<PAGE>   1
                       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 YEAR ENDED DECEMBER 31, 1997

[ ]      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: 0-22835

                           MONARCH DENTAL CORPORATION.
             (Exact name of registrant as specified in its charter)

       DELAWARE                                                51-0363560
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

                           MONARCH DENTAL CORPORATION
                       4201 SPRING VALLEY ROAD, SUITE 320
                                DALLAS, TX 75244
                    (Address of principal executive offices)

                                 (972) 702-7446
              (Registrant's telephone number, including area code)

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

                                      None

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

                          Common Stock, $.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.

                          Yes     [X]        No      [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.   [ ]



<PAGE>   2


The aggregate market value of the shares of the Registrant's Common Stock held
by non-affiliates of the Registrant on March 17, 1998 was approximately
$72,783,758 million based upon the closing price per share of the Registrant's
Common Stock as reported on the Nasdaq Stock Market on March 17, 1998. Shares of
Common Stock held by each officer and director and by each person who owns 5% or
more of the outstanding Common Stock have been excluded in that such persons may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. As of March 17, 1998,
there were 10,235,818 outstanding shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference into the Parts
of this Report on Form 10-K indicated below:

     (1)  The Annual Report to Stockholders for fiscal year ended December 31,
          1997 (Part II).

     (2)  The Company's definitive proxy statement dated April 9, 1998 for the
          Annual Meeting of Stockholders to be held on May 14, 1998 (Part III).


         STATEMENTS MADE OR INCORPORATED INTO THIS ANNUAL REPORT INCLUDE A
NUMBER OF FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934.
FORWARD LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING
THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE" AND WORDS OF
SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENT
REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE RISKS ASSOCIATED WITH THE
COMPANY'S ACQUISITION STRATEGY AND EXPANSION WITHIN EXISTING MARKETS, MANAGEMENT
OF GROWTH AND COMPETITION, WHICH ARE DESCRIBED IN THE SECTION ENTITLED "RISK
FACTORS" FOUND ON PAGE 7 OF THE COMPANY'S PROSPECTUS DATED JULY 17, 1997.

<PAGE>   3


                           MONARCH DENTAL CORPORATION

                                    INDEX TO
                           ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
                                                                                              Page No.
Part I.
<S>        <C>           <C>                                                                   <C>
           Item 1.       Business                                                                I-1
           Item 2.       Properties                                                             I-10
           Item 3.       Legal Proceedings                                                      I-10
           Item 4.       Submission of Matters to a Vote of Security Holders                    I-10

Part II.

           Item 5.       Market for Registrant's Common Equity and Related
                         Stockholder Matters                                                    II-1
           Item 6.       Selected Financial Data                                                   *
           Item 7.       Management's Discussion and Analysis of Financial Condition
                         and Results of Operations                                                 *
           Item 8.       Financial Statements and Supplementary Data                               *
           Item 9.       Changes in and Disagreements with Accountants on
                         Accounting and Financial Disclosure                                    II-2

Part III.

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

Part IV.

           Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K       IV-1

Signatures                                                                                      IV-2
</TABLE>


*    Incorporated by reference to the Company's Annual Report to Stockholders
     for fiscal year ended December 31, 1997.

**   Incorporated by reference to the Company's definitive proxy statement dated
     April 9, 1998 for the Annual Meeting of Stockholders to be held on May 14,
     1998.

<PAGE>   4

                                     PART I

ITEM 1.  BUSINESS

         The information contained in this report is provided as of December 31,
1997, unless otherwise indicated.

         The Company manages dental group practices in selected markets,
including Dallas-Fort Worth, Houston, San Antonio and Midland-Odessa, Texas;
Wisconsin; Arkansas; Indiana and Colorado at December 31, 1997. Dentists
practicing at the Company's dental offices (the "Dental Offices") provide
general dentistry services such as examinations, cleanings, fillings, bonding,
placing crowns and fitting and placing fixed or removable prostheses. At many of
the Company's Dental Offices, dentists also provide specialty dental services
such as orthodontics, oral surgery, endodontics, periodontics and pediatric
dentistry. The Company seeks to build geographically dense networks of dental
providers by expanding within its existing markets and entering new markets
through acquisition. At December 31, 1997, the Company owned and managed 99
Dental Offices, of which 21 were internally developed and 78 were acquired by
the Company. At December 31, 1997, 169 full-time general dentists and 20
full-time specialists practiced at the Company's Dental Offices. The Company
was incorporated under the laws of Delaware on December 28, 1994.

DENTAL SERVICES

         Dentists practicing at the Dental Offices provide general dentistry
services such as examinations, cleanings, fillings, bonding, placing crowns and
fitting and placing fixed or removable prostheses. At many of the Company's
Dental Offices, dentists also provide specialty dental services such as
orthodontics, oral surgery, endodontics, periodontics and pediatric dentistry.
Specialty dental services are typically offered through teams which rotate
through several Dental Offices in a particular market. This enables the dental
professional corporations managed by the Company (the "P.C.s") or the Company,
as applicable, to capture revenue from services that would otherwise be referred
to independent specialists.

         Except with respect to Dental Offices located in states in which the
ownership of dental practices by non-dentists is permitted, dental services
provided at the Dental Offices are provided by or under the supervision of
licensed dentists employed by or under independent contracts with the P.C.s. In
states in which the Company operates and in which the ownership of dental
practices by non-dentists is permitted (currently Wisconsin), dental services
provided at the Dental Offices are provided by or under the supervision of
licensed dentists employed by or under independent contracts with the Company.
The Company owns all of the operating assets of each of the Dental Offices,
including inventory, equipment, leases and leasehold improvements. The Company
typically equips its Dental Offices with state-of-the-art clinical and
diagnostic equipment such as fiber optic handpieces, intraoral video cameras and
panoramic and cephalometric X-ray equipment.



