<PAGE>
 
             _____________________________________________________

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the quarterly period ended September 30, 1998

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from ____________ to ____________

Commission file number: 0-27064


                           FIRST COMMONWEALTH, INC.
            (Exact name of registrant as specified in its charter)


           Delaware                                       75-2154228
(State or other jurisdiction of             (IRS employer identification number)
 incorporation or organization)


             444 North Wells Street, Suite 600, Chicago, IL  60610
                   (Address of principal executive offices)

                                (312) 644-1800
             (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  [x]    No [  ]

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

Common Stock, par value $.001 per share, outstanding as of October 31, 1998:
3,646,525 shares
             _____________________________________________________

<PAGE>
 
                           First Commonwealth, Inc.
                                   Form 10-Q
                   For the quarter ended September 30, 1998

                                     INDEX

                       PART I.    FINANCIAL INFORMATION
                       --------------------------------
<TABLE>
<CAPTION>
                                                                       Page
                                                                       ----
<S>                                                                   <C>
Item 1. Financial Statements

 
        Consolidated Balance Sheets as of September 30,
        1998 and December 31, 1997....................................  3
 
        Consolidated Statements of Income for the three and
        nine months ended September 30, 1998 and 1997.................  5
 
        Consolidated Statements of Cash Flows for the nine months
        ended September 30, 1998 and 1997.............................  6
 
        Reconciliations of Net Income to Net Cash Provided by
        Operating Activities for the nine months ended September 30,
        1998 and 1997.................................................  7
 
        Notes to Consolidated Financial Statements....................  8

 
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations.....................................  10


                         PART II.   OTHER INFORMATION
                         ----------------------------

Item 6. Exhibits and Reports on Form 8-K..............................  14

SIGNATURES............................................................  15
</TABLE>

                  SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

          Certain statements included or incorporated by reference in this Form
10-Q under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.  Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things,
increased competition in the markets in which the Company operates; changes in
regulation affecting the Company; changes in the utilization of services;
changes in arrangements relating to payments to providers; the level of the
Company's indemnity enrollment and the related indemnity risk of indemnity
plans; the ability to integrate and successfully operate acquired businesses and
the risks associated with such businesses; the possible need for, and ability to
obtain if needed, financing on acceptable terms to finance the Company's growth
strategy; the ability of the Company to operate within the limitations imposed
by any such financing arrangements; and other factors referenced or incorporated
by reference in this Form 10-Q.

                                       2
<PAGE>
 
                        PART I.   FINANCIAL INFORMATION
                        -------------------------------

Item 1.  Financial Statements

<TABLE>
<CAPTION>

First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
(Dollars in Thousands)

ASSETS                                                       September 30, 1998    December 31, 1997
------                                                       ------------------    -----------------
                                                                    (Unaudited)
<S>                                                          <C>                  <C>
CURRENT ASSETS:

  Cash and cash equivalents                                              $ 5,767             $ 9,047

  Investments-Short Term                                                     527                   0

  Accounts receivable, net of allowances
  of $378 at September 30, 1998 and $334 at
  December 31, 1997                                                        3,959               3,444

  Other receivables                                                          678                 163

  Deposit under reinsurance agreement                                        661                 752

  Prepaid expenses                                                         2,134               2,289

  Deferred tax asset                                                         992                 859
                                                                         -------             -------

    Total current assets                                                  14,718              16,554
                                                                         -------             -------

 PROPERTY AND EQUIPMENT, at cost                                           4,590               4,030

  Less - Accumulated depreciation                                         (2,842)             (2,320)
                                                                         -------             -------

    Property and equipment, net                                            1,748               1,710
                                                                         -------             -------

 OTHER ASSETS:

  Restricted cash equivalents and government securities
  on deposit, at cost which approximates market                            3,705               3,264

  Deposits and other                                                          54                 104

  Long Term Investments, at cost which approximates market                 7,150                   0

  Intangible assets, net                                                  10,066              10,264
                                                                         -------             -------

    Total other assets                                                    20,975              13,632
                                                                         -------             -------

    TOTAL ASSETS                                                         $37,441             $31,896
                                                                         =======             =======
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       3
<PAGE>
 
First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - continued

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(Dollars in Thousands)

LIABILITIES AND STOCKHOLDERS' EQUITY            September 30, 1998       December 31, 1997
                                                -----------------        -----------------
                                                       (Unaudited)
<S>                                             <C>                      <C>
CURRENT LIABILITIES:

