insurance laws. If
the Company or any affiliated dental group practice is determined to be engaged
in the business of insurance, the Company may be required to change the method
of payment from third party payors or to seek appropriate licensure. Any
regulation of the Company or its affiliated dental group practices under
insurance laws could have a material adverse effect on the Company's business,
financial condition and results of operations.

  Many states have fraud and abuse laws, including anti-kickback laws, which are
similar to the federal laws, discussed below, and in many cases these laws apply
to all referrals for items or services reimbursable by any payor. A number of
states also impose significant criminal and civil penalties for false claims,
false or improper billings, or inappropriate coding for dental services. Many
states either prohibit or require disclosure of self-referral arrangements and
impose criminal and civil penalties for violations of these laws.

  Many states also prohibit a dentist from paying a portion of fees received for
dental services to another person or entity. In some states, this "fee-
splitting" prohibition applies only to payments in exchange for referrals.
Other states flatly prohibit any rebates or split fees regardless of whether
referrals are involved. There can be no assurance that management fees paid to
the Company, to the extent based on a percentage of dental service revenues or
profits, will not be deemed to violate such laws.

  Many states have antitrust laws which prohibit agreements in restraint of
trade, the exercise of monopoly power and other practices that are considered to
be anti-competitive, including cooperation by separate economic entities to fix
the prices of services. Dental practices are also subject to compliance with
state and local regulatory standards in the areas of safety and health.

  Federal Regulation

  The dental industry is also regulated at the federal level to the extent that
dental services are reimbursed under federal programs. Participation by the
affiliated dental group practices and their dentists in such programs subject
them, and potentially the Company, to significant regulation regarding the
provision of services to beneficiaries, submission of claims and related
matters, including the types of regulations discussed below. Violation of these
laws or regulations can result in civil and criminal penalties, including
possible exclusion of individuals and entities from participation in federal
payment programs.

  The federal anti-kickback statutes prohibit, in part, and subject to certain
safe harbors, the payment or receipt of remuneration in return for, or in order
to induce, referrals, or arranging for referrals, for items or services which
are reimbursable under federal payment programs. Other federal laws impose
significant penalties for false or improper billings or inappropriate coding for
dental services regardless of the payor source. The federal self-referral law,
or "Stark law," prohibits dentists from making referrals for certain
designated health services reimbursable under federal payment programs to
entities with which they have financial relationships unless a specific
exception applies. The Stark law also prohibits the entity receiving such
referrals from submitting a claim for services provided pursuant to such
referral. The Company may be subject to federal payor rules prohibiting the
assignment of the right to receive payment for services rendered unless certain
conditions are met. These rules prohibit a billing agent from receiving a fee
based on a percentage of collections and may require payments for the services
of the dentists to be made directly to the dentist providing the services or to
a lock-box account held in the name of the dentist or his or her dental group.
In addition, these rules provide that accounts receivables from federal payors
are not saleable or assignable.

                                       12
<PAGE>
 
  Federal antitrust laws prohibit agreements in restraint of trade, the exercise
of monopoly power and other practices that are considered to be anti-
competitive, including cooperation by separate economic entities to fix the
prices of services. Finally, dental practices are also subject to compliance
with federal regulatory standards in the areas of safety and health.

INSURANCE

  The Company maintains property-casualty insurance covering its dental
facilities, local management offices and its corporate office on a replacement
cost basis. Each affiliated PC maintains, or causes to be maintained,
professional liability insurance covering itself and its employees and
contractors, including the dentists, hygienists and dental assistants employed
by, or contracted by such affiliated PC in the amount of $1 million per
occurrence and $3 million annual aggregate. The Company generally is a named
insured under such policies. The Company also maintains umbrella liability
coverage for its property-casualty policies in the amount of $10 million.
Certain types of risks and liabilities may not be covered by insurance, however,
and there can be no assurance that coverage will continue to be available upon
terms satisfactory to the Company or that the coverage will be adequate to cover
losses. Malpractice insurance, moreover, can be expensive and varies from state
to state. Successful malpractice claims asserted against the dentists, the PCs
or the Company may have a material adverse effect on the Company's business,
financial condition and operating results. While the Company believes its
insurance policies are adequate in amount and coverage for its current
operations, there can be no assurance that the coverage maintained by the
Company will be sufficient to cover all future claims or will continue to be
available in adequate amounts or at a reasonable cost.

EMPLOYEES

  As of February 28, 1999, the Company employed, either directly or through
independent contract arrangements, 1,155 people. This amount included 627
hygienists and dental assistants and 528 administrative and management personnel
located at the Company's dental facilities, local management offices and its
corporate office. In addition, the Company was affiliated with 259 dentists, as
well as 77 hygienists and dental assistants located in states which prohibit the
Company's employment of hygienists and/or dental assistants, all of whom were
employees or independent contractors of their respective affiliated PCs. The
Company considers its relations with its employees to be good.

EXECUTIVE OFFICERS

  The following table sets forth information concerning each of the executive
officers of the Company:

<TABLE>
<CAPTION>
                Name                          Age                              Position
                ----                          ---                              --------
<S>                                           <C>  <C>
  Gregory A. Serrao.........................   36  Chairman, President and Chief Executive Officer
  Ronald M. Levenson........................   43  Senior Vice President, Chief Financial Officer and Treasurer
  William H. Bottlinger.....................   54  Vice President-Regional Operations and Chief Information Officer
  Joseph V. Errante, D.D.S..................   43  Vice President-Regional Operations
  Lee S. Feldman............................   31  Vice President-General Counsel
  Forrest M. Flint..........................   46  Vice President-Business Development
  Michael F. Frisch.........................   41  Vice President-Regional Operations
  Jesley C. Ruff, D.D.S.....................   44  Vice President-Chief Professional Officer
</TABLE>

_______________
The executive officers of the Company are elected annually by the Board of
Directors.

  Mr. Serrao, the founder of the Company, has served as President, Chief
Executive Officer and a Director of the Company since December 1995 and as
Chairman since October 1997. From 1992 through December 1995, Mr. Serrao served
as the President of National Specialty Services, Inc., a subsidiary of Cardinal
Health, Inc. ("Cardinal Health"). From 1991 to 1992, Mr. Serrao served as Vice
President--Corporate Development of Cardinal Health. Before joining Cardinal
Health, Mr. Serrao was an investment banker at Dean Witter Reynolds Inc. where
he co-founded its health care investment banking group and specialized in
mergers, acquisitions and public equity offerings.

  Mr. Levenson has served as Senior Vice President, Chief Financial Officer and
Treasurer of the Company since April 1996. Prior to joining the Company, Mr.
Levenson was employed by American Medical Response, Inc. ("AMR"), a national
provider of ambulance services, where he served as Senior Vice President and
Chief Accounting Officer from October 1992 through April 1996 and also served as
Treasurer from August 1995 through April 1996. Prior to joining AMR, Mr.
Levenson was a Senior Manager at KPMG Peat Marwick LLP, a public accounting
firm, where he was employed from 1979 through 1992.

                                       13
<PAGE>
 
  Mr. Bottlinger has served as Vice President and Chief Information Officer of
the Company since January 1997 and as Vice President--Regional Operations since
November 1997. From 1985 through 1996, Mr. Bottlinger served as Senior Vice
President and Chief Information Officer for Cardinal Health and Senior Vice
President and General Manager of CORD Logistics, Inc., a Cardinal Health
subsidiary which provided pharmaceutical distribution and information technology
services for emerging biotechnical manufacturing companies. During his career,
Mr. Bottlinger has initiated the use of state of the art information system
technology in a variety of businesses engaged in retailing, food wholesaling,
pharmaceutical manufacturing and distribution, pharmacy operations and financial
services.

  Dr. Errante has served as Vice President--Regional Operations of the Company
since November 1998 and as Chief Executive Officer of Innovative Practice
Concepts, Inc. (which was acquired by the Company in January 1998) since January
1996. From January 1996 to January 1998, Dr. Errante also served as Chairman of
Associated Dental Care Providers, P.C. (an affiliated dental group practice of
the Company since January 1998), which he co-founded in 1985. From 1992 to 1996,
Dr. Errante served as Chief Executive Officer and Chairman of Associated
Companies, Inc., the management company that operated Associated Health Plans,
Inc. ("AHP"), a managed care dental plan in Arizona. From 1985 to 1992, Dr.
Errante served as the Dental Director for AHP. Dr. Errante currently serves as
President of the American Academy of Dental Group Practices ("AADGP") and sits
on the Managed Care Dental Advisory Board to Proctor and Gamble.

  Mr. Feldman has served as Vice President--General Counsel of the Company since
November 1998. Prior to joining the Company, Mr. Feldman was employed by
Professional Dental Associates, Inc., a dental practice management company,
where he served as Vice President--General Counsel and Secretary from June 1997
to November 1998. From 1993 to 1997, Mr. Feldman was an associate with Ropes and
Gray, a law firm located in Boston, Massachusetts.

  Mr. Flint has served as Vice President--Business Development of the Company
since November 1996. From 1985 through November 1996, Mr. Flint served as the
Executive Director of PDHC, Ltd. ("Park"), prior to its affiliation with the
Company. At Park, Mr. Flint was responsible for managing all external
relationships and contracting with third party payors. From 1984 to 1985, Mr.
Flint was an investment banker in the health care finance group of Dain
Bosworth, Inc. From 1977 to 1984, Mr. Flint was the Director of the South Dakota
Division of Health Services. Mr. Flint is a past Board Member of the
Accreditation Association for Ambulatory Health Care, Inc.

  Mr. Frisch has served as Vice President--Regional Operations of the Company
since June 1997. From January 1997 to June 1997, Mr. Frisch served as the
Company's Director--National Support Initiatives. From July 1996 to January
1997, Mr. Frisch was an independent consultant to the Company. From June 1993 to
July 1996, Mr. Frisch served as Vice President and General Manager of National
Specialty Services, Inc., a subsidiary of Cardinal Health. From July 1986 to
June 1993, Mr. Frisch was employed by VHA, Inc., a national health care
alliance, in a variety of marketing, business development and management
positions.

  Dr. Ruff has served as Vice President--Chief Professional Officer of the
Company since January 1999 and has chaired the Company's National Professional
Advisory Forum since January 1997. From 1992 to 1998, Dr. Ruff served as
President of Wisconsin Dental Group, S.C., an affiliated dental group practice
of the Company, where he was employed as a practicing dentist and held a variety
of positions since 1985. In 1994, Dr. Ruff served on the Board of Directors of
the National Association of Prepaid Dental Plans. From 1983 to 1991, Dr. Ruff
was an Assistant Professor at the Marquette University School of Dentistry and
adjunct faculty from 1991 to 1996, where he held a variety of clinical faculty
and grant-related positions.



ITEM 2.   PROPERTIES

  As of February 28, 1999, the Company owned or leased 112 dental facilities and
seven local management offices.

  The Company's corporate office is located at 301 Edgewater Place, Suite 320,
Wakefield, Massachusetts, in approximately 6,900 square feet occupied under a
lease which expires in March 2002. The Company leases most of its dental
facilities. Typically, each acquired dental facility is located at the site used
by the dental group practice prior to affiliating with the Company.

                                       14
<PAGE>
 
ITEM 3.   LEGAL PROCEEDINGS

  From time to time, the Company may be subject to litigation incidental to its
business. The Company is not presently a party to any material litigation. The
dentists employed by, or independent contractors of, the Company's affiliated
PCs are from time to time subject to malpractice claims. Such claims, if
successful, could result in damage awards exceeding applicable insurance
coverage which could have a material adverse effect on the Company's financial
condition and results of operations.

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

  None.

                                       15
<PAGE>
 
                                    PART II
                                        
ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
          MATTERS


MARKET INFORMATION, HOLDERS AND DIVIDENDS

  The Company's Common Stock has been traded on the Nasdaq National Market
system under the symbol "ADPI" since April 16, 1998. The following table sets
forth the range of the reported high and low sales prices of the Company's
Common Stock for the year ended December 31, 1998:

<TABLE>
<CAPTION>
                                                                             High      Low
                                                                             ----      ---
  <S>                                                                       <C>       <C>
  1998                                                                    
  --- 
  2nd Quarter (beginning April 16, 1998)..................................  $19.375   $13.750
  3rd Quarter.............................................................  $15.000   $ 8.250
  4th Quarter.............................................................  $13.875   $ 7.125
</TABLE>

  As of March 1, 1999, there were approximately 62 holders of record of Common
Stock, as shown on the records of the transfer agent and registrar of Common
Stock. The number of record holders does not bear any relationship to the number
of beneficial owners of the Common Stock. The last reported sale price of the
Common Stock on the Nasdaq National Market as of March 1, 1999 was $8.125 per
share.

  The Company has not paid any cash dividends on its Common Stock in the past
and does not plan to pay any cash dividends on its Common Stock in the
foreseeable future. In addition, the terms of the Company's revolving credit
facility prohibit it from paying dividends or making other payments with respect
to its Common Stock without the lenders' consent. The Company's Board of
Directors intends, for the foreseeable future, to retain earnings to finance the
continued operation and expansion of the Company's business.

RECENT SALES OF UNREGISTERED SECURITIES

  In 1998, the Company issued the following securities that were not registered
under the Securities Act of 1933, as amended (the "Securities Act").  No
underwriters were engaged in connection with any of the following transactions,
and accordingly, no underwriting discounts or commissions were paid.  The shares
of capital stock and other securities issued in the following transactions were
offered and sold in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act or Regulation D promulgated thereunder
relative to sales by an issuer not involving a public offering.