                                      I-1
<PAGE>   5


         The following table shows the principal areas in which the Company owns
and manages Dental Offices, the number of Dental Offices and dentists in each
area at December 31, 1997, the year that each practice was established and the
effective date of each practice's affiliation with the Company:

<TABLE>
<CAPTION>
                                           NUMBER OF        NUMBER OF         DATE          EFFECTIVE DATE
DENTAL GROUP PRACTICE / MARKET           DENTAL OFFICES     DENTISTS(1)      FOUNDED        OF ACQUISITION
---------------------------------        --------------     -----------      -------      ------------------
<S>                                             <C>              <C>           <C>         <C>
Monarch, Dallas-Fort Worth                      22               47            1983        N/A
MacGregor Dental Centers, Houston               18               44            1962        February 1, 1996
Midwest Dental Care, Wisconsin                  22               36            1975        September 1, 1996
Convenient Dental Care, Arkansas                 1                6            1982        November 1, 1996
Arkansas Dental Health, Arkansas                 3                7            1984        January 1, 1997
United Dental Care, Arkansas                     9               11            1990        April 1, 1997
Dental Centers of Indiana, Indiana              12               10            1980        August 1, 1997
J.B. Hays, Arkansas                              1                4            1994        October 1, 1997
Three Peaks Dental Health, Colorado              6                7            1990        November 1, 1997
Press Family Dental, San Antonio                 3               13            1971        November 1, 1997
Dental America, Midland - Odessa                 2                4            1994        December 1, 1997
                                                --               --
   Total                                        99              189
                                                ==              ===
</TABLE>

(1)  Includes full-time general dentists and specialists employed by or under
     contract with the Company (in the case of Midwest) or the applicable P.C.
     (in the case of each dental group practice other than Midwest).

         The attributes of the Dental Offices vary from market to market. In
urban and suburban areas a Dental Office may have, for example, 15 or more
single-chair operatories, a multi-chair specialty bay, several full-time general
dentists, several dental hygienists and dental assistants, a business manager
and a receptionist. In more rural markets, a Dental Office may have, for
example, only three or four single chair operatories, and be staffed by one
general dentist, one hygienist or dental assistant and a receptionist. One
general dentist, designated as the Dental Director, oversees professional
matters at each Dental Office.

ADVERTISING AND MARKETING

         The Company seeks to increase patient volume at the Dental Offices
through television, radio and print advertising and other marketing techniques.
The Company has developed these techniques over the past 14 years in its
Dallas-Fort Worth operations and adapts them for use in its other markets as
appropriate. The Company's advertising emphasizes regional brand name
recognition of its affiliated Dental Offices, quality of care, comprehensive
specialty services, affordable payment plans for more complex procedures and
patient satisfaction. The Company operates as "Monarch TM Dental" or under
established regional brand names, such as "MacGregor Dental Centers SM" in
Houston and "Midwest Dental SM" in Wisconsin, depending on the nature and
requirements of the relevant market. The Company believes the brand name
recognition by consumers and managed dental care payors generated by its
advertising programs has contributed to its growth.

         The Company complements its advertising and marketing programs in
Dallas-Fort Worth with a regional call center for the Dental Offices located in
that market. The Company's advertising and marketing support activities also
include the offering of convenient office hours, selecting favorable locations
for its Dental Offices, offering same-day emergency care and introducing or
expanding additional, higher-margin specialty services at the Dental Offices.
The Company has been able to leverage its existing advertising program to
generate revenue as it expands within its markets.


                                      I-2
<PAGE>   6

PAYOR MIX

         Third-party payment arrangements from which the Company derives revenue
directly or through the P.C.s include indemnity insurance, preferred provider
plans and capitated managed dental care plans. Under indemnity insurance plans,
the patient or the patient's employer pays insurance premiums and the insurance
company reimburses the dentist for all or a portion of the dentist's usual and
customary fee, with the patient paying the portion not covered by insurance.
Under preferred provider plans, dentists agree to provide dental services to
plan members on a discounted fee-for-service basis. Capitated managed dental
care plans typically pay dental group practices that agree to provide services
to plan members a fixed monthly amount for each plan member covered for a
specified schedule of services regardless of the quantity or cost of services to
the participating dental group practice obligated to provide them. This
arrangement shifts the risk of utilization to the dental group practice that
provides the dental services. Because the Company assumes responsibility under
the Management Agreements for all aspects of the operation of the dental
practices (other than the practice of dentistry) and thus bears all costs of the
P.C.s associated with the provision of dental services at the Dental Offices
(other than compensation and benefits of dentists and hygienists), the risk of
over-utilization of dental services at the Dental Offices under capitated
managed dental care plans is effectively shifted to the Company. In addition,
members of capitated managed dental care plans pay the P.C.s or the Company, as
applicable, additional amounts as co-payments for more complex procedures. The
relative size of capitation payments and co-payments varies in accordance with
the level of benefits provided and plan design.

         The Company seeks to optimize the revenue mix at the Dental Offices
between revenue from fee-for-service business and revenue from capitated managed
dental care plans. The Company focuses on fee-for-service business, which
includes fees paid by indemnity insurers, fees from preferred provider plans and
direct patient billings. The Company seeks to increase fee-for-service business
by expanding its operations within existing markets, entering new markets and
advertising.