 Accounts payable - trade                                  $   217                  $   88

 Accounts payable - dental service providers                   943                     395

 Claims liability                                            1,709                   1,604

 Accrued payroll and related costs                           1,037                     485

 Other accrued expenses                                        880                     356

 Deferred subscriber revenue                                 4,937                   4,445

 Payable under reinsurance agreement                           779                     752

 Income taxes payable                                          257                     200

 Other current liabilities                                       0                       0
                                                           -------                  ------

   Total current liabilities                                10,759                   8,325

DEFERRED TAX LIABILITY - long-term                             437                     248
                                                           -------                  ------

   Total liabilities                                        11,196                   8,573
                                                           -------                  ------

STOCKHOLDERS' EQUITY:

 Preferred stock ($.001 par value; 1,000,000
   shares authorized, none issued)                               0                       0

 Common stock ($.001 par value; 15,000,000 shares
   authorized, 3,647,260 shares at September 30, 1998
   and 3,636,951 shares at December 31, 1997 issued
   and outstanding)                                              4                       4

 Capital in excess of par value                             13,293                  13,252

 Less 735 shares of common stock at September 30, 1998
   and 495 shares of common stock at December 31,
   1997 held in treasury, at cost                              (16)                    (14)

 Retained earnings                                          12,964                  10,081
                                                           -------                 -------

   Total stockholders' equity                               26,245                  23,323
                                                           -------                 -------

   Total liabilities and stockholders' equity              $37,441                 $31,896
                                                           =======                 =======
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>
 
First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
(Dollars in Thousands, except per share data)(Unaudited)

<TABLE>
<CAPTION>

                                          For the three months ended:        For the nine months ended:
                                        -------------------------------   -------------------------------
                                        Sept. 30, 1998   Sept. 30, 1997   Sept. 30, 1998   Sept. 30, 1997
                                        --------------   --------------   --------------   --------------
<S>                                     <C>              <C>              <C>              <C>
SUBSCRIBER REVENUE

  Managed Care                                 $12,037          $10,978          $35,636          $32,284
  Indemnity/PPO                                  3,829            3,310           11,254            8,893
  Fee Income                                       279              231              831              661
                                               -------          -------          -------          -------
     Total Subscriber Revenue                   16,145           14,519           47,721           41,838
                                               -------          -------          -------          -------


BENEFIT COVERAGE EXPENSES

  Managed Care                                   7,494            6,989           22,278           20,363
  Indemnity/PPO                                  3,264            2,957            9,600            7,468
  Fee Income                                        --               --               --               --
                                               -------          -------          -------          -------

     Total Benefit Coverage Expenses            10,758            9,946           31,878           27,831
                                               -------          -------          -------          -------

GROSS MARGIN

  Managed Care                                   4,543            3,989           13,358           11,921
  Indemnity/PPO                                    565              353            1,654            1,425
  Fee Income                                       279              231              831              661
                                               -------          -------          -------          -------

     Total Gross Margin                          5,387            4,573           15,843           14,007

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE                           3,866            3,201           11,512           10,210
                                               -------          -------          -------          -------

  Operating income                               1,521            1,372            4,331            3,797

INTEREST INCOME, net                               188              121              516              339
                                               -------          -------          -------          -------

  Income before income taxes                     1,709            1,493            4,847            4,136

PROVISION FOR INCOME TAXES                         691              611            1,963            1,696
                                               -------          -------          -------          -------

NET INCOME                                     $ 1,018          $   882          $ 2,884          $ 2,440
                                               =======          =======          =======          =======

BASIC EARNINGS PER SHARE                         $0.28            $0.24            $0.79            $0.68

DILUTED EARNINGS PER SHARE                       $0.27            $0.24            $0.77            $0.65
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       5
<PAGE>
 
First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
(Dollars in Thousands)(Unaudited)

<TABLE>
<CAPTION>


                                                                     For the nine months ended:
                                                              -----------------------------------------
                                                              September 30, 1998     September 30, 1997
                                                              ------------------     ------------------
<S>                                                           <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

     Cash received from subscribers                                     $ 48,175               $ 41,002
     Cash paid to providers of care                                      (20,996)               (19,631)
     Cash paid to employees, brokers and suppliers                       (10,921)               (12,092)
     Claims paid                                                          (9,590)                (7,565)
     Interest paid                                                             0                      0
     Interest received                                                       397                    293
     Income taxes paid                                                    (1,859)                (1,662)
     Cash transferred from (to) restricted funds                            (286)                   278
                                                                        --------               --------