  (i) On January 1, 1998, the Company issued 34,800 shares of Common Stock to
the stockholders of Innovative Practice Concepts, Inc. as part of the
consideration (along with subordinated promissory notes in the aggregate
original principal amount of $500,000 and cash) paid by the Company in exchange
for all of the outstanding capital stock of Innovative Practice Concepts, Inc.;
(ii) on June 3, 1998, the Company issued subordinated promissory notes in the
aggregate original principal amount of $900,000 to Reston Dental Group, P.C.
("Reston") as part of the consideration (along with cash, future contingent
payments and the assumption of liabilities) paid by the Company in connection
with the purchase of certain non-clinical assets of Reston; and (iii) On June 6,
1998, the Company issued subordinated promissory notes in the aggregate original
principal amount of $345,000 to William S. Dillon and Rick G. Friedrichs as Co-
Agents for Tomball-Spring Cypress Dental Center, Inc., TSC Dental
Center/Greenspoint, Inc. and TSC Dental Center at the Woodlands, Inc. (the "TSC
Dental Centers") and for the shareholders thereof as part of the consideration
(along with cash and assumed liabilities) paid by the Company in connection with
the purchase of certain non-clinical assets of the TSC Dental Centers.  The
Company does not believe that the promissory notes issued in these transactions
constitute "securities" as defined inSection 2(1) of the Securities Act;
however, in the event the promissory notes are deemed to be securities, these
transactions were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) or Regulation D thereunder relative to sales by an
issuer not involving a public offering.

                                       16
<PAGE>
 
ITEM 6.   SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
          STATISTICAL DATA)


<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                  -----------------------------------------------
                                                                        1996           1997            1998
                                                                        ----           ----            ----
<S>                                                               <C>                 <C>             <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue..................................................         $ 3,933         $53,270         $84,090
                                                                      -------         -------         -------
Operating expenses:
 Salaries and benefits.......................................           2,098          28,438          43,190
 Lab fees and dental supplies................................             534           6,435          10,796
 Office occupancy............................................             389           4,814           7,635
 Other operating expenses....................................             773           6,264           6,840
 General corporate expenses..................................           2,395           3,337           3,951
 Depreciation................................................             177           1,580           2,495
 Amortization of intangibles.................................              48             645           1,732
                                                                      -------         -------         -------  
    Total operating expenses.................................           6,414          51,513          76,639
                                                                      -------         -------         -------
Earnings (loss) from operations..............................          (2,481)          1,757           7,451
 Interest expense (income), net..............................             (38)            563           1,085
                                                                      -------         -------         -------
Earnings (loss) before income taxes..........................          (2,443)          1,194           6,366
 Income taxes................................................               -             124           2,480
                                                                      -------         -------         -------   
 Net earnings (loss).........................................         $(2,443)        $ 1,070         $ 3,886
                                                                      =======         =======         =======                
Net earnings (loss) per common share (1):
 Basic.......................................................          $(3.45)         $(0.05)          $0.59
 Diluted.....................................................          $(3.45)         $(0.05)          $0.54
Weighted average common shares outstanding (1):
 Basic.......................................................             768           2,273           5,907
 Diluted.....................................................             768           2,273           6,867

<CAPTION> 
                                                                                   December 31,
                                                                  -----------------------------------------------
                                                                        1996           1997            1998
                                                                        ----           ----            ----
<S>                                                               <C>                 <C>             <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................          $ 5,836         $ 4,675         $ 2,091
Working capital.............................................            3,189             759          (2,725)
Total assets................................................           25,294          47,959          70,535
Long-term debt, excluding current maturities................            3,063          21,253           9,980
Redeemable and convertible preferred stock..................           15,105          16,297               -
Total stockholders' equity..................................              164             909          48,305

STATISTICAL DATA (END OF PERIOD):
Number of states............................................                3               5               8
Number of dental facilities.................................               42              77             103
Number of operatories (2)...................................              331             566             830
Number of affiliated dentists (3)...........................              128             171             231
</TABLE>


_____________
(1)  Net earnings (loss) per common share are computed on the basis described in
     Notes 2 and 11 to the Company's Consolidated Financial Statements.
(2)  An operatory is an area where dental care is performed and generally
     contains a dental chair, a hand piece delivery system and other essential
     dental equipment.
(3)  Includes full-time general dentists employed by the PCs and full-time
     specialists, some of whom are independent contractors to the PCs.

                                       17
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

                                        
OVERVIEW

  American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in selected
markets in the United States. The Company was formed in December 1995, commenced
operations in January 1996 and began engaging in dental practice management
operations in November 1996, concurrent with the completion of its first dental
group practice affiliation. The Company's rapid growth has resulted primarily
from the Company's affiliations with dental group practices. From November 1996
(the date of the Company's first dental group practice affiliation) to December
31, 1998, the Company completed affiliations with 19 dental group practices and,
at December 31, 1998, operated 103 dental facilities with 830 operatories in
eight states.

  An integral part of the Company's strategy is to affiliate with dental group
practices. Because of the financial impact of the Company's affiliations during
1996 and 1997, it is difficult to make meaningful comparisons between the
Company's financial statements during these periods. In addition, due to the
relatively small number of affiliated dental group practices, each affiliation
can impact the overall operating results of the Company. After affiliating with
a dental group practice, the Company typically takes a number of steps designed
to enhance the dental group's practice revenue, improve practice operating
efficiencies and expand practice operating margins. The benefits of these
actions generally do not occur immediately. Consequently, the financial
performance of a newly-affiliated dental group practice could negatively affect
overall operating margins in the near term. As the Company grows, it expects
that the effect of adding a new dental group practice affiliation will be
mitigated by the expanded financial base of the existing affiliations. See
"Business--Business Strategy."


AFFILIATION SUMMARY

  When affiliating with a dental group practice, the Company acquires
substantially all its assets except those required by law to be owned or
maintained by dentists (such as third party contracts, certain governmental
receivables and patient records), and enters into a long-term service agreement
with the affiliated dental practice. Under its service agreements, the Company
is responsible for providing all services necessary for the administration of
the non-clinical aspects of the dental operations. The PC is responsible for the
provision of dental care. Each of the Company's service agreements is for an
initial term of 40 years. The Company does not own or control the affiliated
dental practices and, accordingly, does not consolidate the financial statements
of the PCs with those of the Company.


  1996 Transactions

  During 1996, the Company acquired substantially all the assets of three dental
group practices and simultaneously entered into a 40-year service agreement with
each of the affiliated dental groups. These affiliated dental groups are: Park
Dental in Minneapolis; Longhorn Dental in Austin; and Smileage Dental Care in
Milwaukee. These transactions resulted in the addition of 42 dental facilities
with 331 operatories.

  1997 Transactions

  During 1997, the Company acquired substantially all the assets of six dental
group practices and Orthocare, Ltd., a related entity of one of these practices,
and simultaneously entered into 40-year service agreements with four of these
affiliated dental groups (two practices joined existing affiliates). These six
dental group practices are: Lakeside Dental Care in New Orleans; Malcolm R.
Scott, D.D.S. in San Marcos, Texas; Soster Dental Group in Pittsburgh;
Northpoint Dental Group and Wilkens Dental Group in Milwaukee; and the Orthocare
Group in Minneapolis. The Lakeside Dental Care and Soster Dental Group
affiliations represented the entry into two new markets by the Company. The
affiliation with Malcolm R. Scott, D.D.S. expanded the Company's market presence
in Austin by adding one dental facility with six operatories. The affiliation
with Northpoint Dental and Wilkens Dental groups expanded the Company's market
presence in Milwaukee by adding six dental facilities with 53 operatories. In
total, these transactions resulted in the addition of 29 dental facilities with
199 operatories.

                                       18
<PAGE>
 
  1998 Transactions

  During 1998, the Company acquired substantially all the assets of ten dental
group practices and simultaneously entered into 40-year service agreements with
four of the affiliated dental groups (six practices joined existing affiliates).
These ten dental group practices are: Associated Dental Care in Phoenix and
Tucson; Family Care Dental Centers in Janesville, Kenosha and Racine, Wisconsin;
John E. Carey, D.D.S. and James J. Peterman, D.D.S. in Madison, Wisconsin; Leroy
S. Crapanzano, D.D.S. in New Orleans; Reston Dental Group in Reston, Virginia;
TSC Dental Centers in Houston; Indiana Dental Group in Indiana, Pennsylvania;
Mintz & Pincus Dental Group in Oxon Hill and Waldorf, Maryland; Westmore Dental
Group in Mt. Pleasant, Pennsylvania; and St. Croix Valley Orthodontics in
Hudson, Wisconsin. The Associated Dental Care, Reston Dental Group, TSC Dental
Centers, Indiana Dental Group and Mintz & Pincus Dental Group affiliations
represented the entry into six new markets by the Company. The affiliation with
Family Care Dental Centers expanded the Company's market presence in the
Kenosha, Wisconsin market and represented the entry of the Company into two new
markets in Wisconsin, Janesville and Racine. The affiliations with John E.
Carey, D.D.S. and James J. Peterman, D.D.S., Leroy S. Crapanzano, D.D.S.,
Westmore Dental Group and St. Croix Valley Orthodontics expanded the Company's
market presence in the Madison, New Orleans, Pittsburgh and Minneapolis markets,
respectively. In total, these affiliations resulted in the addition of 23 dental
facilities with 231 operatories.

  1999 Completed and Pending Transactions

  Subsequent to December 31, 1998, the Company acquired substantially all the
assets of two dental practices and simultaneously entered into a 40-year service
agreement with one of the affiliated dental groups (the dentists of the other
dental group joined an existing affiliate).  The two dental groups are: Dental
Care of Alabama in Birmingham and Tuscaloosa; and the dental facilities formerly
part of CIGNA HealthCare of Arizona, Inc. in Phoenix.  The aggregate purchase
price paid in connection with these transactions consisted of approximately $3.9
million in cash, $0.1 million in subordinated promissory notes and $0.1 million
in deferred payments.

  In addition, the Company currently is in discussions with a number of dentists
and owners of dental group practices about possible affiliations with the
Company.  There can be no assurance that the Company will consummate any of
these possible affiliations.


COMPONENTS OF REVENUE AND EXPENSES

  Affiliate Adjusted Gross Revenue and Payor Mix. The Company's affiliated
dental group practices generate revenue from patients and third party payors
under fee-for-service, PPO plans and capitated managed care plans. The
affiliated dental group practices record revenue at established rates reduced by
contractual adjustments and allowances for doubtful accounts to arrive at
adjusted gross revenue. Contractual adjustments represent the difference between
gross billable charges at established rates and the portion of those charges
reimbursed pursuant to certain third party payor contracts. While payor mix
varies from market to market, the aggregate payor mix percentage of the
Company's affiliated practices was approximately 39% fee-for-service, 12% PPO
plans and 49% capitated managed care plans for the year ended December 31, 1998.

  The PC reimburses the Company for expenses incurred on its behalf in
connection with the operation and administration of the dental facilities and
pays fees to the Company for management services. Expenses incurred for the
operation and administration of the dental facilities include salaries and
benefits for non-dentist personnel working at the dental facilities (the
administrative staff and, where permitted by law, the dental hygienists and
dental assistants), lab fees, dental supplies, office occupancy costs of the
dental facilities (rent, utilities, etc.) and depreciation related to the fixed
assets at the dental facilities. The PC is also responsible for provider
expenses, which generally consist of the salaries, benefits and certain other
expenses of the dentists.

  Net Revenue.   Net revenue for the Company represents the aggregate amounts
charged to the affiliated dental practices pursuant to the terms of the long-
term service agreements under which the Company agrees to manage the non-
clinical aspects of the dental practice. Under such agreements, the affiliated
dental group practices reimburse the Company for actual expenses incurred in
connection with the operation and administration of the dental facilities and
pay fees to the Company for its management services. The Company's service fees
typically consist of a fixed monthly fee and an additional variable fee. The
fixed monthly fee is determined prior to each affiliation and annually
thereafter by agreement of the Company and the affiliated dental group in a
formal budgeting process. To the extent that there is operating income after
payment of the fixed monthly fee, reimbursement of expenses incurred in
connection with the operation and administration of the dental facilities and
payment of 

                                       19
<PAGE>
 
provider expenses, an additional variable fee is paid to the Company in the
amount of such excess up to budgeted operating income and 50% of such excess
over budgeted operating income. Under certain service agreements, the Company's
service fees consist of a variable monthly fee which is based upon a specified
percentage of the amount by which the PC's adjusted gross revenue exceeds
expenses incurred in connection with the operation and administration of its
dental facilities. In those situations, no additional variable fee is
applicable. Pursuant to the terms of the service agreements, the Company bills
patients and third party payors on behalf of the affiliated PCs. Such funds are
used to pay all operating expenses, to pay fees to the Company for its
management services and are then used by the PCs to pay their provider expenses.
Such funds are applied in the following order of priority: reimbursement of
expenses incurred in connection with the operation and administration of the
dental facilities; repayment of advances, if any, made by the Company to the PC;
payment of the monthly fee; payment of provider expenses; and payment of the
additional variable fee, if applicable. Additionally, the Company's net revenue
includes amounts from third party payors related to the arrangement of the
provision of care to patients.

  Operating Expenses.   Operating expenses (excluding general corporate
expenses, depreciation and amortization of intangibles) consist of the expenses
incurred by the Company in fulfilling its obligations under the service
agreements. These expenses are operating costs and expenses that would have been
incurred by the affiliated dental groups had they not affiliated with the
Company and include non-dentist salaries and benefits, lab fees and dental
supplies, office occupancy cost and other expenses related to operations.
Salaries and benefits expense are for personnel working for the Company at the
dental facilities, as well as the local operating management. At the facility
level, the Company generally employs the administrative staff and, where
permitted by law, the dental hygienists and dental assistants. The local
operating management team supervises and supports the staff at the dental
facilities. Office occupancy includes rent expense and certain other operating
costs such as utilities associated with dental facilities and the local
administrative offices. Such costs vary based on the size of each facility and
the market rental rate for dental office space in the particular geographic
market. Other expenses consist of professional fees, marketing costs and other
general and administrative expenses. See "Business--Operations--Operating
Structure."

  General Corporate Expenses.   General corporate expenses consist of
compensation expenses for the Company's corporate personnel and administrative
staff, as well as facility and other administrative costs of the Company's
corporate offices. The Company provides management, administrative, third party
contracting and other services to the affiliated groups.