         The Company seeks to supplement fee-for-service business with revenue
derived from contracts with capitated managed dental care plans. Capitated
managed dental care relationships with the Company and the P.C.s increase
dentist productivity and facility utilization. These relationships also provide
increased co-payment revenue, referrals of additional fee-for-service patients
and opportunities for dentists practicing at the Dental Offices to educate
patients about the benefits of elective dental procedures that may not be
covered by the patients' capitated managed dental care plans.

         The following table sets forth information regarding the sources of
revenue of the dental groups practicing at the Company's Dental Offices for the
years ended December 31, 1995, 1996 and 1997:

<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                1995                   1996                   1997
                         --------------------   -------------------    --------------------
                                     PERCENT               PERCENT                 PERCENT
REVENUE SOURCE           REVENUE     OF TOTAL   REVENUE    OF TOTAL     REVENUE    OF TOTAL
                         ------------------------------------------------------------------
                                             (DOLLARS IN THOUSANDS)
<S>             <C>      <C>          <C>        <C>         <C>       <C>            <C>
Fee-for-Service (1)      $ 9,051      68.5%      $21,863     60.8%     $42,506        62.0%

Managed Dental Care:

   Capitation              1,642      12.4%        8,142     22.6%      15,728        22.9%

   Co-payment              2,530      19.1%        5,975     16.6%      10,385        15.1%
                         -------      -----      -------    -----      -------       -----
          Total          $13,223      100.0%     $35,980    100.0%     $68,619       100.0%
                         =======      =====      =======    =====      =======       =====
</TABLE>

(1)  Constitutes Revenue derived from indemnity dental plans, preferred provider
     plans and direct payments by patients not covered by any third party payor.


                                      I-3

<PAGE>   7


OPERATIONS

         The Company has achieved operational efficiencies based on the best
practices identified in its affiliated dental groups. The Company adapts and
implements these practices throughout its provider networks, when appropriate,
to (i) reduce purchasing and administrative expenses, (ii) improve operational
efficiencies in such areas as scheduling, billing and personnel management and
(iii) introduce and standardize patient record keeping, treatment protocols and
technique utilization. The Company establishes and maintains geographically
dense networks of dentists in each of its markets. The Company believes that
these provider networks offer preferred provider and capitated managed dental
care plans the ability to enter the markets served by the networks more quickly
and comprehensively and to service their plan members more efficiently than
contracting through solo or smaller group practices. The Company believes these
networks provide it with advantages in establishing and maintaining
relationships with capitated managed dental care plans and other third-party
payors, including greater leverage than that of solo or smaller group practices
when negotiating provider agreements.

         Recruiting

         Establishing geographically dense networks of providers by effective
recruiting of qualified dentists is an important element of the Company's
business strategy. In the Company's experience, many dentists in the early
stages of their careers have incurred substantial student loans. As a result
they face significant financial constraints to starting their own practices or
buying into existing practices, especially in view of the capital-intensive
nature of modern dentistry. The Company believes that practice in its network of
Dental Offices offers both recently graduated dentists and more experienced
dentists without their own practices advantages over a solo or smaller group
practice, including relief from the burden of administrative and management
responsibilities and the resulting ability to focus almost exclusively on
practicing dentistry. Advantages to dentists may also include, depending upon
the market involved, compensation which rewards productivity, employee benefits
such as health insurance, paid vacation, continuing education, payment of
professional membership fees and malpractice insurance, and, for affiliated
specialists, the prospect of a steadier stream of referrals than a specialist
practicing independently. In markets in which it is difficult to recruit and
retain dentists, such as certain rural areas, the Company may seek to establish
partnerships in which these dentists retain a portion of the equity interest in
the practice.

         The Company believes that hygienists, dental assistants and office
staff are critical to attracting and retaining patients. Accordingly, the
Company actively recruits such staff by offering salaries and benefits which it
believes are generally superior to those offered by many solo or smaller group
practices.

         Call Centers; Scheduling

         The Company maintains a regional call center in Dallas-Fort Worth. The
call center staff fields calls generated by advertising, schedules patient
visits, answers patient questions and initiates contact with patients for
follow-up of ongoing treatment programs. The Company has implemented or is
currently implementing similar call centers that will serve each of its other
markets.

         The Company utilizes a centralized management information system in the
call centers to schedule patient appointments. The Dental Offices generally
offer extended office hours and Saturday appointments. The Company sends
patients to the Dental Office that is most convenient for the patient in terms
of timing and location. The Company's centralized scheduling systems provide the
Company with better control over patient scheduling, resulting in increased
productivity, as well as the ability to analyze and control the revenue mix at
the Dental Offices by balancing fee-for-service and capitated managed dental
care patients. This also enables the staff at each Dental Office to focus on
patient care and customer service by eliminating a significant number of
incoming calls.

         Purchasing

         The integration of the Dental Offices enables the Company to take
advantage of economies of scale that are generally not available to solo or
smaller group practices. The Company is able to purchase dental supplies,
laboratory services, insurance, office furniture, equipment, information systems
and advertising at reduced costs. The Company also can contract for employee
benefits at a lower cost than solo or smaller group practices typically can
obtain for themselves and their employees.


                                      I-4

<PAGE>   8

         Management Information Systems

         The Company has licensed for use at its Dental Offices a management
information system for dental practice management. Substantially all of the
Dental Offices are currently utilizing this information system. The Company uses
the information system to track data related to each Dental Office's operations
and financial performance. The information system can provide each of the Dental
Offices with data such as patient and practitioner scheduling information,
insurance coverage information, clinical record-keeping and revenue and
collection data (including credit history). Within each market, the Company uses
the information system to manage billing and collections, including electronic
insurance claims processing. In addition, the Company uses the information
system to provide information for case management and outcome related research.