        Net cash provided by operating activities                          4,920                    623
                                                                        --------               --------

CASH FLOWS FROM INVESTING ACTIVITIES:

     Purchase of property and equipment, net                                (560)                  (579)
     Purchase of short-term investments                                     (527)                  (517)
     Proceeds from short-term investments                                      0                    517
     Purchase of long-term investments                                    (7,150)                     0
     Acquisition cost                                                          0                 (5,500)
                                                                        --------               --------

        Net cash used in investing activities                             (8,239)                (6,119)
                                                                        --------               --------

CASH FLOWS FROM FINANCING ACTIVITIES:

     Issuance of common stock                                                 41                     15
     Principal payments on capital leases                                      0                      0
     Purchase of treasury stock                                               (3)                    (1)
                                                                        --------               --------

        Net cash used in financing activities                                 38                     14
                                                                        --------               --------

        Net change in cash and cash equivalents                           (3,280)                (5,481)

CASH AND CASH EQUIVALENTS,
     beginning of period                                                   9,047                 15,817
                                                                        --------               --------

CASH AND CASH EQUIVALENTS,
     end of period                                                      $  5,767               $ 10,336
                                                                        ========               ========
</TABLE>



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

                                       6
<PAGE>
 
First Commonwealth, Inc. and Subsidiaries
RECONCILIATIONS OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
--------------------------------------------------------------------------------
(Dollars in Thousands)(Unaudited)

<TABLE>
<CAPTION>
                                                             For the nine months ended:
                                                       --------------------------------------
                                                       September 30, 1998  September 30, 1997
                                                       ------------------  ------------------
<S>                                                    <C>                 <C>

Net income                                                   $2,884             $ 2,440

Adjustments to reconcile net income to net
cash provided by operating activities:

    Depreciation and amortization                               721                 633

    (Increase) decrease in assets:

        Accounts receivable, net                               (515)               (478)

        Other receivables                                      (515)               (153)

        Deposit under reinsurance agreement                      91                 356

        Prepaid expenses                                        155              (1,578)

        Deferred tax asset                                     (133)                134

        Prepaid income taxes                                      0                (159)

        Restricted cash equivalents and
          government securities                                (441)                272

        Deposits and other                                       50                  12

    Increase (decrease) in current liabilities:    

        Accounts payable - trade                                129                (269)

        Accounts payable - dental service providers             548                (139)

        Claims liability                                        105                (196)

        Accrued payroll and related costs                       552                (196)

        Other accrued expenses                                  524                (251)

        Deferred subscriber revenue                             492                 524

        Payable under reinsurance agreement                      27                (288)

        Income taxes payable                                     57                (101)

    Increase in long-term liabilities:

        Long-term deferred tax liability                        189                  61
                                                             ------             -------

    Net cash provided by operating activities                $4,920             $   623
                                                             ======             =======
</TABLE>

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

                                       7
<PAGE>
 
                           FIRST COMMONWEALTH, INC.

                  Notes to Consolidated Financial Statements
                              September 30, 1998


1.   Interim Financial Statements

     The accompanying consolidated financial statements include the accounts of
First Commonwealth, Inc., together with its subsidiaries and an affiliate
(collectively, the "Company"). All material intercompany transactions and
balances have been eliminated in consolidation.

     The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain notes and other information normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from the interim financial
statements presented in this quarterly report on Form 10-Q in accordance with
such rules and regulations. In the opinion of the Company's management, the
accompanying consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly the
financial position of the Company as of September 30, 1998, and the results of
its operations and cash flows for the periods indicated. The results of
operations for the three months ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full year. The accompanying
consolidated financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1997.

2.   Earnings Per Share

     Under SFAS No. 128, primary earnings per share is replaced by "Basic"
earnings per share ("EPS"), which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. "Diluted" EPS, which is computed similarly to
fully diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock.

     The following table reconciles the numerators (Net Income) and denominators
(Shares) of the basic and diluted earnings per share computations.