  Depreciation.   Depreciation expense includes depreciation charges related to
leasehold improvements and furniture, fixtures and equipment used to operate the
dental facilities.

  Amortization of Intangibles.   Amortization of intangibles relates to
intangible assets incurred in connection with the 1996, 1997 and 1998
Transactions.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

  Overview

  The Company conducted no significant operations from January 1996 until
November 1996, when it completed its first affiliation. Accordingly, the Company
generated net revenue of only $3,933,000 for 1996. General corporate expenses
incurred during 1996 were $2,395,000 and contributed to a net loss of
$2,443,000. During 1997, net revenue generated from completed affiliations
exceeded operating expenses and general corporate expenses resulting in net
income of $1,070,000. As a result of the Company's rapid expansion, the Company
does not believe that a period-to-period comparison and the percentage
relationships of the year ended December 31, 1996 as compared with the year
ended December 31, 1997 are meaningful.

  Results of Operations

  Net Revenue.   Net revenue amounted to $3,933,000 for 1996 as compared with
$53,270,000 for 1997. The 1997 period included revenue derived from service
agreements entered into in connection with the 1996 Transactions for the entire
year of 1997, plus revenue derived from service agreements entered into in
connection with the 1997 Transactions. Net revenue included expense
reimbursements ($3,175,000 for 1996 as compared with $36,386,000 for 1997),
management service fees ($720,000 for 1996 as compared with $12,056,000 for
1997) and revenue related to the arrangement of the provision of care to
patients ($38,000 for 1996 as compared with $4,828,000 for 1997). Expense
reimbursements included rent expense ($267,000 for 1996 as compared with
$3,476,000 for 1997) and other operating expenses ($2,908,000 for 1996 as
compared with $32,910,000 for 1997). Management service fees included the
monthly fee ($720,000 for 1996 as compared with $10,724,000 for 1997) and the
additional variable fee ($0 for 1996 as compared with $1,332,000 for 1997). Net
revenue derived from the Company's service agreement with Park Dental
represented approximately 56% of the Company's consolidated net revenue for the
year ended December 31, 1997.

                                       20
<PAGE>
 
  Operating Expenses.   Operating expenses for 1996 were $3,794,000 or 96.5% of
net revenue as compared with $45,951,000 or 86.3% of net revenue for 1997. The
increase in the dollar amount resulted from the full year impact of the 1996
Transactions plus the impact of the 1997 Transactions.

  General Corporate Expenses.   General corporate expenses were $2,395,000 or
60.9% of net revenue for 1996, as compared with $3,337,000 or 6.3% of net
revenue for 1997. The increase resulted primarily from the impact of additional
corporate personnel hired in finance, information systems and operations in late
1996 and early 1997 to build infrastructure in anticipation of the Company's
growth. 

  Depreciation.   Depreciation expense was $177,000 or 4.5% of net revenue for
1996, as compared with $1,580,000 or 3.0% of net revenue for 1997. Depreciation
expense for 1996 resulted primarily from costs incurred in connection with the
purchase of furniture, fixtures and equipment for the corporate office.
Depreciation expense for 1997 included depreciation related primarily to the
assets acquired and capital expenditures incurred in connection with the
Company's completed affiliations.  

  Amortization of Intangible Assets.   Amortization of intangibles was $48,000
or 1.2% of net revenue for 1996, as compared with $645,000 or 1.2% of net
revenue for 1997. Amortization resulted from intangible assets recorded in
connection with the Company's nine affiliations and one acquisition completed
during 1997. 

  Interest Expense (Income), Net.   Net interest income was $38,000 for 1996, as
compared with net interest expense of $563,000 for 1997. Interest income for
1996 resulted from earnings on proceeds received from the Company's private
sales of equity securities. Interest expense for 1997 resulted from borrowings
under the Company's credit facility, the issuance of subordinated notes and the
assumption of certain other debt in connection with completed affiliations.

  Income Taxes.   The Company incurred no income tax expense for 1996, as
compared with $124,000 for 1997. The net loss incurred for 1996 resulted in the
Company creating a net operating loss carryforward for financial statement
purposes. For 1997, the Company utilized a portion of its net operating loss
carryforward which resulted in only $124,000 of income tax expense.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

 Overview

  The Company's net earnings amounted to $1,070,000 or a diluted loss per share
available to common stockholders of $(0.05) for 1997, as compared with net
earnings of $3,886,000 or diluted earnings per share of $0.54 for 1998. The
increase in net earnings resulted from incremental earnings provided from
completed acquisitions and affiliations and from internal growth.

  Net Revenue.   Net revenue increased from $53,270,000 for 1997 to $84,090,000
for 1998, an increase of approximately 58%. The increase in net revenue in 1998
is due primarily to the inclusion of revenue derived from service agreements
entered into in connection with the 1997 Transactions for the entire period and
from the 1998 Transactions. In addition, same market growth from the Company's
affiliates in Austin, Milwaukee and Minneapolis resulted from the addition and
expansion of the Company's facilities, the addition of dentists to the Company's
affiliated dental group network and increases in certain affiliates' fees. Net
revenue included expense reimbursements ($36,386,000 for 1997 as compared with
$56,278,000 for 1998), management service fees ($12,056,000 for 1997 as compared
with $19,138,000 for 1998) and revenue related to the arrangement of the
provision of care to patients and other revenue ($4,828,000 for 1997 as compared
with $8,674,000 for 1998). Expense reimbursements included rent expense
($3,476,000 for 1997 as compared with $5,590,000 for 1998) and other operating
expenses ($32,910,000 for 1997 as compared with $50,688,000 for 1998).
Management service fees included a monthly fee ($10,724,000 for 1997 as compared
with $17,306,000 for 1998) and an additional variable fee ($1,332,000 for 1997
as compared with $1,832,000 for 1998). Net revenue derived from the Company's
service agreement with Park Dental represented approximately 56% and 41% of the
Company's consolidated net revenue for 1997 and 1998, respectively.

  Salaries and Benefits Expense.   Salaries and benefits amounted to $28,438,000
or 53.4% of net revenue for 1997, as compared with $43,190,000 or 51.4% of net
revenue for 1998. The decrease in salaries and benefits as a percentage of net

                                       21
<PAGE>
 
revenue resulted primarily from more efficient utilization of staff in existing
facilities, the regionalization of finance, operations and administrative staff
in certain markets and the acquisition of facilities with a generally lower
ratio of staffing costs to net revenue in their respective markets compared to
the existing base of facilities. These cost savings were partially offset by an
increase in the amount of expense related to the arrangement of the provision of
care to patients, which is at a higher percentage of net revenue.

  Lab Fees and Dental Supplies Expense.   Lab fees and dental supplies expense
increased from $6,435,000 or 12.1% of net revenue for 1997 to $10,796,000 or
12.8% of net revenue for 1998. Lab fees and dental supplies expense varies from
affiliate to affiliate and is affected by the volume and type of procedures
performed. The increase in lab fees and dental supplies as a percentage of net
revenue is attributable to a combination of the acquisition of facilities with a
generally higher ratio of lab fees and dental supplies expense to net revenue in
their respective markets compared to the existing base of facilities, rate
increases from certain lab providers and the outsourcing of certain lab work
which was previously handled in-house.

  Office Occupancy Expense.   Office occupancy expense amounted to $4,814,000
for 1997, as compared with $7,635,000 for 1998. As a percentage of net revenue,
these costs remained relatively consistent at 9.0% for 1997 and 9.1% for 1998.

  Other Operating Expenses.   Other expenses amounted to $6,264,000 or 11.8% of
net revenue for 1997, as compared with $6,840,000 or 8.1% of net revenue for
1998. Other costs decreased as a percentage of net revenue due primarily to the
reduction of certain expenses associated with the administration of a benefit
plan that was renegotiated, the regionalization of administrative functions in
certain markets, a reduction of the Minnesota Care Tax rate from 2.0% to 1.5%
and efficiencies from managing certain expenses, such as professional fees and
other costs associated with operating a stand alone dental group practice, on a
national level, as opposed to on a local level.

  General Corporate Expenses.   General corporate expenses were $3,337,000 or
6.3% of net revenue for 1997, as compared with $3,951,000 or 4.7% of net revenue
for 1998. The Company has built its management infrastructure in anticipation of
rapid growth. This included the hiring of key management and support staff in
the areas of finance, operations and information systems. In 1998, the Company
began to leverage these costs, resulting in a reduction of general corporate
expenses as a percentage of net revenue. This reduction was partially offset by
an increase in costs associated with being a public company. The level of
general corporate expenses is expected to continue to increase in the future as
the Company continues to expand its management infrastructure. However, it is
anticipated that these expenses will continue to decline as a percentage of net
revenue.

  Depreciation.   Depreciation expense was $1,580,000 or 3.0% of net revenue for
1997, as compared with $2,495,000 or 3.0% of net revenue for 1998. Depreciation
expense included depreciation related primarily to assets acquired and capital
expenditures associated with the addition of three new dental facilities in
Minneapolis and one new dental facility in Phoenix in 1998 and the addition of
new operatories in Austin, Milwaukee and Minneapolis throughout 1998.
Depreciation expense is expected to increase as a result of depreciable assets
acquired in connection with future acquisitions and affiliations and future
capital expenditures.

  Amortization of Intangibles.   Amortization of intangibles was $645,000 or
1.2% of net revenue for 1997, as compared with $1,732,000 or 2.1% of net revenue
for 1998. The increase in amortization resulted from intangible assets recorded
in connection with the Company's six affiliations and one acquisition completed
during 1997 and ten affiliations completed during 1998. The Company expects that
amortization of intangibles will increase in the future as a result of
intangibles recorded in connection with future acquisitions and affiliations.

  Interest Expense, Net.   Net interest expense was $563,000 or 1.1% of net
revenue for 1997, as compared with $1,085,000 or 1.3% of net revenue for 1998.
The increase in interest expense resulted primarily from increased average
borrowings under the Company's credit facility in 1998 as compared with 1997. In
addition, the issuance of subordinated notes in connection with the 1997 and
1998 Transactions contributed to higher interest expense in 1998.

  Income Taxes.   The Company incurred income tax expense of $124,000 for 1997,
as compared with $2,480,000 for 1998. In 1997, the Company utilized a portion of
its net operating loss carryforward which resulted in minimal income tax
expense. For 1998, the Company's effective tax rate was approximately 39%,
resulting in income tax expense of $2,480,000.

LIQUIDITY AND CAPITAL RESOURCES

  The Company has financed its operating and capital needs, including cash used
for acquisitions and affiliations, capital expenditures and working capital,
from its sales of equity securities, borrowings under its revolving line of
credit and cash generated from operations.

                                       22
<PAGE>
 
  From November 1996 (the date of the Company's first dental group practice
affiliation) through December 31, 1998, the Company completed 19 dental group
practice affiliations for aggregate consideration of $42,530,000 in cash,
$6,778,000 in subordinated promissory notes, $1,015,000 in deferred payments,
1,848,588 shares of Common Stock and future contingent payments for one
affiliation based on a multiple of service fees received in excess of a
predetermined threshold for each of the three years ending May 31, 1999, 2000
and 2001. The Company's growth strategy depends in large measure on its ability
to affiliate with additional dental group practices.  Although the Company has
affiliated with many dental group practices since its initial affiliation in
November 1996, there can be no assurance that additional affiliation candidates
can be identified, consummated or successfully integrated into the Company's
operations.  The Company has used a combination of cash, common stock, and
subordinated debt as consideration for past acquisitions and affiliations and
plans to continue to use these sources in the future.  In the event that the
Company's common stock does not maintain sufficient valuation or if potential
affiliation candidates are unwilling to accept the Company's securities as
consideration, the Company will be required to use more cash resources to
continue its affiliation program.  In addition, if sufficient financing is not
available as needed on terms acceptable to the Company, the Company's
affiliation program could be adversely affected.

  For the years ended December 31, 1997 and 1998, cash provided by operating
activities amounted to $3,991,000 and $9,771,000, respectively. The increase in
cash from operations resulted primarily from earnings generated from
acquisitions and affiliations, same market growth and expanded profit margins.

  For the years ended December 31, 1997 and 1998, cash used in investing
activities amounted to $19,510,000 and $24,886,000, respectively. Cash used for
investing activities included cash used for acquisitions and affiliations and
for capital expenditures. Cash used for acquisitions, net of cash acquired, was
$14,878,000 for 1997 and $18,290,000 for 1998. Cash used for capital
expenditures was $3,212,000 and $5,074,000 for 1997 and 1998, respectively.
Capital expenditures for 1997 included costs associated with the addition of
dental facilities in Austin, Milwaukee and Minneapolis and the addition of new
operatories in Austin, Minneapolis and Pittsburgh. Capital expenditures for 1998
included costs associated with the addition of three new dental facilities in
Minneapolis, a new dental facility in Phoenix and the addition of new
operatories in Austin, Milwaukee and Minneapolis. The establishment of new
dental facilities and the expansion of existing dental facilities in the future
will require ongoing capital expenditures.

  For the years ended December 31, 1997 and 1998, cash provided by financing
activities amounted to $14,358,000 and $12,531,000, respectively. Cash provided
by financing activities during 1997 resulted from borrowings under the Company's
revolving line of credit of $16,700,000, reduced by the repayment of certain
indebtedness and the payment of debt issuance costs and initial public offering
costs. Cash provided by financing activities in 1998 resulted primarily from net
proceeds received from the Company's initial public offering.

  During the second quarter of 1998, the Company sold 2,587,500 shares of Common
Stock in an initial public offering ("IPO") at $15.00 per share. Net proceeds to
the Company after deducting underwriting discounts and commissions and offering
expenses totaled approximately $34,596,000. Such proceeds were used to (i)
redeem all the Series B Redeemable Preferred Stock, including unpaid dividends,
in the amount of $7,851,000, (ii) repay outstanding indebtedness under the
Company's revolving credit facility, including accrued interest, in the amount
of $20,651,000 and (iii) complete additional affiliation transactions.   In
connection with the IPO, all 400,000 shares of Series A Convertible Preferred
Stock were converted to 2,399,995 shares of Common Stock.