         Quality Assurance

         The Company requires the dentists and hygienists at each of its Dental
Offices to develop and implement clinical management procedures and treatment
protocols, as well as uniform business and administrative standards under which
dental services are provided. These procedures, protocols and standards vary
from region to region and are determined by the Dental Directors in each region
in consultation with and under the guidance of a committee of the Regional
Dental Directors. The protocols include treatment planning, diagnostic
screening, radiographic records, record keeping, specialty referrals and dental
hygiene protocols. State licensing authorities require dentists to undergo
annual training. The dentists and hygienists practicing at the Dental Offices
can obtain some of the required continuing education training through the
Company's internal training programs in each regional market, certain of which
have been accredited by the Academy of General Dentistry.

AFFILIATION STRUCTURE

         Relationship with P.C.s

         In states in which the ownership of dental practices by non-dentists is
prohibited, the Company derives all of its revenue from its Management
Agreements with the P.C.s. Under each of the Management Agreements, the Company
receives a management fee equal to the Company's costs plus the lower of (i) 30%
of the P.C.'s net revenues or (ii) the P.C.'s net pre-tax income. The Company's
costs include all direct and indirect costs, overhead and expenses relating to
the Company's provision of services to the P.C.s under the Management
Agreements, such that substantially all costs associated with the provision of
dental services at the Dental Offices are borne by the Company, other than the
compensation and benefits of the dentists and hygienists who are employed by or
are independent contractors of the P.C.s. Under the Management Agreements, the
Company provides the P.C.s with, among other things, the facilities,
administrative personnel and supplies, as well as numerous services, including
administrative, accounting, cash management, financial statements and reports,
budgeting including capital expenditures, recruiting, insurance, litigation
management, negotiation of managed dental care contracts (which are entered into
by the Company and the P.C.s (except in Wisconsin)), management information
systems, billing and collection services. Each Management Agreement is for a
term of 40 years, with automatic renewal thereafter. Further, each Management
Agreement generally may be terminated by the P.C. only for cause, which includes
an uncured breach of the agreement by the Company, or upon the P.C.'s bankruptcy
or voluntary dissolution and may be terminated by the Company as of any
anniversary date of the Management Agreement upon 90 days' prior written notice.
In addition to the Management Agreements, the Company has a contractual right to
designate or approve the licensed dentists who own each P.C.'s capital stock. In
states in which non-dentists are permitted to own dental practices, such as
Wisconsin, there is no need for this structure and the dentists are employed
directly by or are independent contractors of the Company.


                                      I-5

<PAGE>   9


         Employment Agreements

         All dentists practicing at the Dental Offices have entered into
employment agreements, or independent contractor agreements through their
professional corporations, with the P.C.s or, in the case of dentists practicing
in dental offices located in states (currently Wisconsin) in which the ownership
of dental practices by the Company is permitted, the Company. Such agreements
typically contain a non-competition agreement for up to three years following
their termination within a specified geographic area, usually a specified number
of miles from the relevant Dental Office. The employment agreements with
dentists who have sold their practices to the Company generally are for a
specified initial term of up to five years. Under each agreement, the dentist
assigns billing and collection rights to the P.C., in the case of states in
which non-dentists are permitted to own dental practices, or to the P.C. in
other states, with the P.C. in turn assigning such rights to the Company under
the terms of the applicable Management Agreement. In return, the dentist
receives either a fixed salary or collections-based compensation, which may have
a minimum guarantee, and a package of benefits which varies from region to
region. The dentists' compensation and benefits are paid by the entity, either
the Company or the relevant P.C., with whom the dentist has entered into an
employment agreement. At December 31, 1997, 78.9% of the dentists practicing at
the Dental Offices received collections-based compensation while 21.1% received
a fixed salary.

COMPETITION

         The dental services industry is highly fragmented, consisting primarily
of solo and smaller group practices. The dental practice management segment of
this industry, currently in its formative stage, is highly competitive and is
expected to become more competitive. In this regard, the Company expects that
the provision of multi-specialty dental services at convenient locations will
become increasingly more common. The Company is aware of several dental practice
management companies that are currently operating in its existing markets.
Companies with dental practice management businesses similar to that of the
Company, which currently operate in other parts of the country, may begin
targeting the Company's existing markets for expansion. Such competitors may be
better capitalized or otherwise enjoy competitive advantages which may make it
difficult for the Company to compete against them or to acquire additional
Dental Offices on terms acceptable to the Company. As the Company seeks to
expand its operations into new markets, it is likely to face competition from
dental practice management companies which already have established a strong
business presence in such locations.

         The business of providing general dental, orthodontic and other
specialty dental services is highly competitive in the markets in which the
Company operates. The Company believes it competes with other providers of
dental and specialty services on the basis of factors such as brand name
recognition, convenience, cost and the quality and range of services provided.
Competition may include practitioners who have more established practices and
reputations. The Company's affiliated dental practices also compete in the
retention and recruitment of general dentists, specialists and clinical staff.
If the availability of dentists begins to decline in the Company's markets, it
may become more difficult to attract qualified dentists to staff the Dental
Offices sufficiently or to expand them. The Dental Offices may not be able to
compete effectively against other existing practices or against new single or
multi-specialty dental practices that enter its markets, or to compete against
such other practices in the recruitment of qualified dentists.