<TABLE>
<CAPTION>
                           Three Months Ended         Three Months Ended
                           September 30, 1998   EPS   September 30, 1997   EPS
                           ------------------         ------------------
<S>                               <C>           <C>          <C>           <C>
Net Income                      $1,018,000                $  882,000
                                ==========                ==========
Basic Shares/EPS                 3,645,476     $0.28       3,617,456      $0.24
                                               =====                      =====
Effect of dilutive
  common stock options              88,996                   114,771
                                ----------                ----------
Diluted Shares/EPS               3,734,472     $0.27       3,732,227      $0.24
                                ==========     =====      ==========      =====
</TABLE>

                                       8

<PAGE>

<TABLE>
                          Nine Months Ended           Nine Months Ended
                          September 30, 1998   EPS    September 30, 1997    EPS
                          ------------------          ------------------
<S>                       <C>                 <C>     <C>                 <C>
Net Income                    $2,884,000                  $2,440,000
                              ==========                  ==========
Basic Shares/EPS               3,641,709      $0.79        3,613,414      $0.68
                                              =====                       =====
Effect of dilutive
  common stock options            98,237                     114,272
                              ----------                  ----------
Diluted Shares/EPS             3,739,946      $0.77        3,727,686      $0.65
                              ==========      =====       ==========      =====
</TABLE>

                                       9
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations 

Results of Operations
 
     The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto.

Three Months Ended September 30, 1998 Compared to Three Months Ended 
September 30, 1997
 
     Total subscriber revenue increased by $1.6 million, or 11.0%, to $16.1
million in the three months ended September 30, 1998 from $14.5 million in the
three months ended September 30, 1997. This increase is attributable to
increased enrollment in the Company's managed care plans as well as the price
increases that took effect on the managed care and indemnity/PPO plans effective
January 1, 1998. Managed care revenue increased by $1.0 million, or 9.1%, to
$12.0 million in the three months ended September 30, 1998 from $11.0 million in
the same period in 1997, primarily due to an increase in new members and price
increases. Indemnity/PPO revenue increased $519,000 to $3.8 million in 1998 from
$3.3 million in 1997, primarily as a result of adding new indemnity/PPO plan
members. The Company expects that subscriber revenue will continue to increase
at a slower rate than in previous years throughout the fourth quarter and into
1999.

     Total gross margin increased by $814,000 or 17.7% to $5.4 million in the
three months ended September 30, 1998 from $4.6 million in the three months
ended September 30, 1997. Total gross margin as a percentage of revenue was
33.4% in 1998 as compared to 31.5% in 1997. This percentage increase was the
result of an improvement in both the managed care and indemnity/PPO gross margin
percentages. Managed care gross margin as a percentage of managed care revenue
was 37.7% in 1998 as compared to 36.3% in 1997. The Company expects the managed
care gross margin percentage to continue to exceed the 1997 gross margin
percentage throughout the balance of 1998 and into 1999, as a result of the
rollout of the new plan designs which were implemented on January 1, 1998. The
indemnity/PPO gross margin as a percentage of indemnity/PPO revenue increased to
14.8% in 1998 from 10.7% in 1997. This change is mainly the result of an
increase in pricing under the Company's indemnity/PPO contracts. The Company
expects the indemnity/PPO gross margin percentage to remain fairly consistant
with the current level throughout the balance of 1998 and into 1999. In
addition, overall gross margin percentages will vary if the mix of the Company's
indemnity/PPO and managed care business changes from current levels.

     SG&A expenses increased by $665,000, or 20.8% to $3.9 million for the three
months ended September 30, 1998 from $3.2 million for the three months ended
September 30, 1997. As a percentage of revenue, SG&A expenses increased to 23.9%
for 1998 from 22.0% for 1997. The increase is due to reduced spending in 1997
that was necessary to offset the reduction in indemnity/PPO gross margin. The
Company does not expect the level of SG&A expenses to decrease as a percentage
of revenue in 1999.

     Operating income increased by $149,000, or 10.9%, to $1.5 million for the
three months ended September 30, 1998 from $1.4 million for the three months
ended September 30, 1997. As a percentage of revenue, operating income was 9.4%
in 1998 and 1997. The Company expects that operating income will increase at a
slower rate than in previous years throughout 1999.

     Interest income increased by $67,000 to $188,000 for the three months ended
September 30, 1998 from $121,000 for the three months ended September 30, 1997
primarily as a result of improved cash flow from operations.

     The effective tax rate for the three months ended September 30, 1998
decreased to 40.4% from 40.9% for the three months ended September 30, 1997,
primarily due to investments in tax-free funds.