  In April 1997, the Company entered into a $30 million revolving line of credit
agreement with a bank. In December 1998, the Company amended its line of credit
to (i) increase the amount available under the line to $50 million, (ii) add two
additional banks, (iii) extend the maturity date and (iv) modify certain other
terms, including pricing. The credit facility is being used for general
corporate purposes including acquisitions and affiliations. Borrowings under
this line of credit bear interest at either prime or LIBOR plus a margin, at the
Company's option. The margin for LIBOR loans is based upon the Company's debt
coverage ratio and ranges up to 1.625%. In addition, the Company pays a
commitment fee of 0.25% of the average daily balance of the unused line.
Borrowings are limited to an availability formula based on adjusted EBITDA. The
credit facility is secured by a first lien on substantially all of the Company's
assets, including a pledge of the stock of the Company's subsidiaries. The
Company is also required to comply with certain financial and other covenants.
The line of credit matures in December 2001. The outstanding balance under this
line as of December 31, 1998 was $4,300,000.

  The Company has a Shelf Registration Statement on file with the Securities and
Exchange Commission (Registration No. 333-56941) covering a total of 750,000
shares of Common Stock and $25,000,000 aggregate principal amount of
subordinated promissory notes to be issued in connection with future dental
group practice affiliations. As of December 31, 1998, 730,446 shares and
$24,540,000 of subordinated notes remain available.

                                       23
<PAGE>
 
  The Company believes that cash generated from operations and amounts
available under its revolving credit facility will be sufficient to fund its
anticipated cash needs for working capital, capital expenditures and
acquisitions and affiliations for at least the next 12 months.

YEAR 2000 ISSUE

  The Year 2000 issue is the result of certain computer programs being written
using two digits rather than four digits to define the year. Accordingly,
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than 2000. This could result in system failures
or miscalculations causing disruptions in operations, including the temporary
inability to process transactions, send invoices or statements, or engage in
similar normal business activities. The Company utilizes software and related
computer technologies essential to its operations.

  All significant operating systems, the general ledger system and network
communication software system utilized by the Company are either already Year
2000 compliant or are expected to be Year 2000 compliant upon installation of
available patches or upgrades at minimal to no cost. The general ledger system
has already been satisfactorily tested for compliance by the software vendor.
The Company expects that all necessary upgrades for significant operating
systems and network communication software will be completed by the end of the
second quarter of 1999.

  The Company also uses various dental practice management software systems in
its affiliated dental group practices. In particular, the Company's proprietary
practice management system, Comdent, which is currently used at 34 of the
Company's dental facilities, is Year 2000 compliant. The Company intends, when
appropriate, to convert its current and future affiliated dental group practices
to Comdent. In general, the other practice management systems utilized by the
Company are commercially available systems that are either already Year 2000
compliant or scheduled for Year 2000 compliance by the end of the second quarter
of 1999. Preliminary compliance testing has been done by the Company on Comdent
and other significant practice management systems and the Company intends to
complete all such testing by the end of the second quarter of 1999. Any systems
deemed to be non-compliant at such time will be converted to Year 2000 compliant
systems by the end of 1999. As part of its due diligence in connection with
future affiliations, the Company will perform a review of the dental practice
management software systems being used by those dental practices for Year 2000
compliance. Continual system upgrades and conversion of dental practice
management systems to preferred systems of the Company is an integral part of
the Company's overall information systems strategy.  The Company believes that
costs specifically associated with Year 2000 compliance issues, if any, will not
be material to the Company's financial position or results of operations.

  The Company is still in the process of identifying potential compliance issues
with non-information technology ("non-IT") systems such as phone systems and
certain other equipment. The Company does not believe the failure of such
systems would have a material adverse effect on the Company's operations. Non-IT
systems that are not compliant, if any, are expected to be upgraded or replaced
by the end of the second quarter of 1999.  The costs of such upgrades are not
expected to be material to the Company's financial position or results of
operations.

  Year 2000 issues also relate to third parties with which the Company has
significant relationships.  In particular, the Company's affiliated dental
groups have contracts with third party payors to provide dental services in
exchange for capitation, fee-for-service and PPO payments.  These third party
payors have systems that may be vulnerable to Year 2000 issues.  The Company has
identified and initiated discussions with all significant third party payors to
determine their compliance status and develop appropriate contingency plans.
There can be no assurance, however, that the systems of these significant third
party payors will be Year 2000 compliant on a timely basis.  Year 2000 problems
experienced by such third party payors could result in late payments received
under the payor contracts and related cash flow problems.  Potential contingency
plans may include temporary advancing of funds to the Company's affiliates by
third party payors unable to process claims on a timely basis and the direct
billing of patients in lieu of reimbursements under the payor contracts.  In
addition, the Company could, if necessary, use borrowings under its revolving
credit facility to support working capital obligations in the event of payment
problems from third party payors.  Due to the dependence of the Company's
affiliated dental groups on third party payor relationships, Year 2000 system
failures of such payors could have a material adverse effect on the Company's
cash flows and financial condition.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Not applicable.

                                       24
<PAGE>
 
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         Index to Financial Statements
                         -----------------------------
<TABLE>
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----
<S>                                                                                                                    <C>
CONSOLIDATED FINANCIAL STATEMENTS
   Independent Auditors' Report...............................................................................          26

   Consolidated Balance Sheets as of December 31, 1997 and 1998...............................................          27

   Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998.................          28

   Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997
    and 1998..................................................................................................          29

   Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998.................          30

   Notes to Consolidated Financial Statements.................................................................          31
</TABLE>

FINANCIAL STATEMENT SCHEDULES

  Not applicable.

                                       25
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT

                                        
The Board of Directors
American Dental Partners, Inc.:

  We have audited the accompanying consolidated balance sheets of American
Dental Partners, Inc. (the "Company") as of December 31, 1997 and 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Dental Partners, Inc. as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.


                             KPMG Peat Marwick LLP

Boston, Massachusetts
February 12, 1999

                                       26
<PAGE>

                        AMERICAN DENTAL PARTNERS, INC.
                          CONSOLIDATED BALANCE SHEETS
              (in thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                                                                          December 31,
                                                                                                     ----------------------
                                                                                                        1997       1998
                                                                                                        ----       ----
<S>                                                                                                  <C>         <C>
ASSETS
Current assets:
      Cash and cash equivalents...................................................................    $  4,675   $  2,091
      Accounts receivable.........................................................................         101        186
      Receivables due from affiliated practices...................................................       3,207      4,579
      Inventories.................................................................................         387        585
      Prepaid expenses and other receivables......................................................       1,631      1,466
      Deferred income taxes.......................................................................           -         65
                                                                                                      --------   -------- 
            Total current assets..................................................................      10,001      8,972
                                                                                                      --------   -------- 
Property and equipment, net.......................................................................       8,752     12,943
                                                                                                      --------   -------- 
Non-current assets:
      Intangible assets, net......................................................................      28,975     47,152
      Deferred income taxes.......................................................................           -      1,120
      Other assets................................................................................         231        348
                                                                                                      --------   -------- 
            Total non-current assets..............................................................      29,206     48,620
                                                                                                      --------   -------- 
            Total assets..........................................................................     $47,959    $70,535
                                                                                                      ========   ======== 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable............................................................................    $  2,618   $  3,010
      Accrued compensation, benefits and taxes....................................................       3,001      3,426
      Accrued expenses............................................................................       2,666      3,377
      Income taxes payable........................................................................         183        805
      Current maturities of debt..................................................................         774      1,079
                                                                                                      --------   -------- 
            Total current liabilities.............................................................       9,242     11,697
                                                                                                      --------   -------- 
Non-current liabilities:
      Long-term debt..............................................................................      21,253      9,980
      Deferred income taxes.......................................................................         231          -
      Other liabilities...........................................................................          27        553
                                                                                                      --------   -------- 
            Total non-current liabilities.........................................................      21,511     10,533
                                                                                                      --------   -------- 
            Total liabilities.....................................................................      30,753     22,230
                                                                                                      --------   -------- 

Series A convertible preferred stock, par value $0.01 per share, 400,000 shares authorized,
   issued and outstanding as of December 31, 1997; no shares authorized, issued or
   outstanding as of December 31, 1998............................................................       8,641          -
Series B redeemable preferred stock, par value $0.01 per share, 70,000 shares authorized,
   issued and outstanding as of December 31, 1997; no shares authorized, issued or
   outstanding as of December 31, 1998............................................................       7,656          -
Stockholders' equity:
      Preferred stock, par value $0.01 per share, 530,000 and 1,000,000 shares authorized,
         no shares issued or outstanding..........................................................           -          -
      Common stock, par value $0.01 per share, 25,000,000 shares authorized, 2,394,212 and
         7,436,066 shares issued and outstanding..................................................          24         74
      Additional paid-in capital..................................................................       2,307     45,742
      Unearned compensation.......................................................................         (49)       (24)
      Retained earnings (accumulated deficit).....................................................      (1,373)     2,513
                                                                                                      --------   -------- 
            Total stockholders' equity............................................................         909     48,305
                                                                                                      --------   -------- 
Commitments and contingencies
      Total liabilities and stockholders' equity..................................................    $ 47,959   $ 70,535
                                                                                                      ========   ======== 
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      27

<PAGE>

                        AMERICAN DENTAL PARTNERS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                  --------------------------------------
                                                                                      1996          1997        1998
                                                                                      ----          ----        ----
<S>                                                                               <C>              <C>        <C> 
Net revenue......................................................................    $ 3,933       $53,270    $84,090
                                                                                     -------       -------    -------

Operating expenses:
     Salaries and benefits.......................................................      2,098        28,438     43,190
     Lab fees and dental supplies................................................        534         6,435     10,796
     Office occupancy............................................................        389         4,814      7,635
     Other operating expenses....................................................        773         6,264      6,840
     General corporate expenses..................................................      2,395         3,337      3,951
     Depreciation................................................................        177         1,580      2,495
     Amortization of intangible assets...........................................         48           645      1,732
                                                                                     -------       -------    -------
          Total operating expenses...............................................      6,414        51,513     76,639
                                                                                     -------       -------    -------
Earnings (loss) from operations..................................................     (2,481)        1,757      7,451
     Interest expense (income), net..............................................        (38)          563      1,085
                                                                                     -------       -------    -------
Earnings (loss) before income taxes..............................................     (2,443)        1,194      6,366
     Income taxes................................................................          -           124      2,480
                                                                                     -------       -------    -------
     Net earnings (loss).........................................................    $(2,443)      $ 1,070    $ 3,886
                                                                                     =======       =======    =======

Net earnings (loss) per common share:
     Basic.......................................................................    $ (3.45)      $ (0.05)   $  0.59
     Diluted.....................................................................    $ (3.45)      $ (0.05)   $  0.54
Weighted average common shares outstanding:
     Basic.......................................................................        768         2,273      5,907
     Diluted.....................................................................        768         2,273      6,867
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      28

<PAGE>

                        AMERICAN DENTAL PARTNERS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                                (in thousands)

<TABLE>
<CAPTION>
                                                               
                                               Common Stock     Additional                                  Total    
                                               ------------      Paid-in      Unearned       Retained   Stockholders' 
                                              Shares   Amount    Capital    Compensation     Earnings      Equity
                                              ------   ------    -------    ------------     --------      ------
<S>                                           <C>      <C>       <C>        <C>              <C>           <C> 
Balance at January 1, 1996.................        -   $     -   $     -        $   -        $     -       $     -
     Issuance of common stock for                                                            
        acquisitions and affiliations......    1,613        16     2,673            -              -         2,689
     Sale of common stock..................      600         6       191          (97)             -           100
     Amortization of unearned                                                                
        compensation.......................        -         -         -           23              -            23 
     Dividends on Series A convertible                                                       
        preferred stock....................        -         -      (109)           -              -          (109) 
     Dividends on Series B redeemable                                                        
        preferred stock....................        -         -       (96)           -              -           (96) 
     Net loss..............................        -         -         -            -         (2,443)       (2,443)
                                               -----   -------   -------        -----        -------       ------- 
Balance at December 31, 1996...............    2,213        22     2,659          (74)        (2,443)          164
     Issuance of common stock for                                                            
        acquisitions and affiliations......      181         2       840            -              -           842
     Amortization of unearned                                                                
        compensation.......................        -         -         -           25              -            25 
     Dividends on Series A convertible                                                       
        preferred stock....................        -         -      (632)           -              -          (632) 
     Dividends on Series B redeemable                                                        
        preferred stock....................        -         -      (560)           -              -          (560) 
     Net earnings..........................        -         -         -            -          1,070         1,070
                                               -----   -------   -------        -----        -------       ------- 
Balance at December 31, 1997...............    2,394        24     2,307          (49)        (1,373)          909 
     Issuance of common stock in                                                             
        initial public offering, net.......    2,588        26    34,570            -              -        34,596
     Issuance of common stock for                                                            
        acquisitions and affiliations......       54         -       443            -              -           443  
     Amortization of unearned                                                                
        compensation.......................        -         -         -           25              -            25 
     Dividends on Series A convertible                                                       
        preferred stock....................        -         -      (200)           -              -          (200) 
     Dividends on Series B redeemable                                                        
        preferred stock....................        -         -      (195)           -              -          (195) 
     Conversion of Series A convertible                                                      
        preferred stock to common stock        2,400        24     8,817            -              -         8,841
     Net earnings..........................        -         -         -            -          3,886         3,886
                                               -----   -------   -------        -----        -------       ------- 
Balance at December 31, 1998...............    7,436   $    74   $45,742        $ (24)       $ 2,513       $48,305
                                               =====   =======   =======        =====        =======       ======= 
</TABLE> 

         See accompanying notes to consolidated financial statements.