GOVERNMENT REGULATION

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


                                      I-6

<PAGE>   10

         State Regulation

         The laws of many states, including Arkansas, Colorado, Indiana and
Texas but excluding Wisconsin, permit a dentist to conduct a dental practice
only as an individual, a member of a partnership or an employee of a
professional corporation, limited liability company or limited liability
partnership. These laws typically prohibit, either by specific provision or as a
matter of general policy, non-dental entities, such as the Company, from
practicing dentistry, from employing dentists and, in certain circumstances,
hygienists or dental assistants, or from otherwise exercising control over the
provision of dental services. Because under the Management Agreements the
Company bears all costs associated with the provision of dental services by the
P.C.s at the Dental Offices other than compensation and benefits of dentists and
hygienists and determines annual budgets for the P.C.s, the Company is
effectively able to manage the profitability of the Dental Offices. Under the
Management Agreements, however, the P.C.s control all clinical aspects of the
practice of dentistry and the provision of dental services at the Dental
Offices, including the exercise of independent professional judgment regarding
the diagnosis or treatment of any dental disease, disorder or physical
condition. Under the Management Agreements, persons to whom dental services are
provided at the Dental Offices are patients of the P.C.s and not of the Company
and the Company does not have or exercise any control or direction over the
manner or methods in which dental services are performed nor does the Company
interfere in any way with the exercise of professional judgment by the dentists
who are employees or independent contractors of the P.C.s.

         Many states in which the Company's Dental Offices presently are located
have fraud and abuse laws which are similar to the federal fraud and abuse law
described below, and which in many cases apply to referrals for items or
services reimbursable by any insurer, not just by Medicare and Medicaid. A
number of states, including all of the states in which Dental Offices are
currently located, also impose significant penalties for submitting false claims
for dental services. Many states, including all of the states in which the
Dental Offices are currently located, either prohibit or require disclosure of
self-referral arrangements and impose penalties for the violation of these laws.
Many states also prohibit dentists from splitting fees with non-dentists.

         Many states, including Indiana and Texas, but excluding Wisconsin,
limit the ability of a person other than a licensed dentist to own or control
equipment or offices used in a dental practice. Some of these states allow
leasing of equipment and office space to a dental practice, under a bona fide
lease, if the equipment and office remain under the control of the dentist. Some
states (none in which the Company currently operates) prohibit the advertising
of dental services under a trade or corporate name. Some states, including
Arkansas, 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. In addition, many states impose limits on the
tasks that may be delegated by dentists to hygienists and dental assistants.
Some states (none in which the Company currently operates) require entities
designated as "clinics" to be licensed, and may define clinics to include dental
practices that are owned or controlled in whole or in part by non-dentists.
These laws and their interpretations vary from state to state and are enforced
by the courts and by regulatory authorities with broad discretion.

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

         Federal Regulation

         Many of the federal laws regulating the provision of dental care apply
only to dental services which are reimbursed under the Medicare or Medicaid
programs. Because very little dental care is currently provided by Medicare and
Medicaid, the Company derives very little revenue from these programs.
Therefore, the current impact of these laws



                                      I-7

<PAGE>   11


is negligible. However, there can be no assurance that the reach of these laws
will not be expanded in the future to cover services reimbursable by any payor.
If these laws were to be expanded in such a manner, they could have a material
adverse effect upon the Company.

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

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

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

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





                                      I-8

<PAGE>   12

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

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

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

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

INSURANCE

         The Company maintains professional malpractice and general liability
insurance for itself and maintains professional liability insurance covering
dentists, hygienists and dental assistants at the Dental Offices. The Company
generally is a named insured under such policies and is named as an additional
insured on each individual dentist's policy. The Company maintains general
liability and umbrella coverage, including malpractice coverage, of up to $5
million per occurrence and $5 million in the aggregate. Certain types of risks
and liabilities are not 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 P.C.s 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.






                                      I-9

<PAGE>   13


EMPLOYEES

         As of December 31, 1997, the Company had approximately 1,157 employees,
including 36 dentists and 53 hygienists located at Midwest but excluding the 171
dentists and 74 hygienists employed by or contracting with the P.C.s. The
Company is not party to any collective bargaining agreement with a labor union
and considers its relations with its employees to be satisfactory.



ITEM 2.  PROPERTIES

         The Company's corporate headquarters are located at 4201 Spring Valley
Road, Dallas, Texas, in approximately 8,500 square feet occupied under a lease
which expires on December 31, 1999.

         The Company also leases real estate at the location of each Dental
Office. Typically, each acquired Dental Office is located at the site used by
the respective selling dentist prior to the Company's acquisition. For the year
ended December 31, 1997, the Company had lease costs of approximately $3.1
million.



ITEM 3.  LEGAL PROCEEDINGS

         From time to time the Company is subject to litigation incidental to
its business. The Company is not presently a party to any material litigation.
The dentists employed by the P.C.s or the Company are from time to time subject
to malpractice claims. Such claims, if successful, could result in damage awards
exceeding, perhaps substantially, applicable insurance coverage.



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

         No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1997.





                                      I-10

<PAGE>   14


                                     PART II

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

MARKET INFORMATION

         The Common Stock of the Company has been traded on the Nasdaq National
Market since the Company's initial public offering on July 18, 1997 and trades
under the symbol "MDDS". The following table sets forth the high and low sale
prices for the Common Stock during the periods indicated.

<TABLE>
<CAPTION>
                PERIOD                           HIGH ($)     LOW ($)
--------------------------------------------     --------    --------
<S>                                              <C>         <C>
1997
     Third Quarter (from July 18)...........     23.8750     14.9375
     Fourth Quarter.........................     21.7500     11.2500
</TABLE>


HOLDERS

         As of March 17, 1998, the closing price of the Common Stock was $16.75.
The number of record holders of the Company's Common Stock as of March 17, 1998
was 61. The Company believes the number of beneficial owners of the Company's
Common Stock at that date was substantially greater.