                                      10

<PAGE>
 
      Net income increased by $136,000, or 15.4%, to $1.0 million for the three
months ended September 30, 1998 from $882,000 for the three months ended
September 30, 1997. Diluted earnings per share was $0.27 and $0.24 for the three
months ended September 30, 1998 and 1997, respectively.

Nine Months Ended September 30, 1998 Compared to Nine Months Ended 
September 30, 1997
 
     Total subscriber revenue increased by $5.9 million, or 14.1%, to $47.7
million in the nine months ended September 30, 1998 from $41.8 million in the
nine months ended September 30, 1997. This increase is attributable to increased
enrollment in the Company's managed care plans as well as the price increases
that took effect on the managed care and indemnity/PPO plans effective January
1, 1998. Managed care revenue increased by $3.3 million, or 10.4% to $35.6
million in the nine months ended September 30, 1998 from $32.3 million in the
same period in 1997, primarily due to an increase in new members and price
increases. Indemnity/PPO revenue increased $2.4 million or 26.5%, to $11.3
million in 1998 from $8.9 million in 1997, primarily as a result of adding new
indemnity/PPO plan members and price increases. The Company expects that
subscriber revenue will continue to increase at a slower rate than in previous
years throughout the fourth quarter and into 1999.
 
     Total gross margin increased by $1.8 million, or 13.1%, to $15.8 million in
the nine months ended September 30, 1998 from $14.0 million in the nine months
ended September 30, 1997. Total gross margin as a percentage of revenue was
33.2% in 1998 as compared to 33.5% in 1997. This percentage decline was
primarily the result of a decrease in the indemnity/PPO gross margin. In
addition, the overall indemnity/PPO business increased as a percentage of total
revenue, but carries a lower gross margin percentage than the managed care
business. Managed care gross margin as a percentage of managed care revenue was
37.5% in 1998 as compared to 36.9% in 1997. The Company expects the managed care
gross margin percentage to continue to exceed the 1997 gross margin percentage 
throughout the balance of 1998 and into 1999, as a result of the rollout of the
new plan designs which were implemented on January 1, 1998. The indemnity/PPO
gross margin as a percentage of indemnity/PPO revenue decreased to 14.7% in 1998
from 16.0% in 1997. This change is the result of an increase in dental benefit
expenses primarily under the Company's indemnity/PPO contracts. The Company
expects the indemnity/PPO gross margin percentage to remain fairly consistant
with the current level throughout the balance of 1998 and into 1999. In
addition, overall gross margin percentages will vary if the mix of the Company's
indemnity/PPO and managed care business changes from current levels.

     SG&A expenses increased by $1.3 million, or 12.8%, to $11.5 million for the
nine months ended September 30, 1998 from $10.2 million for the nine months
ended September 30, 1997. As a percentage of revenue, SG&A expenses dropped to
24.1% for 1998 from 24.4% for 1997. The change is primarily the result of
economies of scale in meeting the administrative needs of increased enrollment
due to the relatively fixed nature of certain SG&A expenses as well as higher
revenues relative to the SG&A expenses associated with the indemnity/PPO plans.
The Company does not expect the level of SG&A expenses to decrease as a
percentage of revenue in 1999.

     Operating income increased by $534,000, or 14.1%, to $4.3 million for the
nine months ended September 30, 1998 from $3.8 million for the nine months ended
September 30, 1997. As a percentage of revenue, operating income remained stable
at 9.1% in 1998 and 1997. The lower gross margin percentage was offset by the
lower SG&A as a percentage of revenue. The Company expects that operating income
will increase at a slower rate than in previous years throughout 1999.

     Interest income increased by $177,000 to $516,000 for the nine months ended
September 30, 1998 from $339,000 for the nine months ended September 30, 1997
primarily as a result of improved cash flow from operations.

                                      11

<PAGE>
 
     The effective tax rate for the nine months ended September 30, 1998
decreased to 40.5% from 41.0% for the nine months ended September 30, 1997,
primarily due to investments in tax-free funds.

     Net income increased by $444,000, or 18.2%, to $2.9 million for the nine
months ended September 30, 1998 from $2.4 million for the nine months ended
September 30, 1997. Diluted earnings per share was $0.77 and $0.65 for the nine
months ended September 30, 1998 and 1997, respectively.