                                      29

<PAGE>
                        AMERICAN DENTAL PARTNERS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE> 
<CAPTION> 
                                                                                      YEARS ENDED DECEMBER 31,
                                                                             -------------------------------------------
                                                                                     1996         1997          1998
                                                                                     ----         ----          ----
<S>                                                                          <C>               <C>           <C>   
Cash flows from operating activities:
    Net earnings (loss)....................................................        $(2,443)    $  1,070       $ 3,886  
    Adjustments to reconcile net earnings (loss) to net cash provided by                                                
        (used for) operating activities:                                                                                          
        Depreciation.......................................................            177        1,580         2,495  
        Amortization of intangible assets..................................             48          645         1,732  
        Other amortization.................................................             23           65           106  
        Deferred income taxes..............................................              -          (32)        1,466  
        Changes in assets and liabilities, net of acquisitions and                       
          affiliations:                                                                            
             Accounts receivable...........................................          1,417        1,871           864
             Receivables due from affiliated practices.....................         (1,707)      (1,801)         (764) 
             Other current assets..........................................            237          509          (384) 
             Accounts payable and accrued expenses.........................            941         (314)         (418)
             Accrued compensation, benefits and taxes......................           (232)         427           118 
             Income taxes payable..........................................              -          (29)          670    
                                                                                   -------      -------       ------- 
                Net cash provided by (used for) operating activities.......         (1,539)       3,991         9,771
                                                                                   -------      -------       ------- 
Cash flows from investing activities:                                                    
    Acquisitions and affiliations, net of cash acquired....................         (6,632)     (14,878)      (18,290)
    Capital expenditures, net..............................................           (386)      (3,212)       (5,074) 
    Other..................................................................            140       (1,420)       (1,522)      
                                                                                   -------      -------       ------- 
                Net cash used for investing activities.....................         (6,878)     (19,510)      (24,886)
                                                                                   -------      -------       ------- 

Cash flows from financing activities:                                                    
    Proceeds from issuance of Series A convertible preferred stock.........          7,900            -             -    
    Proceeds from issuance of Series B redeemable preferred stock..........          7,000            -             - 
    Proceeds from issuance of common stock.................................            100            -             -
    Borrowings under (repayments of) revolving line of credit, net.........              -       16,700       (12,400)
    Repayment of borrowings................................................           (747)      (1,543)       (2,254) 
    Proceeds from issuance of common stock in initial public offering, net               
      of underwriting discounts and commissions............................              -            -        36,096
    Redemption of Series B redeemable preferred stock......................              -            -        (7,851)
    Payment of initial public offering costs...............................              -         (557)         (943)  
    Payment of debt issuance costs.........................................              -         (242)         (117) 
                                                                                   -------     --------       -------
                Net cash provided by financing activities..................         14,253       14,358        12,531
                                                                                   -------     --------       -------

Increase (decrease) in cash and cash equivalents...........................          5,836       (1,161)       (2,584)     
Cash and cash equivalents at beginning of year.............................              -        5,836         4,675      
                                                                                   -------     --------       ------- 
Cash and cash equivalents at end of year...................................        $ 5,836     $  4,675       $ 2,091 
                                                                                   =======     ========       ======= 
                                                                                                                      
Supplemental disclosure of cash flow information:                                                                     
    Cash paid during the year for interest, net............................        $     3     $    459       $   898      
                                                                                   =======     ========       =======      
    Cash paid during the year for income taxes, net........................        $     -     $    185       $   348      
                                                                                   =======     ========       ======= 
Supplemental disclosure of non-cash information:                                                                      
    Dividends accrued on Series A convertible preferred stock and                      
      Series B redeemable preferred stock..................................        $   205     $  1,192       $   395  
                                                                                   =======     ========       =======   
    Conversion of Series A convertible preferred stock to common stock.....        $     -     $      -       $ 8,841  
                                                                                   =======     ========       =======   
                                                                                                                      
Acquisitions and affiliations:                                                                                        
    Assets acquired........................................................        $20,099      $24,693       $26,938 
    Liabilities assumed and issued.........................................        (10,063)      (7,054)       (8,109) 
    Common stock issued....................................................         (2,689)        (842)         (443) 
                                                                                   -------      -------       ------- 
    Cash paid..............................................................          7,347       16,797        18,386 
    Less cash acquired.....................................................           (715)      (1,919)          (96)      
                                                                                   -------      -------       -------   
                Net cash paid for acquisitions and affiliations............        $ 6,632      $14,878       $18,290 
                                                                                   =======      =======       =======  
</TABLE> 

         See accompanying notes to consolidated financial statements.

                                      30
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

(1) DESCRIPTION OF BUSINESS

     American Dental Partners, Inc. (the "Company") was formed in December 1995
to provide management services to dental practices and commenced operations in
January 1996. The Company acquires substantially all the assets of the dental
practices with which it affiliates, except those required by law to be owned or
maintained by dentists (such as third party contracts, certain governmental
receivables and patient records), and enters into long-term service agreements
with these affiliated dental practices. The Company provides all services
necessary for the administration of the non-clinical aspects of the dental
operations. Services provided to the affiliated dental practices include
assistance with information systems, budgeting, financial reporting, facilities
management, third-party payor contracting, supplies and equipment procurement,
billing and collecting accounts receivable, marketing and recruiting, hiring and
training support staff.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Basis of Presentation

     The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting. The Company does not own any interests in or
control the activities of the affiliated dental practices. Accordingly, the
consolidated financial statements of the affiliated dental practices are not
consolidated with those of the Company.


  Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.


  Prior Period Reclassifications

     Certain reclassifications have been made to the consolidated financial
statements for the year ended December 31, 1997 in order to conform with the
December 31, 1998 presentation.


  Use of Estimates

     The preparation of these consolidated 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 at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.


  Cash and Cash Equivalents

     For purposes of the statement of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents.

                                       31
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


  Fair Value of Financial Instruments

  The Company believes the carrying amount of cash and cash equivalents,
accounts receivable, receivables due from affiliated practices, accounts payable
and accrued expenses approximate fair value because of the short-term nature of
these items. The carrying amount of long-term debt approximates fair value
because the interest rates approximate rates at which similar types of borrowing
arrangements could be obtained by the Company.

  Net Revenue

  The Company's net revenue represents the aggregate amounts charged to
affiliated dental practices pursuant to the terms of the service agreements.
Under such agreements, the affiliated dental practices reimburse the Company for
expenses incurred on their behalf in connection with the operation and
administration of the dental facilities and pay fees to the Company for its
management services. The Company's service fees generally consist of a fixed
monthly fee and an additional variable fee. Under certain service agreements,
the Company's service fees consist of a variable monthly fee which is based upon
a specified percentage. Additionally, the Company's net revenue includes amounts
from third party payors related to the arrangement of the provision of care to
patients. The Company records all revenue monthly as earned.

  Inventories

  Inventories consist primarily of dental supplies and are stated at the lower
of cost or market.

  Property and Equipment

  Property and equipment are stated at cost. Depreciation and amortization are
recorded using the straight-line method over the estimated useful lives of the
related assets which are 30-40 years for buildings, 3-12 years for equipment and
5-7 years for furniture and fixtures.

  Property and equipment under capital leases are stated at the present value of
minimum lease payments at inception of the lease. Equipment held under capital
leases and leasehold improvements are amortized over the shorter of the lease
term or estimated useful life of the asset. Amortization of assets subject to
capital leases is included in depreciation expense.

  Intangible Assets

  Identifiable intangible assets result from service agreements with the
affiliated dental groups and goodwill associated with the Company's acquisition.
The estimated fair value of the service agreements is the excess of the purchase
price over the estimated fair value of the tangible assets acquired and
liabilities assumed of dental practices. Intangible assets associated with
service agreements and goodwill are amortized over 25 years. In the event a
service agreement is terminated, the related affiliated dental practice is
generally required to purchase, at the Company's option, the unamortized balance
of intangible assets at the current book value, as well as all related other
assets associated with the affiliated dental practice. Accumulated amortization
amounted to $28,000, $673,000 and $2,405,000 at December 31, 1996, 1997 and
1998, respectively.

                                       32
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


  The Company reviews the carrying value of intangible assets on an entity by
entity basis to determine if facts and circumstances exist which would suggest
that the intangible assets may be impaired or that the amortization period needs
to be modified. Among the factors the Company considers in making the evaluation
are changes in the practices' market position, reputation, profitability and
geographical penetration. If conditions are present which indicate impairment is
probable, the Company will prepare a projection of the undiscounted cash flows
of the specific practice and determine if the intangible assets are recoverable
based on these undiscounted cash flows. If impairment is indicated, then an
adjustment will be made to reduce the carrying amount of the intangible assets
to their fair value.

  Income Taxes

  Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes of
changes in the tax rate is recognized in operations in the period that includes
the enactment date.

  Stock Option Plans

  Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," allows companies to recognize expense for the
fair value of stock-based awards or to continue to apply the provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and disclose the
effects of SFAS 123 as if the fair-value-based method defined in SFAS No. 123
had been applied. Under APB Opinion No. 25, compensation expense is recognized
only if on the measurement date the fair value of the underlying stock exceeds
the exercise price. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS 123.

  Earnings Per Share

  Earnings per share are computed based on Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share."  SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS") by all entities that have publicly traded common stock or
potential common stock (options, warrants, convertible securities or contingent
stock arrangements). Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would have
an antidilutive effect on earnings.

  Recently Issued Financial Accounting Standards

  In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," which
requires adoption by the Company by January 1, 1999.  SOP 98-1 provides guidance
on accounting for costs of computer software developed or obtained for internal
use.

  In April 1998, the AICPA issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-Up Activities," which requires adoption by the
Company by January 1, 1999.  SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs.  It requires costs of start-
up activities and organization costs to be expensed as incurred.

     Adoption of these statements is not expected to have a material impact on 
the Company's consolidated financial statements.

                                       33
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


(3) ACCOUNTS RECEIVABLE AND NET REVENUE

  Accounts Receivable

  Accounts receivable represent amounts due from patients and third party payors
for dental services provided by affiliated dental practices that were
outstanding at the time the Company acquired the assets of the practice and
amounts due from third party payors related to the arrangement of the provision
of care to patients.


  Receivables Due From Affiliated Dental Practices

  Receivables due from affiliated practices represent amounts due pursuant to
the terms of the service agreements as described below.

  Revenue--Affiliated Dental Practices

  The affiliated dental practices record revenue at established rates reduced by
contractual adjustments and allowances for doubtful accounts to arrive at
adjusted gross revenue. Contractual adjustments represent the difference between
gross billable charges at established rates and the portion of those charges
reimbursed pursuant to certain third party payor contracts .

  The Company does not consolidate the financial statements of its affiliated
dental practices with those of the Company. The adjusted gross revenue and
amounts retained by the affiliated dental practices are presented below for
illustrative purposes only (in thousands):

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                         ------------------------------------------------------------------------
                                                                  1996                    1997                     1998
                                                         ----------------------  -----------------------  -----------------------
                                                          Park   All Affiliated   Park    All Affiliated   Park    All Affiliated
                                                         Dental    Practices     Dental     Practices     Dental     Practices
                                                         ------  --------------  -------  --------------  -------  --------------
<S>                                                      <C>     <C>             <C>      <C>             <C>      <C>
Adjusted gross revenue-affiliated dental practices...    $4,459      $4,920      $38,515      $64,492     $45,142     $105,438
Amounts retained by affiliated dental practices......       858       1,025        8,461       16,050      10,728       30,022
                                                         ------      ------      -------      -------     -------     --------
Net revenue earned by the Company under service
 agreements..........................................    $3,601      $3,895      $30,054      $48,442     $34,414     $ 75,416
                                                         ======      ======      =======      =======     =======     ========
</TABLE>

                                       34
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


  Net Revenue

  The Company's net revenue represents the aggregate amounts charged to
affiliated dental practices pursuant to the terms of the service agreements.
Under such agreements, the affiliated dental practices reimburse the Company for
actual expenses incurred on their behalf in connection with the operation and
administration of the dental facilities and pay fees to the Company for its
management services. The Company's service fees generally consist of a fixed
monthly fee and an additional variable fee. The fixed monthly fee is determined
prior to each affiliation and annually thereafter by agreement of the Company
and the affiliated dental group in a formal budgeting process. To the extent
that there is operating income after payment of the fixed monthly fee,
reimbursement of expenses incurred in connection with the operation and
administration of the dental facilities and payment of provider expenses, an
additional variable fee is paid to the Company in the amount of such excess up
to budgeted operating income and 50% of such excess over budgeted operating
income. Under certain service agreements, the Company's service fees consist of
a variable monthly fee which is based upon a specified percentage of the amount
by which the PC's adjusted gross revenue exceeds expenses incurred in connection
with the operation and administration of the dental facilities. Additionally,
the Company's net revenue includes amounts from third party payors related to
the arrangement of the provision of care to patients. The Company records its
revenue monthly as earned.

  For the years ended December 31, 1996, 1997 and 1998, net revenue consisted of
the following (in thousands):

<TABLE>
<CAPTION>
                                                                                         1996             1997          1998
                                                                                         ----             ----          ----
<S>                                                                                     <C>              <C>           <C>
Reimbursement of expenses:
  Rent expense.................................................................         $  267           $ 3,476       $ 5,590
  Other operating expenses.....................................................          2,908            32,910        50,688
                                                                                        ------           -------       -------
     Total reimbursement of expenses...........................................          3,175            36,386        56,278
                                                                                        ------           -------       -------
Service fees:
  Monthly fee..................................................................            720            10,724        17,306
  Additional variable fee......................................................              -             1,332         1,832
                                                                                        ------           -------       -------
     Total service fees........................................................            720            12,056        19,138
                                                                                        ------           -------       -------
     Net revenue earned by the company under service agreements................          3,895            48,442        75,416
Revenue related to the arrangement of the provision of care to patients........             38             4,828         8,674
                                                                                        ------           -------       -------
     Total net revenue.........................................................         $3,933           $53,270       $84,090
                                                                                        ======           =======       =======
</TABLE>


(4) ACQUISITIONS AND AFFILIATIONS

  During the year ended December 31, 1997, the Company acquired substantially
all the assets of six dental practices and a related entity associated with one
of these practices, Orthocare, Ltd., (now a wholly-owned subsidiary), which
contracts with third party payors and orthodontic providers to arrange for the
provision of orthodontic care to patients insured by such third party payors.
The Company simultaneously entered into 40-year service agreements with four of
the affiliated dental groups (two practices joined existing affiliates). The
aggregate purchase price paid in connection with these transactions consisted of
approximately $16.8 million in cash, $2.4 million in subordinated promissory
notes and 180,834 shares of Common Stock. All transactions completed in 1997 are
referred to as the "1997 Transactions."