DIVIDENDS

         The Company has not declared or paid any cash dividends on its Common
Stock since it became a C corporation in February 1996. The Company currently
intends to retain its earnings for future growth and, therefore, does not
anticipate paying cash dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
condition, operating results and current and anticipated cash needs. In
addition, under the terms of the Company's senior credit facility, the payment
of cash dividends is currently prohibited without the consent of the lender.


CHANGES IN SECURITIES AND USE OF PROCEEDS

         In October 1997, pursuant to an Asset Purchase Agreement, the Company
issued 454 shares of Common Stock to Ronald S. Stewart, D.D.S. in partial
consideration for the sale of certain assets and assumption of certain
liabilities of Ronald S. Stewart, D.D.S. in reliance upon the exemption from
registration under Regulation D promulgated under the Securities Act.

         In November 1997, pursuant to an Asset Purchase Agreement, the Company
issued 28,320 shares of Common Stock to Richard J. Handelman, D.D.S. in partial
consideration for the sale of certain assets and assumption of certain
liabilities of Three Peaks Dental Management in reliance upon the exemption from
registration under Regulation D promulgated under the Securities Act.

         In November 1997, pursuant to an Asset Purchase Agreement, the Company
issued 179,736 shares of Common Stock to VP Interests, L.P. in partial
consideration for the sale of certain assets and assumption of certain
liabilities of Press Family Dental in reliance upon the exemption from
registration under Regulation D promulgated under the Securities Act.

         In December 1997, pursuant to an Asset Purchase Agreement, the Company
issued 8,785 shares of Common Stock to Paul J. O'Malley, D.D.S. in partial
consideration for the sale of an 80% interest in certain assets and assumption
of certain liabilities of Dental America in reliance upon the exemption from
registration under Regulation D promulgated under the Securities Act.






                                      II-1

<PAGE>   15


         The Company commenced its initial public offering of 3,162,500 shares
of Common Stock on July 18, 1997. The gross proceeds generated were $41.1
million and the expenses incurred were as follows: (i) $2.9 million for
underwriters discount and fees (ii) $1.1 million in other expenses, including
legal, accounting and printing fees. The Company used the net proceeds of $37.2
million as follows: (i) approximately $24.8 million was used to repay the
Company's outstanding indebtedness under its prior credit facility, including
accrued and unpaid interest; (ii) $8.0 million was used to redeem all of the
outstanding Redeemable Preferred Stock; and (iii) approximately $3.2 million was
used for the acquisitions of Dental Centers of Indiana, Inc. and three solo
practices (two in Dallas, Texas and one in Fayetteville, Arkansas). The net
proceeds remaining were used for de novo office development in the Company's
local markets.


ITEM 6.  SELECTED FINANCIAL DATA

         The information set forth in "Selected Consolidated Financial
Information" on pages 9 through 10 of the Annual Report to Stockholders for the
fiscal year ended December 31, 1997 is incorporated herein by reference.


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

         The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 11 through 20 of the
Annual Report to Stockholders for the fiscal year ended December 31, 1997 is
incorporated herein by reference.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Company set forth on pages
21 through 32 of the Annual Report to Stockholders for the fiscal year ended
December 31, 1997 is incorporated herein by reference.


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

         None.





                                      II-2

<PAGE>   16


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information appearing under the captions "Information Regarding
Directors" and "Executive Officers" in the registrant's definitive proxy
statement dated April 9, 1998 relating to the Annual Meeting of Stockholders to
be held on May 14, 1998 is incorporated herein by reference.


ITEM 11.  EXECUTIVE COMPENSATION

         The information appearing under the caption "Executive Compensation" in
the registrant's definitive proxy statement dated April 9, 1998 relating to the
Annual Meeting of Stockholders to be held on May 14, 1998 is incorporated herein
by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information appearing under the caption "Principal and Management
Stockholders" in the registrant's definitive proxy statement dated April 9, 1998
relating to the Annual Meeting of Stockholders to be held on May 14, 1998 is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information appearing under the caption "Certain Transactions" in
the registrant's definitive proxy statement dated April 9, 1998 relating to the
Annual Meeting of Stockholders to be held on May 14, 1998 is incorporated herein
by reference.





                                     III-1

<PAGE>   17


                                     PART IV

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

           (a)  Documents Filed as Part of this Annual Report on Form 10-K:

                1.  Financial Statements: The following Consolidated Financial
                    Statements of Monarch Dental Corporation and Report of
                    Arthur Andersen LLP, Independent Public Accountants, are
                    incorporated by reference to pages 21 through 32 of the
                    Registrant's 1997 Annual Report to Stockholders:

                    Report of Arthur Andersen LLP, Independent Public
                    Accountants

                    Consolidated Balance Sheets at December 31, 1997 and 1996

                    Consolidated Statements of Income for the Years Ended
                    December 31, 1997, 1996 and 1995

                    Consolidated Statements of Stockholders' Equity for the
                    Years Ended December 31, 1997, 1996 and 1995

                    Consolidated Statements of Cash Flows for the Years Ended
                    December 31, 1997, 1996 and 1995

                    Notes to Consolidated Financial Statements

                 2. Financial Statement Schedules: The following financial
                    statement schedule for Monarch Dental Corporation is filed
                    as part of this Annual Report and should be read in
                    conjunction with the Consolidated Financial Statements of
                    Monarch Dental Corporation:

                         Schedule II - Valuation and Qualifying Accounts

                    Schedules not listed above have been omitted because they
                    are not applicable or are not required or the information
                    required to be set forth therein is included in the
                    Consolidated Financial Statements or Notes thereto.