Year 2000 Disclosure

Many existing computer systems and applications abbreviate dates using only two 
digits ("98") rather than four digits ("1998"). If not corrected, this shortcut 
may cause problems when the century date "2000" occurs. On that date, some 
computer operating systems and applications and embedded technology may 
recognize the date as January 1, 1900 instead of January 1, 2000. If the Company
fails to correct any critical Year 2000 processing problems prior to January 1, 
2000, the affected systems may either cease to function or produce erroneous 
data, which could have material adverse operational and financial consequences. 
Currently, the Company believes that the major risks associated with the 
inability of systems and software to process Year 2000 data correctly include a 
disruption in the operation of its core enterprise systems, telephony systems, 
accounting and financial systems, and desktop and support systems. A failure of 
such systems could materially and adversely affect the Company's results of 
operations, financial position and cash flows.

Throughout 1998 the Company has been actively working on its plan to address 
year 2000 compliance. The plan consists of three phases. Phase 1 involves an 
assessment of the Company's internal systems. Phase 1 is completed. The Company 
has found as a result of the assessment process that its core enterprise systems
have always contained the ability to store and process the full four-digit year.
Although this capability exists, several functional points of the system have 
not fully utilized the capability. Phase 2, scheduled for completion by July 
1999, is the development and execution of specific action plans to resolve known
potential year 2000 issues. Phase 3, scheduled for the second and third quarters
of 1999, is the final testing of each major area determined as critical to 
ongoing business operations.

Phase 1 includes the identification of core business areas and processes, 
analysis of systems and hardware supporting the core business areas and the 
prioritization of renovation or replacement of systems and hardware that are not
Year 2000 compliant. Included in the assessment phase is an analysis of risk 
management factors such as contingency plans and legal matters. The internal 
systems assessment process of Phase 1 categorized internal systems into 4 
functional areas: (1) Core Enterprise System, (2) Telephony Systems, (3) 
Accounting and Financial Systems, and (4) Desktop and Support Systems. The Core 
Enterprise System includes computer systems that support key business functions 
such as billing, finance, customer service, and network provider payments. 
Within each of these areas it has been determined that the main suppliers of the
systems utilized by the Company are able to provide year 2000 compliant 
releases. The acquisition of the available releases will be accomplished either 
through existing support arrangements or through the purchase of upgraded 
products. A fifth area requiring additional investigation is the assessment of 
the Company's major third party relationships outside of the information 
technology arena. This process is scheduled over the next three months. 

Phase 2 will consist of the conversion or replacement of selected platforms, 
applications, databases and utilities. Phase 3 will include the testing, 
verifying and validating the renovated or replaced platforms, applications, 
databases and utilities.

The Company's current schedule is subject to change depending on developments 
that may arise through unforeseen circumstances, and through execution of the 
Company's compliance efforts. The Company is dependent on its vendors for 
compliant hardware, systems and applications and upgrades by experts, both 
internal and external, and the availability of critical resources with the 
requisite skill sets. The Company's ability to meet its target dates is 
dependent upon the timely provision of necessary upgrades and modifications by 
its suppliers and internal resources. In addition, the Company cannot guarantee 
that third parties on whom it depends for essential services (such as utilities,
telecommunications operators, etc.) will convert their critical systems and 
processes in a timely manner. Failure or delay by any of these parties could 
significantly disrupt the Company's business. The Company's contingency plans 
will address mechanisms for preventing or mitigating interruption caused by such
third parties.

The Company believes that it will cost approximately $250,000 to upgrade and 
verify all critical areas identified. This cost includes the purchase of 
required software and hardware as well as outside contracting services. The 
Company has already secured the necessary resources for the remainder of 1998 
and into 1999. Of these identified costs the Company expects sixty percent to be
incurred in 1998 and the remainder in 1999.

Based on the Company's current schedule for completion of Year 2000 tasks, the 
Company believes that its planning is adequate to secure Year 2000 readiness of 
its critical systems. Nevertheless, management cannot provide assurance that its
plans to achieve Year 2000 compliance will be successful or that the cost of its
efforts will not differ materially from estimates, as each is subject to various
risks and uncertainties, many of which are described above. Accordingly, the 
Company's goal is to develop business continuity and contingency plans in 1999 
to address high-risk areas as they are identified. These plans are expected to 
assess the potential for business disruption in various scenarios, and to 
provide for key operational back-up, recovery and restoration alternatives. 
However, if the Company, or third parties with whom it has significant business 
relationships, fails to achieve Year 2000 readiness with respect to critical 
systems, there could be a material adverse affect on the Company's results of 
operations, financial position and cash flows.