  During the year ended December 31, 1998, the Company acquired substantially
all the assets of ten dental group practices and simultaneously entered into 40-
year service agreements with four of the affiliated dental groups (six practices
joined existing affiliates).  The aggregate purchase price paid in connection
with these transactions consisted of approximately $18.4 million in cash, $2.2
million in subordinated promissory notes, $1.0 million in deferred payments,
54,354 shares of Common Stock and future contingent payments for one affiliation
based on a multiple of service fees received in excess of a predetermined
threshold for each of the three years ending May 31, 1999, 2000 and 2001.  All
transactions completed in 1998 are referred to as the "1998 Transactions."

                                       35
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             For The Years Ended December 31, 1996, 1997 and 1998

  The 1997 and 1998 Transactions are as follows:

<TABLE>
<CAPTION>
                   Date                                      Affiliated Group                                Location(s)          
                   ----                                      ----------------                                -----------
<S>                                         <C>                                                   <C>                             
March 1997...............................   Malcolm R. Scott, D.D.S.                              San Marcos, TX                  
March 1997...............................   Lakeside Dental Care                                  Metairie, LA                    
May 1997.................................   Soster Dental Group                                   Pittsburgh, PA                  
July 1997................................   Northpoint Dental Group                               Milwaukee, WI                   
October 1997.............................   Wilkens Dental Group                                  Milwaukee, WI                   
October 1997.............................   Orthocare Group                                       Minneapolis, MN                 
January 1998.............................   Associated Dental Care                                Phoenix and Tucson, AZ          
April 1998...............................   Family Care Dental Centers                            Janesville, Kenosha and Racine, WI
April 1998...............................   John E. Carey, D.D.S. and James J. Peterman, D.D.S.   Madison, WI                     
April 1998...............................   Leroy S. Crapanzano, D.D.S.                           Hammond, LA                     
June 1998................................   Reston Dental Group                                   Reston, VA                      
June 1998................................   TSC Dental Centers                                    Houston, TX                     
July 1998................................   Indiana Dental Group                                  Indiana, PA                     
September 1998...........................   Mintz & Pincus Dental Group                           Oxon Hill and Waldorf, MD       
September 1998...........................   Westmore Dental Group                                 Mt. Pleasant, PA                
November 1998............................   St. Croix Valley Orthodontics                         Hudson, WI                      
</TABLE>

  The accompanying consolidated financial statements include the results of
operations under the service agreements from the date of acquisition. The excess
of the purchase price associated with all of the 1997 and 1998 Transactions over
the estimated fair value of net assets acquired has been recorded as intangible
assets which are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                                 Amount         
                                                                                                               ----------       
  <S>                                                                                                          <C>                 
  Fair value of total consideration paid...................................................................      $42,081           
  Fair value of net tangible assets acquired and liabilities assumed.......................................          148           
                                                                                                                 -------           
  Excess of fair value of the consideration paid over the fair value of net tangible assets acquired.......      $41,933           
                                                                                                                 =======           
                                                                                                                                   
  The excess of the fair value of the consideration paid over the fair value of the net tangible assets                            
   acquired has been allocated as follows:                                                                                         
  Service agreements associated with affiliations..........................................................      $38,573           
  Goodwill associated with the acquisition.................................................................        3,360           
                                                                                                                 -------           
                                                                                                                 $41,933           
                                                                                                                 =======           
</TABLE>

  If the acquisition of Orthocare, Ltd., which was accounted for as a purchase,
had occurred on January 1, 1996, the Company's unaudited net revenue, earnings
(loss) before income taxes, net earnings (loss) and net loss per share would
have been $7,661,000, $(2,465,000), $(2,465,000), and $(3.24) per share,
respectively, for the year ended December 31, 1996 and $56,346,000, $1,248,000,
$1,118,000, and $(0.03) per share, respectively, for the year ended December 31,
1997. Such pro forma financial information reflects certain adjustments,
including amortization of intangibles, income tax effects and an increase in the
weighted average shares outstanding. This unaudited pro forma information does
not necessarily reflect the results of operations that would have occurred had
the acquisition taken place at the beginning of 1996 and is not necessarily
indicative of results that may be obtained in the future.

  Subsequent to December 31, 1998, the Company acquired substantially all the
assets of two dental practices and simultaneously entered into a 40-year service
agreement with one of the affiliated dental groups (the dentists of the other
dental group joined an existing affiliate). The aggregate purchase price paid in
connection with these transactions consisted of approximately $3.9 million in
cash, $0.1 million in subordinated promissory notes and $0.1 million in deferred
payments. These transactions are referred to as the "1999 Transactions."

                                       36
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

(5) PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                                           1997           1998                       
                                                                           ----           ----                        
    <S>                                                                  <C>           <C>                           
    Land, buildings and leasehold improvements......................     $ 6,376       $  9,850                      
    Equipment.......................................................       6,191          9,938                      
    Furniture and fixtures..........................................       2,868          3,461                      
                                                                         -------       --------                      
       Total property and equipment.................................      15,435         23,249                      
    Less accumulated depreciation...................................      (6,683)       (10,306)                     
                                                                         -------       --------                      
       Property and equipment, net..................................     $ 8,752       $ 12,943                      
                                                                         =======       ========                       
</TABLE>

    Operating Leases

    The Company is obligated under non-cancelable operating leases for premises
and equipment expiring in various years through the year 2009. Rent expense for
the years ended December 31, 1996, 1997 and 1998 amounted to $319,000,
$3,926,000 and $6,248,000, respectively, of which $267,000, $3,476,000 and
$5,590,000 were reimbursed under service agreements. The Company has several
leases with stockholders that were assumed in connection with its affiliation
transactions. Such amounts are generally reimbursed pursuant to the terms of the
service agreements.

    Minimum future rental payments under non-cancelable operating leases and
amounts to be reimbursed under service agreements as of December 31, 1998 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        Amount to be           
                                                                                         Reimbursed           
                                                                                            Under                        
                                                                          Total Amount     Service       Net   
                                                                               Due       Agreements     Amount 
                                                                          ------------  ------------    ------ 
    <S>                                                                   <C>           <C>             <C>   
    1999............................................................         $ 5,817       $ 5,268      $  549        
    2000............................................................           5,152         4,676         476        
    2001............................................................           4,486         4,056         430        
    2002............................................................           3,967         3,613         354        
    2003............................................................           3,333         3,184         149        
    Thereafter......................................................          13,836        13,836           -        
                                                                             -------       -------      ------        
      Total minimum lease payments..................................         $36,591       $34,633      $1,958        
                                                                             =======       =======      ======        
</TABLE>

                                       37
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

(6) INCOME TAXES

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

<TABLE>
<CAPTION>
                                                       1996           1997          1998                                
                                                       ----           ----          ----                                  
    <S>                                               <C>            <C>           <C>                                
    Current:                                                                                                          
      Federal....................................     $       -      $     54      $    704                            
      State......................................             -           102           308                            
                                                      ---------      --------      --------                               
                                                              -           156         1,012                            
                                                      ---------      --------      --------                               
    Deferred:                                                                                                             
      Federal....................................             -           (32)        1,249                               
      State......................................             -             -           217                               
                                                      ---------      --------      --------                               
                                                              -           (32)        1,466                               
                                                      ---------      --------      --------                               
        Total income taxes.......................     $       -      $    124      $  2,478                               
                                                      =========      ========      ========                               
</TABLE>
 
    The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    1997             1998
                                                                                    ----             ----
    <S>                                                                            <C>              <C> 
    Deferred tax assets:                                                            
      Operating loss and other carryforwards.................................      $   989          $   91
      Property and equipment.................................................          566             632                       
      Organization and start-up costs........................................          243             630                       
      Accrued expenses and other liabilities.................................          730             524                       
                                                                                   -------          ------                       
      Total gross deferred tax assets........................................        2,528           1,877                       
      Valuation allowance....................................................       (2,454)              -                       
                                                                                   -------          ------                       
       Total deferred tax assets.............................................           74           1,877                       
                                                                                   -------          ------                       
    Deferred tax liabilities:                                                                                                    
      Intangibles............................................................          (16)           (389)                      
      Other..................................................................         (289)           (303)                      
                                                                                   -------          ------                       
       Total deferred tax liabilities........................................         (305)           (692)                      
                                                                                   -------          ------                       
       Net deferred tax assets (liabilities).................................      $  (231)         $1,185                       
                                                                                   =======          ======                       
</TABLE>

    The valuation allowance for deferred tax assets was $2,454,000 and $0 as of
December 31, 1997 and 1998, respectively. The net change in the total valuation
allowance for the years ended December 31, 1996, 1997 and 1998 was an increase
of $3,062,000, a decrease of $608,000 and a decrease of $2,454,000,
respectively. The valuation allowance was reversed due to the Company's taxable
earnings in 1998 and management's assessment that it is more likely than not
that the remaining net deferred tax assets will be realized through future
taxable earnings. The reversal of the valuation allowance attributable to
acquired deferred tax assets reduced intangible assets by $2,083,000. The
remaining reversal of the valuation allowance provided a tax benefit of
$371,000 in the Company's consolidated statement of operations for the year
ended December 31, 1998.

                                       38
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

    The net deferred tax assets (liabilities) consisted of the following at
December 31 (in thousands):

<TABLE>
<CAPTION>
                                                             1997                       1998            
                                                  -------------------------   ------------------------- 
                                                  Federal   State    Total    Federal   State    Total  
                                                  -------   -----   -------   -------   -----   ------- 
    <S>                                           <C>       <C>     <C>       <C>       <C>     <C>     
    Deferred tax assets:                                                                                
      Current.................................    $   354   $  95   $   449    $   49   $  16   $   65  
      Non-current.............................      1,457     622     2,079     1,250     562    1,812  
      Valuation allowance.....................     (1,807)   (647)   (2,454)        -       -        -  
                                                  -------   -----   -------    ------   -----   ------  
         Total deferred tax assets............          4      70        74     1,299     578    1,877  
                                                  -------   -----   -------    ------   -----   ------   
                                         
    Deferred tax liabilities:            
      Current.................................          -       -         -         -       -        -
      Non-current.............................       (203)   (102)     (305)     (497)   (195)    (692)
                                                  -------   -----   -------    ------   -----   ------
         Total deferred tax liabilities.......       (203)   (102)     (305)     (497)   (195)    (692)
                                                  -------   -----   -------    ------   -----   ------
         Net deferred tax assets (liabilities)    $  (199)  $ (32)  $  (231)   $  802   $ 383   $1,185
                                                  =======   =====   =======    ======   =====   ======
</TABLE>

    At December 31, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $2,092,000 which were utilized in
full to offset Federal taxable income in 1998.

    The following table reconciles the Federal statutory income tax rate to the
Company's effective income tax rate for the years ended December 31:

<TABLE>
<CAPTION>
                                                                          1996        1997       1998
                                                                          ----        ----       ----
    <S>                                                                  <C>         <C>         <C>
    Income taxes at Federal statutory rate...........................    (34.0)%      34.0%      34.0%
    State taxes, net of Federal benefit..............................     (6.0)        4.0        5.5
    Valuation reserve and other changes..............................     33.0       (36.6)      (5.0)
    Intangibles and other permanent differences......................      7.0         9.0        4.5
                                                                         -----       -----       ----
    Effective income tax rate........................................        - %      10.4%      39.0%
                                                                         =====       =====       ====
</TABLE>

(7) DEBT

    Long-term debt and capital lease obligations consist of the following at
December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                                                 1997         1998         
                                                                                                 ----         ----           
    <S>                                                                                         <C>          <C>                
    Revolving line of credit advances, collateralized by substantially all assets of the                                  
      Company, all at a LIBOR-based rate of approximately 6.6%............................      $16,700      $ 4,300            
    Mortgages payable, secured, interest rates ranging from 8.6% to 8.8% payable in                                             
      installments through 2015...........................................................          727          660            
    Note payable, unsecured, interest rate of 8.5% payable in installments, maturing                                            
      in 2004.............................................................................           45           40            
    Subordinated notes payable to stockholders and former owners, bearing interest                                              
      at 7%, maturing through 2005........................................................        4,308        5,894            
    Capital lease obligations.............................................................          247          165            
                                                                                                -------      -------            
    Total long-term debt and capital lease obligations....................................       22,027       11,059            
    Less current maturities...............................................................          774        1,079            
                                                                                                -------      -------            
    Long-term debt and capital lease obligations, excluding current maturities............      $21,253      $ 9,980            
                                                                                                =======      =======            
</TABLE>

                                       39
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

    Annual maturities of long-term debt and future minimum lease payments under
capital leases as of December 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                Long-term           Capital                            
                                                                   Debt             Leases                             
                                                                   ----             ------                                   
     <S>                                                        <C>                 <C>                                
     1999....................................................    $ 1,029              $ 63                                  
     2000....................................................      1,052                50                                  
     2001....................................................      5,377                50                                  
     2002....................................................      1,104                31                                  
     2003....................................................      1,071                 -                                  
     Thereafter..............................................      1,261                 -                                  
                                                                 -------              ----                                  
        Total payments.......................................    $10,894               194                                  
                                                                 =======                                                    
     Less amounts representing interest......................                           29                                  
                                                                                      ----                                  
     Total obligations under capital leases..................                         $165                                  
                                                                                      ====                                  
</TABLE>

    Revolving Line of Credit

    In April 1997, the Company entered into a $30 million revolving line of
credit agreement with a bank. In December 1998, the Company amended its line of
credit to (i) increase the amount available under the line to $50 million, (ii)
add two additional banks, (iii) extend the maturity date and (iv) modify certain
other terms, including pricing. The credit facility is being used for general
corporate purposes including acquisitions and affiliations. Borrowings under
this line of credit bear interest at either prime or LIBOR plus a margin, at the
Company's option. The margin for LIBOR loans is based upon the Company's debt
coverage ratio and ranges up to 1.625%. In addition, the Company pays a
commitment fee of 0.25% of the average daily balance of the unused line.
Borrowings are limited to an availability formula based on adjusted EBITDA. The
credit facility is secured by a first lien on substantially all of the Company's
assets, including a pledge of the stock of the Company's subsidiaries. The
Company is also required to comply with certain financial and other covenants.
The line of credit matures in December 2001.