                 3. Exhibits:

                    The Exhibits listed on the accompanying Exhibit Index
                    immediately following the financial statement schedules are
                    filed as part of, or incorporated by reference into, this
                    Annual Report.

            (b)     Reports on Form 8-K.

                    The Company filed a Form 8-K, dated November 27, 1997,
                    reporting the acquisition of Press Family Dental Health
                    Centers which was amended to add Financial Statements and
                    pro forma financial information by Form 8-K/A (Amendment No.
                    1), dated January 26, 1998.

            (c)     Exhibits

                    The Company hereby files as part of this Annual Report on
                    Form 10-K the Exhibits listed in the attached Exhibit Index
                    pages of this Annual Report.


            (d)     Financial Statement Schedules

                    The Company hereby files as part of this Annual Report on
                    Form 10-K the financial statement schedule listed in item 14
                    (a) 2 as set forth above.





                                      IV-1
<PAGE>   18

                                   SIGNATURES

Pursuant to the requirements 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.


                                                    MONARCH DENTAL CORPORATION


Date:  March 31, 1998                               By: /s/ GARY W. CAGE
                                                       ------------------
                                                       Gary W. Cage
                                                       Chief Executive Officer


Date:  March 31, 1998                               By: /s/  STEVEN G. PETERSON
                                                       ------------------------
                                                       Steven G. Peterson
                                                       Chief Financial Officer


                                POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Warren F. Melamed and Gary W. Cage, joint
and severally, his or her attorneys-in-fact, each with the power of
substitution, for such person in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or substitute or substitutes, may do or cause to be done by
virtue hereof.

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

<TABLE>
<CAPTION>
          Signature                            Title                           Date
          ---------                            -----                           ----
<S>                                 <C>                                    <C>
 /s/  WARREN F. MELAMED, D.D.S.     Chairman of the Board,                 March 31, 1998
-------------------------------     President, Chief Dental Officer
Warren F. Melamed, D.D.S.           and Director

 /s/  GARY W. CAGE                  Chief Executive Officer                March 31, 1998
-------------------------------     and Director
Gary W. Cage

 /s/  STEVEN G. PETERSON            Chief Financial Officer                March 31, 1998
-------------------------------     (principal financial officer
Steven G. Peterson                  and principal accounting officer)

 /s/  GLENN E. HEMMERLE             Director                               March 31, 1998
--------------------------------
Glenn E. Hemmerle

 /s/  ROGER B. KAFKER               Director                               March 31, 1998
--------------------------------
Roger B. Kafker

 /s/  JOHN E. MAUPIN, JR., D.D.S.   Director                               March 31, 1998
--------------------------------
John E. Maupin, Jr., D.D.S
</TABLE>





                                      IV-2

<PAGE>   19
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Monarch Dental Corporation:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Monarch Dental Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon
dated February 13, 1998. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the index to the financial statement schedules is presented for the purposes
of complying with the Securities and Exchange Commission's rules and is not
part of audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.



                                   ARTHUR ANDERSEN LLP

Dallas, Texas,
  February 13, 1998
<PAGE>   20

                                   SCHEDULE II

                   MONARCH DENTAL CORPORATION AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                ADDITIONS    ADDITIONS
                                                   BALANCE AT   CHARGED TO     FROM                     BALANCE
                                                    BEGINNING   COSTS AND    ACQUIRED                    AT END
CLASSIFICATION                                      OF PERIOD    EXPENSES    COMPANIES   DEDUCTIONS    OF PERIOD
--------------                                     ----------   ----------   ---------   ----------    ---------
<S>                                                <C>          <C>          <C>         <C>           <C>
December 31, 1997:
     Allowance for Doubtful Accounts                  $ 1,676     $ 1,546     $ 1,547     $(1,904)(b)     $ 2,865
     Accumulated Amortization of Intangible
          Assets
                                                          573       1,127          --         (23)          1,677
                                                      -------     -------     -------     -------         -------
                 Total Reserves and Allowances        $ 2,249     $ 2,673     $ 1,547     $(1,927)        $ 4,542
                                                      =======     =======     =======     =======         =======

December 31, 1996:
     Allowance for Doubtful Accounts                  $   385     $ 1,324     $   851     $  (884)(b)     $ 1,676

     Accumulated Amortization of Intangible
          Assets
                                                           --         573          --          --             573
                                                      -------     -------     -------     -------         -------
                 Total Reserves and Allowances        $   385     $ 1,897     $   851     $  (884)        $ 2,249
                                                      =======     =======     =======     =======         =======

December 31, 1995:
     Allowance for Doubtful Accounts                  $   212     $   409     $    --      $ (236)(b)     $   385


     Accumulated Amortization of Intangible
          Assets                                           --          --          --          --              --
                                                      -------     -------     -------     -------         -------
                 Total Reserves and Allowances        $   212     $   409     $    --     $  (236)        $   385
                                                      =======     =======     =======     =======         =======
</TABLE>


(a)  This schedule should be read in conjunction with the Company's audited
     consolidated financial statements and related notes thereto.

(b)  Write-off of uncollectible receivables net of recoveries of bad debt
     write-offs.