The above information, which contains statements that are "forward-looking" 
within the meaning of the Private Securities Litigation Reform Act of 1995, is 
based on the Company's current best estimates, which were derived using numerous
assumptions of future events, including the availability and future costs of 
certain technological and other resources, third party modification actions and 
other factors. Given the complexity of these issues and the possibility of 
unidentified risks, actual results may vary materially from those anticipated 
and discussed above. Specific factors that might cause such differences include,
among others, the availability and cost of personnel trained in this area, the 
ability to locate and correct all affected computer codes, the timing and 
success of remedial efforts of third party suppliers and similar uncertainties.

Liquidity and Capital Resources
 
     The Company's operating cash requirements for the nine months ended
September 30, 1998 have been met principally through operating cash flows. The
primary uses of cash have been for the operating activities and capital
investments in the business. The Company believes that cash generated from
operations will be adequate to finance its anticipated operating needs for the
foreseeable future.

                                       12

<PAGE>

     Cash flows from operating activities were $4.9 million and $623,000 for the
nine months ended September 30, 1998, and 1997, respectively. The increase in
cash flows is partially the result of the timing difference in prepaid expenses
relating to capitation payments in the first quarter of 1997. The Company
primarily receives premium payments in advance of disbursing managed care
dentist capitation payments and indemnity claims payments. Cash balances in
excess of current needs are invested in interest-bearing accounts or cash
equivalents. Cash flows from operations consist primarily of subscriber premiums
and investment income net of capitation payments to network dentists, claims
paid, brokers' commissions, general and administrative expenses and income
taxes.

     Cash used in investing activities was $8.2 million and $6.1 million for the
nine months ended September 30, 1998 and 1997, respectively. The primary use in
1997 was a $5.5 million payment on January 2, 1997, for Champion Dental
Services, Inc. which closed December 31, 1996. The first nine months of 1998
includes $7.1 million used to purchase long term investment grade securities
Capital expenditures were $568,000 for the nine months ended September 30, 1998
primarily for computer software enhancements and $579,000 for the nine months
ended September 30, 1997 for furniture, leasehold improvements, and computer
equipment as the Company expanded its leased office space.

     As of September 30, 1998, the Company had cash and cash equivalents of $5.8
million as well as short term investments of $2.1 million, long term investments
of $7.1 million, and no long-term debt outstanding.

     Under applicable insurance laws of the states in which the Company conducts
business, the Company's subsidiaries operating in the particular state are
required to maintain a minimum level of net worth and reserves. The Company may
be required from time to time to invest funds in one or more of its subsidiaries
to meet regulatory requirements, or to expand its operations into new geographic
areas. In addition, applicable laws generally limit the ability of the Company's
subsidiaries to pay dividends to the extent that required regulatory capital or
surplus would be impaired.

Impact of Inflation

     The Company does not believe the impact of inflation has significantly
affected the Company's operations.

                                      13

<PAGE>
 
                         PART II.    OTHER INFORMATION
                         -----------------------------

Item 6.  Exhibits and Reports on Forms 8-K

     (a)  Exhibits:

          Exhibit No.                       Description
          -----------                       -----------

              11       Statement Regarding Computation of Earnings Per Share
                       (Included as Note 2 in Notes to Consolidated Financial
                       Statements filed herewith)

              27      Financial Data Schedule

     (b)  Reports on Form 8-K filed during the quarter ended September 30, 1998:

               None

                                      
<PAGE>
 
                                  SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.

                                       FIRST COMMONWEALTH, INC.
                                             (Registrant)


Date:  November 16, 1998               By:  /s/ Christopher C. Multhauf
                                            ----------------------------------
                                            Christopher C. Multhauf
                                            Chairman and Chief
                                            Executive Officer


Date:  November 16, 1998               By:  /s/ David W. Mulligan
                                            ----------------------------------
                                            David W. Mulligan
                                            President, Secretary
                                            and Chief Operating Officer


Date:  November 16, 1998               By:  /s/ Scott B. Sanders
                                            ----------------------------------
                                            Scott B. Sanders
                                            Chief Financial Officer and 
                                            Treasurer (Principal Financial and
                                            Accounting Officer)

                                      15
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------


Exhibit No.              Description
-----------              -----------

11                Statement Regarding Computation of Earnings Per Share
                  (Included as Note 2 in Notes to Consolidated Financial
                  Statements filed herewith)

27                Financial Data Schedule

                                      16