(8) STOCKHOLDERS' EQUITY

    Preferred Stock

    The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $0.01 par value. At the closing of the initial public offering, 400,000
shares of Series A Convertible Preferred Stock (which were converted into
2,399,995 shares of Common Stock) and 70,000 shares of Series B Redeemable
Preferred Stock (which were redeemed for cash) were restored to the status of
undesignated preferred stock available for issuance.

    Preferred Stock may be issued in one or more series as determined by the
Board of Directors without further stockholder approval, and the Board or
Directors is authorized to fix and determine the terms, limitations, and
relative rights and preferences of such Preferred Stock, and to fix and
determine the variations among series of Preferred Stock. Any new Preferred
Stock issued would have priority over the Common Stock with respect to dividends
and other distributions, including the distribution of assets upon liquidation
and dissolution. Such Preferred Stock may be subject to repurchase or redemption
by the Company. The Board of Directors, without stockholder approval, could
issue Preferred Stock with voting and conversion rights that could adversely
affect the voting power of the holders of Common Stock and the issuance of
which, could be used by the Board of Directors in defense of a hostile takeover
of the Company. As of December 31, 1998, there were no shares of Preferred Stock
issued or outstanding.

                                       40
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

   Common Stock

   The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$0.01 par value, of which 2,394,212 and 7,436,066 shares were issued and
outstanding at December 31, 1997 and 1998, respectively. In January and February
of 1996, the Company sold 300,000 shares of its Common Stock for $100,000.
Additionally, in January 1996, the Company sold 300,000 shares of its Common
Stock, which were subject to certain restrictions, for $500. In connection with
this transaction, the Company is recording compensation expense ratably as the
restrictions lapse. Compensation expense amounted to $22,809, $24,884 and
$24,888 for the years ended December 31, 1996, 1997 and 1998, respectively.

   On November 7, 1997, the Company approved a 6-for-1 split of the Company's
Common Stock effected in the form of a stock dividend. All share and per share
amounts in the accompanying consolidated financial statements have been
retroactively restated to reflect this split.

   Initial Public Offering

   During the second quarter of 1998, the Company sold 2,587,500 shares of
Common Stock in an initial public offering ("IPO") at $15.00 per share. Net
proceeds to the Company after deducting underwriting discounts and commissions
and offering expenses totaled approximately $34,596,000. Such proceeds were used
to (i) redeem all the Series B Redeemable Preferred Stock, including unpaid
dividends, in the amount of $7,851,000, (ii) repay outstanding indebtedness
under the Company's revolving credit facility, including accrued interest, in
the amount of $20,651,000 and (iii) complete additional affiliation
transactions.
 
   Dividend Restriction

   The Company has not paid any cash dividends on its Common Stock and does not
plan to pay any cash dividends on its Common Stock in the foreseeable future.
Additionally, the terms of the Company's revolving credit facility prohibit it
from paying dividends or making other payments with respect to its Common Stock
without the lenders' consent.

(9) STOCK OPTION PLANS

    1996 Stock Option Plan

    The Company's 1996 Stock Option Plan, as amended (the "1996 Plan"), provides
for the grant of stock options to key employees. The 1996 Plan permits the
granting of options that qualify as incentive stock options and non-qualified
options. The exercise price of such options is no less than the fair market
value of the Common Stock at the time of grant. Options granted pursuant to the
1996 Plan expire ten years after the date of grant. At December 31, 1998,
options for a total of 973,246 shares were reserved for issuance and options for
731,232 shares were outstanding under this Plan.

                                       41
<PAGE>
 
                        AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                                        
   1996 Time Accelerated Restricted Stock Option Plan

   The Company's 1996 Time Accelerated Restricted Stock Option Plan, as amended
("TARSOP Plan"), provides for the grant of stock options to key employees. Only
non-qualified options may be granted pursuant to the TARSOP Plan. The exercise
price of such options is no less than the fair market value of the Common Stock
at the time of grant. These options vest at the end of the ninth year, but are
subject to accelerated vesting based on achievement of certain performance
measures. The total number of shares subject to the TARSOP is 360,360. Options
to purchase all such shares have been granted and became exercisable at the
completion of the IPO.

   1996 Affiliate Stock Option Plan

   The Company's 1996 Affiliate Stock Option Plan, as amended (the "Affiliate
Plan"), provides for the grant of stock options to certain persons associated
with the affiliated dental practices. Only non-qualified options may be granted
pursuant to the Affiliate Plan. The exercise price of such options is no less
than the fair market value of the Common Stock at the time of grant. Options
granted pursuant to the Affiliate Plan expire ten years after the date of grant.
At December 31, 1998, options for a total of 110,000 shares were reserved for
issuance and options for 89,586 shares were outstanding under this Plan.

   1996 Directors Stock Option Plan

   The Company's 1996 Directors Stock Option Plan, as amended (the "Directors
Plan"), provides for the granting of options to outside directors. Only non-
qualified options may be granted pursuant to the Directors Plan. The exercise
price of such options is no less than the fair market value of the Common Stock
at the time of grant. Options granted pursuant to the Directors Plan expire ten
years after the date of grant. At December 31, 1998, options for a total of
60,000 shares were reserved for issuance and options for 24,800 shares were
outstanding under this Plan.

   Stock Option Activity

   A summary of stock option activity under all the Company's stock option plans
for the years ended December 31, 1996, 1997 and 1998 follows:

<TABLE>
<CAPTION>
                                               1996                        1997                          1998          
                                        --------------------        -----------------------       ---------------------
                                                    Weighted                       Weighted                    Weighted
                                                      Avg.                           Avg.                        Avg.  
                                                    Exercise                       Exercise                    Exercise
                                        Options      Price           Options        Price          Options      Price  
                                        -------     --------        ---------      --------       ---------    --------
<S>                                     <C>         <C>             <C>            <C>            <C>          <C>    
Outstanding at beginning of year              -     $      -          566,670      $   3.50       1,118,166    $   8.69 
Granted                                 571,170         3.50          552,096         14.04         101,518       12.01 
Cancelled                                (4,500)        0.33             (600)        14.17         (13,706)      13.42 
                                        -------     --------        ---------      --------       ---------    -------- 
Outstanding at end of year              566,670     $   3.50        1,118,166      $   8.69       1,205,978    $   8.92 
                                        =======     ========        =========      ========       =========    ======== 
Exercisable at end of year               16,320     $   7.59           72,098      $   6.90         638,573    $   5.77 
                                        =======     ========        =========      ========       =========    ========  
</TABLE>

                                       42
<PAGE>
 
                         AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                                        

  The Company accounts for stock options in accordance with APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
stock options issued been determined consistent with SFAS No. 123, the Company's
net earnings in 1998 would have been reduced by approximately $28,000 with no
impact on diluted net earnings per share. There would have been no impact to the
Company's net earnings (loss) and diluted net loss per share in 1996 and 1997.

  The weighted average fair value of options granted during 1998 was $3.02. The
fair values of the options granted were estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for grants in
1998: risk-free interest rate of 5.0%, expected life of four years, expected
volatility of 56% and no dividends.  The following assumptions for grants in
1996 and 1997 were used: risk-free interest rate of 6.7%, expected life of four
years, no volatility and no dividends.

  The following table summarizes information about stock options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
                                      Options Outstanding                                  Options Exercisable
                       ---------------------------------------------------------    ---------------------------------
                                        Weighted Average                        
                                            Remaining         Weighted Average  
       Range of            Number       Contractual Life          Exercise            Number       Weighted Average
    Exercise Prices      Outstanding       (in years)               Price           Exercisable     Exercise Price
-----------------------  -----------  ---------------------  -------------------    -----------    ----------------
<S>                      <C>          <C>                    <C>                    <C>            <C>
         $0.33               352,770             6.3                 $ 0.33             322,770          $ 0.33       
    $ 8.06 - $11.50          223,700             7.6                 $ 8.47             147,346          $ 8.33       
    $12.50 - $13.00          125,242             8.6                 $12.76              23,233          $12.51       
         $14.17              504,266             8.5                 $14.17             145,224          $14.17       
                           ---------             ---                 ------             -------          ------       
                           1,205,978             7.7                 $ 8.92             638,573          $ 5.77       
                           =========             ===                 ======             =======          ======       
</TABLE>


(10) EMPLOYEE BENEFIT PLANS

  1997 Employee Stock Purchase Plan

  The 1997 Employee Stock Purchase Plan, as amended (the "Employee Stock
Purchase Plan"), enables eligible employees to purchase shares of Common Stock
at a discount on a periodic basis through payroll deductions and is intended to
meet the requirements of Section 423 of the Internal Revenue Code.  Purchases
occur at the end of option periods, each of six months' duration, except that
the first such option period began concurrent with the completion of the IPO and
ended on December 31, 1998.  The purchase price of Common Stock under the
Employee Stock Purchase Plan is 85% of the lesser of the value of the Common
Stock at the beginning or the end of the option period.  Prior to each option
period, participants may elect to have from 2% to 10% of their pay withheld and
applied to the purchase of shares at the end of the option period.  The Employee
Stock Purchase Plan imposes a maximum of $10,000 on the amount that may be
withheld from any participant in any option period.  A total of 200,000 shares
of Common Stock has been reserved for issuance under the Employee Stock Purchase
Plan, of which 30,814 shares were committed for issuance as of December 31,
1998.

  Under SFAS No. 123, compensation cost would have been recognized for the fair
value of the employees' purchase rights, which was estimated using the Black-
Scholes model with the following assumptions for 1998: risk-free interest rate
of 5.6%, expected life of 0.71 years, expected volatility of 56% and no
dividends.  The fair value of those purchase rights granted in 1998 was $4.82
per share.

                                       43
<PAGE>
 
                         AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                        
Retirement Plans

  The Company has a Savings and Retirement Plan (401(k) Plan), adopted October
1, 1996, which is the Company's principal defined contribution retirement plan,
which provides for a match of up to 3% of an employee's compensation.
Additionally, at December 31, 1998, the Company had seven other defined
contribution retirement plans which were acquired in connection with affiliation
transactions. Total plan expense for the years ended December 31, 1996, 1997 and
1998 was $20,000, $189,000 and $423,000, respectively.

(11) EARNINGS PER SHARE

  Earnings per share are computed based on Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS") by all entities that have publicly traded common stock or
potential common stock (options, warrants, convertible securities or contingent
stock arrangements). Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would have
an antidilutive effect on earnings.

  The following table provides a reconciliation of the numerators and
denominators of the basic and diluted loss per share computations for the years
ended December 31 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                             1996     1997     1998   
                                                                           --------  -------  ------- 
  <S>                                                                      <C>       <C>      <C>      
  BASIC EARNINGS (LOSS) PER SHARE:                                                                    
  Net earnings (loss)..............................................        $(2,443)  $1,070   $3,886  
  Less:  Dividends on Series A Convertible Preferred Stock.........           (109)    (632)    (200) 
         Dividends on Series B Redeemable Preferred Stock..........            (96)    (560)    (195) 
                                                                           -------   ------   ------  
  Net earnings (loss) available to common stockholders.............        $(2,648)  $ (122)  $3,491  
                                                                           =======   ======   ======  
                                                                                                      
  Weighted average common shares outstanding.......................            768    2,273    5,907  
                                                                           =======   ======   ======  
                                                                                                      
  Net earnings (loss) per share....................................        $ (3.45)  $(0.05)   $0.59  
                                                                           =======   ======   ======  
                                                                                                      
  DILUTED EARNINGS (LOSS) PER SHARE:                                                                  
  Net earnings (loss)..............................................        $(2,443)  $1,070   $3,886  
  Less:  Dividends on Series A Convertible Preferred Stock.........           (109)    (632)       -  
         Dividends on Series B Redeemable Preferred Stock..........            (96)    (560)    (195) 
                                                                           -------   ------   ------  
  Net earnings (loss) available to common stockholders.............        $(2,648)  $ (122)  $3,691  
                                                                           =======   ======   ======  
                                                                                                      
  Weighted average common shares outstanding.......................            768    2,273    5,907  
  Add:  Dilutive effect of options (1).............................              -        -      237  
        Assumed conversion of Series A Convertible                                                   
         Preferred Stock (1)(2)....................................              -        -      723  
                                                                           -------   ------   ------  
  Weighted average common shares as adjusted.......................            768    2,273    6,867  
                                                                           =======   ======   ======  
                                                                                                      
  Net earnings (loss) per share....................................         $(3.45)  $(0.05)   $0.54   
                                                                           =======   ======   ====== 
</TABLE> 

____________________
(1)  The assumed conversion of Series A Convertible Preferred Stock and the
     dilutive effect of stock options were not included in the calculation of
     Diluted EPS for the years ended December 31, 1996 and 1997, as the
     inclusion of these items would have been antidilutive.
(2)  In connection with the IPO, all 400,000 shares of Series A Convertible
     Preferred Stock were converted into 2,399,995 shares of Common Stock on
     April 21, 1998.  The Diluted EPS calculation for the year ended December
     31, 1998 assumes conversion of the Series A Convertible Preferred Stock to
     Common Stock as of January 1, 1998.

                                       44
<PAGE>
 
                         AMERICAN DENTAL PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                                        


(12) SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)

  The following table sets forth summary quarterly results of operations for the
Company for the years ended December 31, 1997 and 1998 (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                                         FIRST           SECOND           THIRD         FOURTH
                                                                         QUARTER         QUARTER         QUARTER        QUARTER
                                                                         -------         -------         -------        -------
<S>                                                                      <C>             <C>             <C>            <C>
1997
----
Net revenue.........................................................     $11,226         $12,076         $13,318        $16,650
Operating expenses..................................................      11,081          11,751          12,848         15,833
Earnings from operations............................................         145             325             470            817
Earnings before income taxes........................................         172             218             355            449
Income taxes........................................................          --               7              74             43
Net earnings........................................................     $   172         $   211         $   281        $   406
Net earnings (loss) per share:
  Basic.............................................................     $ (0.06)        $ (0.04)        $ (0.01)       $  0.04
  Diluted...........................................................     $ (0.06)        $ (0.04)        $ (0.01)       $  0.04
Weighted average common shares outstanding:
  Basic.............................................................       2,213           2,228           2,255          2,394
  Diluted...........................................................       2,213           2,228           2,255          2,593


1998
----
Net revenue.........................................................     $18,171         $20,217         $22,334        $23,368
Operating expenses..................................................      16,963          18,637          20,248         20,791
Earnings from operations............................................       1,208           1,580           2,086          2,577
Earnings before income taxes........................................         769           1,374           1,893          2,330
Income taxes........................................................         300             536             738            906
Net earnings........................................................     $   469         $   838         $ 1,155        $ 1,424
Net earnings per share:
  Basic.............................................................     $  0.06         $  0.12         $  0.16        $  0.19
  Diluted...........................................................     $  0.06         $  0.11         $  0.15        $  0.19
Weighted average common shares outstanding:
  Basic.............................................................       2,429           6,265           7,428          7,436
  Diluted...........................................................       2,632           7,103           7,660          7,671
</TABLE>

                                       45
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.


                                   PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  Information relating to the executive officers of the Company is included
under the caption "Executive Officers" in Part I of this Report.

  The information set forth under the captions "Elections of Directors" and
"Compliance with Section 16(a) of the Exchange Act" in the American Dental
Partners, Inc. Proxy Statement to be filed with the Commission in connection
with the 1999 Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

  The information set forth under the caption "Executive Compensation" in the
Proxy Statement, except for the Report of the Compensation Committee and the
Performance Graph, is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information set forth under the caption "Certain Transactions" and the
information set forth under the caption "Compensation Committee Interlocks and
Insider Participation" in the Proxy Statement are incorporated herein by
reference.

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

  The following documents are filed as part of this report:

  (A)(1) CONSOLIDATED FINANCIAL STATEMENTS (See Item 8)

  (A)(2) FINANCIAL STATEMENT SCHEDULES
  All schedules are omitted as the required information is not applicable or is
  included in the consolidated financial statements or related notes.

  (A)(3) EXHIBITS
  The exhibits which are filed with this Form 10-K or which are incorporated
  herein by reference are set forth in the Exhibit Index which appears in this
  report beginning at page 48.

  (B)    REPORTS ON FORM 8-K
  No Current Reports on Form 8-K were filed during the three-month period ended
  December 31, 1998.

                                       46
<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, in the Town of Wakefield,
Commonwealth of Massachusetts, on the 5th day of March, 1999.

                                  American Dental Partners, Inc.


                                           /s/ Gregory A. Serrao
                                  By:-----------------------------------------
                                               GREGORY A. SERRAO
                                      Chairman, President and Chief Executive
                                                  Officer

  Pursuant to the requirement of the Securities 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.

<TABLE>
<CAPTION>
        SIGNATURE                       CAPACITY IN WHICH SIGNED                      DATE
        ---------                       ------------------------                      ----
<S>                                     <C>                                        <C>
/s/ Gregory A. Serrao                   Chairman, President and Chief              March 5, 1999
---------------------------------      
    GREGORY A. SERRAO                    Executive Officer and Director
                                         (principal executive officer)
                                    
/s/ Ronald M. Levenson                  Senior Vice President, Chief Financial     March 5, 1999
---------------------------------      
    RONALD M. LEVENSON                   Officer and Treasurer (principal
                                         financial and accounting officer) 
                                    
/s/ Dr. Gregory T. Swenson              Director                                   March 5, 1999
---------------------------------      
    DR. GREGORY T. SWENSON          
                                    
 /s/ Martin J. Mannion                  Director                                   March 5, 1999
---------------------------------       
     MARTIN J. MANNION              
                                    
 /s/ James T. Kelly                     Director                                   March 5, 1999
---------------------------------      
     JAMES T. KELLY                 
                                    
 /s/ Derril W. Reeves                   Director                                   March 5, 1999
---------------------------------
     DERRIL W. REEVES
</TABLE>

                                       47
<PAGE>
 
                                 EXHIBIT INDEX

Exhibit
Number                     Exhibit Description
-------                    -------------------

  +3(a)    Second Amended and Restated Certificate of Incorporation of American
           Dental Partners, Inc.

  +3(b)    Amended and Restated By-laws of American Dental Partners, Inc.

  +4(a)    Form of Stock Certificate.

 **4(b)    Form of Subordinated Promissory Note and Form of Subordination
           Agreement.

 +10(a)    American Dental Partners, Inc. Series A and Series B Preferred Stock
           Purchase Agreement dated January 8, 1996, among American Dental
           Partners, Inc., Summit Ventures IV, L.P., Summit Investors, III,
           L.P., and Gregory A. Serrao, as amended by First Amendment to Series
           A and Series B Preferred Stock Purchase Agreement dated February 19,
           1996, Second Amendment to Series A and Series B Preferred Stock
           Purchase Agreement dated May 1, 1996, and Third Amendment to Series A
           and Series B Preferred Stock Purchase Agreement dated November 1,
           1996.

 +10(b)    American Dental Partners, Inc. Subordinated Debenture Purchase
           Agreement dated January 8, 1996, among American Dental Partners,
           Inc., Summit Subordinated Debt Fund, L.P., and Summit Investors III,
           L.P., as amended by First Amendment to Subordinated Debenture
           Purchase Agreement dated May 1, 1996, and Second Amendment to
           Subordinated Debenture Purchase Agreement dated November 1, 1996.

 +10(c)    Registration Rights Agreement dated January 8, 1996, among American
           Dental Partners, Inc., Summit Venture IV, L.P., Summit Investors III,
           L.P., Gregory A. Serrao, and others, as amended by Amendment to
           Registration Rights Agreement dated November 1, 1996.

 +10(d)    Reformation Agreement dated December 23, 1996, among American Dental
           Partners, Inc., Summit Ventures IV, L.P., Summit Investors III, L.P.,
           Summit Investors II, L.P., and Gregory A. Serrao.

 *#10(e)   American Dental Partners, Inc. Amended and Restated 1996 Stock Option
           Plan, as amended by Amendments No. 1, No. 2 and No. 3.

 +#10(f)   American Dental Partners, Inc. 1996 Time Accelerated Stock Option
           Plan, as amended by Amendment No. 1.

 *#10(g)   American Dental Partners, Inc. Amended and Restated 1996 Affiliate
           Stock Option Plan, as amended by Amendments No.1 and No. 2.

 *#10(h)   American Dental Partners, Inc. Amended and Restated 1996 Directors
           Stock Option Plan, as amended by Amendments No. 1, No. 2 and No. 3.

 +#10(i)   Employment and Non-Competition Agreement dated January 8, 1996,
           between American Dental Partners, Inc. and Gregory A. Serrao.

 +#10(j)   Employment Agreement dated April 22, 1996, between American Dental
           Partners, Inc. and Ronald M. Levenson.

 *#10(k)   Employment and Noncompetition Agreement dated October 21, 1998,
           between American Dental Partners, Inc. and Lee S. Feldman.

 +#10(l)   Employment and Noncompetition Agreement dated November 12, 1996,
           between PDHC, Ltd. and Gregory T. Swenson, D.D.S.

 +10(m)    Registration Rights Agreement dated November 11, 1996, among American
           Dental Partners, Inc. and certain of its stockholders (the former
           stockholders of PDHC, Ltd.).

 +10(n)    Registration Rights Agreement dated December 13, 1996, between
           American Dental Partners, Inc. and Les L. Crane, D.D.S.

 +10(o)    Registration Rights Agreement dated December 23, 1996, among American
           Dental Partners, Inc. and certain of its stockholders (the former
           stockholders of Smileage Dental Care, Inc.).

 +10(p)    Registration Rights Agreement dated March 31, 1997, between American
           Dental Partners, Inc. and Lakeside Dental Group.

 +10(q)    Registration Rights Agreement dated May 22, 1997, between American
           Dental Partners, Inc. and Abel J. Soster, DMD.

                                      48
<PAGE>
 
Exhibit
Number                        Exhibit Description
-------                       -------------------


   *10(r)   Amended and Restated Service Agreement dated January 1, 1999,
            between PDHC, Ltd. and PDG, P.A.

   *10(s)   Amended and Restated Service Agreement dated January 1, 1999,
            between Smileage Dental Care, Inc. and Wisconsin Dental Group, S.C.

   *10(t)   Amended and Restated Revolving Credit Agreement dated December 4,
            1998, among American Dental Partners, Inc., the Lenders Party
            Thereto and Fleet National Bank as Agent and BankBoston, N.A. as Co-
            Agent.

   +10(u)   Acquisition and Exchange Agreement dated November 11, 1996, among
            American Dental Partners, Inc., PDHC, Ltd., and the Shareholders of
            PDHC, Ltd.

   +10(v)   Asset Purchase Agreement dated December 13, 1996, among American
            Dental Partners, Inc., Texas Dental Partners, Inc., Les L. Crane,
            D.D.S., P.C., and Les L. Crane, D.D.S.

   +10(w)   Agreement and Plan of Merger and Reorganization dated December 23,
            1996, among American Dental Partners, Inc., American Dental Partners
            of Wisconsin, Inc., Smileage Dental Care, Inc., and the Shareholders
            of Smileage Dental Care, Inc.

   +10(x)   Registration Rights Agreement dated July 1, 1997, among American
            Dental Partners, Inc. and John M. Werwie, D.D.S., James F. Ruzicka,
            D.D.S., and Jon J. Pagenkopf, D.D.S.

   +10(y)   Registration Rights Agreement dated October 1, 1997, among American
            Dental Partners, Inc. and Karl H. Biewald, D.D.S., J.E. Cutliffe,
            D.D.S., Timothy J. Montgomery, D.D.S., Curtis R. Dunn, D.D.S., and
            Christopher S. Hipp, D.D.S.

   +10(z)   Registration Rights Agreement dated October 1, 1997, among American
            Dental Partners, Inc. and Karl H. Biewald, D.D.S. and Terri M.
            Lawler.

  +10(aa)   Asset Purchase Agreement dated October 1, 1997, among American
            Dental Partners, Inc., Apple Park Associates, Inc., APAM, Inc., OC
            Specialists, Ltd., and the Shareholders of APAM, Inc. and OC
            Specialists, Ltd.

  +10(bb)   Asset Purchase Agreement dated October 1, 1997 among American Dental
            Partners, Inc., American Dental Partners of Wisconsin, Inc.,
            Terrance R. Wilkens, D.D.S., Terrance R. Wilkens, D.D.S., S.C.,
            Brookfield Dental Center, S.C., Waukesha Dental Center, S.C., Hales
            Corners Dental Center, S.C., and West Allis Dental Center, S.C.

 +#10(cc)   Employment and Noncompetition Agreement dated November 12, 1996,
            between American Dental Partners, Inc., and Forrest M. Flint.

++10(dd)    Asset Purchase Agreement dated June 3, 1998, among American Dental
            Partners, Inc., American Dental Partners of Virginia, Inc., Reston
            Dental Group, P.C., and the shareholders of Reston Dental Group,
            P.C.

  @10(ee)   Amended and Restated Asset Purchase Agreement dated February 8,
            1999, among American Dental Partners, Inc., Innovative Practice
            Concepts, Inc., Associated Dental Care Providers, P.C., CIGNA
            HealthCare of Arizona, Inc. and CIGNA Dental Health, Inc.

 *#10(ff)   Employment and Noncompetition Agreement dated January 1, 1999,
            between American Dental Partners, Inc. and Joseph V. Errante, D.D.S.

   *21      Subsidiaries of American Dental Partners, Inc.
  
   *23      Consent of KPMG Peat Marwick LLP.

                                      49
<PAGE>
 
Exhibit
Number                     Exhibit Description
-------                    -------------------


  *27    Financial Data Schedule.

____________
*   Filed herewith. For Exhibits 10(r) and 10(s), certain portions of these
    exhibits have been omitted pursuant to confidential treatment granted under
    Rule 406 of the Securities Act.
**  Previously filed as an exhibit to the Company's Registration Statement on
    Form S-4 (Registration No. 333-56941) and incorporated herein by reference.
+   Previously filed as an exhibit to the Company's Registration Statement on
    Form S-1 (Registration No. 333-39981) and incorporated herein by reference.
++  Previously filed as Exhibit 2 to the Company's Current Report on Form 8-K
    filed with the Securities and Exchange Commission on June 11, 1998 and
    incorporated herein by reference.
@   Previously filed as Exhibit 2 to the Company's Current Report on Form 8-K
    filed with the Securities and Exchange Commission on February 18, 1999 and  
    incorporated herein by reference.
#   Management contracts or compensatory plans or arrangements.

                                      50