<PAGE>   21
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              EXHIBIT
-------                             --------
<S>         <C>
2.1         Stock Redemption Agreement dated as of February 5, 1996 by and
            between the Registrant and Warren F. Melamed, D.D.S. (excluding
            schedules, which the Registrant agrees to furnish supplementally to
            the Commission upon request) (1)

2.2         Stock Purchase Agreement dated as of February 5, 1996 by and among
            the Registrant and the investors named therein (excluding schedules,
            which the Registrant agrees to furnish supplementally to the
            Commission upon request) (1)

2.3         Asset Contribution Agreement dated as of January 31, 1996 by and
            among the Registrant, Shears Vanguard Ltd., Shears Vanguard Inc.,
            MDC Dental, Inc., Shears Vanguard SMI Inc., Shears Vanguard General,
            Inc. and Charles G. Shears, D.D.S. (excluding schedules, which the
            Registrant agrees to furnish supplementally to the Commission upon
            request) (1)

2.4         Asset Contribution Agreement dated as of February 5, 1996 by and
            among the Registrant, Warren F. Melamed, D.D.S. and Roy D. Smith,
            III, D.D.S. (excluding schedules, which the Registrant agrees to
            furnish supplementally to the Commission upon request) (1)

2.5         Stock Purchase Agreement dated as of August 29, 1996 by and between
            the Registrant and David L. Hehli, D.D.S. (excluding exhibit, which
            the Registrant agrees to furnish supplementally to the Commission
            upon request) (1)

2.6         Agreement and Plan of Merger dated as of June 19, 1997 by and among
            the Registrant, Dental Centers of Indiana (Monarch), Inc., Dental
            Centers of Indiana, Inc., James W. Willis, Mark R. Johnson and
            Thurman H. Brown, II (excluding exhibits, which the Registrant
            agrees to furnish supplementally to the Commission upon request) (3)

2.7         First Amendment to Agreement and Plan of Merger dated as of July 25,
            1997 by and among Monarch Dental Corporation, Dental Centers of
            Indiana (Monarch), Inc., Dental Centers of Indiana, Inc. and James
            W. Willis, Mark R. Johnson, and Thurman H. Brown, II (4)

2.8         Asset Purchase Agreement dated as of November 12, 1997 by and among
            Monarch Dental (Press) Associates, L.P., Victor Press, B.D.S., P.C.,
            VP Investments, Inc., Victor Press, Roger Obregon, Edgardo A.
            Gonzalez, Jeffrey J. Jacobs, Campbell R. Janse, Nick M. Higgins,
            Frank B. Lewis and Bruce M. Kral (excluding exhibits, which the
            Registrant agrees to furnish supplementally to the Commission upon
            request) (5)

*3.1        Restated Certificate of Incorporation

*3.2        Second Amended and Restated By-Laws

4.1         Specimen certificate for Shares of Common Stock, $.01 par value, of
            the Registrant (2)

10.1        Monarch Dental Corporation 1996 Stock Option and Incentive Plan, as
            amended (2)

10.2        Monarch Dental Corporation 1997 Employee Stock Purchase Plan (1)

10.3        Monarch Dental Corporation 1996 Equity Acquisition Option Plan (2)
</TABLE>

<PAGE>   22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                    EXHIBIT
-------                                   -------
<S>         <C>
10.4        Amended and Restated Stockholders' Agreement dated as of August 29,
            1996 by and among the Registrant, the TA Investors (as defined), the
            MacGregor Investors (as defined), the Monarch Investors (as defined)
            and the Hehli Investors (as defined) (2)

10.6        Amended and Restated Non-Competition Agreement dated as of July 1,
            1997 by and between the Registrant and Warren F. Melamed, D.D.S. (3)

10.7        Management Agreement by and between Modern Dental Professionals,
            P.C. and Monarch Dental Associates, L.P. (2)

10.8        Management Agreement by and between Modern Dental Professionals,
            P.C. and MacGregor Dental Associates, L.P. (2)

10.9        Management Agreement by and between Modern Dental Professionals -
            Girlinghouse, P.A. and Convenient Dental Care, Inc. (2)

10.10       Management Agreement by and between Modern Dental Professionals -
            Beavers, P.A. and Arkansas Dental Health Associates, Inc. (2)

10.11       Management Agreement by and between Modern Dental Professionals /
            UDC - Girlinghouse, P.A. and United Dental Care, Inc. (2)

10.12       Management Agreement by and between William T. Harris and
            Associates, a Professional Dental Corporation and United Dental
            Care, Inc. (2)

10.13       Management Agreement by and between United Dental Care Tom Harris,
            D.D.S. & Associates and United Dental Care, Inc. (2)

*10.14      Management Agreement by and between Modern Dental Professionals -
            Indiana, P.C. and Dental Centers of Indiana (Monarch), Inc.

*10.15      Management Agreement by and between Modern Dental Professionals -
            Colorado, P.C. and Three Peaks Dental Management, Inc.

10.16       Restricted Stock Agreement dated as of February 6, 1996 by and
            between the Registrant and Warren F. Melamed, D.D.S. (1)

10.17       Employment Agreement dated as of August 29, 1996 by and among the
            Registrant, David L. Hehli, D.D.S. and Midwest Dental Management,
            Inc. (1)

10.18       Non-Competition Agreement dated as of August 29, 1996 by and among
            the Registrant, David L. Hehli, D.D.S., Advance Dental Management,
            Inc. and Midwest Dental Plan, Ltd. (1)

10.19       Primary Care Dentist Agreement effective April 1, 1997 by and
            between Prudential Dental Maintenance Organization, Inc. and Modern
            Dental Professionals, P.C. and Monarch Dental Associates, L.P.
            (excluding certain portions which have been omitted as indicated
            based upon a request for confidential treatment, but which have been
            separately filed with the Commission) (2)

10.20       Dental Service Agreement dated January 1, 1995 by and between
            Compcare Health Services Insurance Corporation and Advance Dental
            Management, Inc. (excluding certain portions which have been omitted
            as indicated based upon a request for confidential treatment, but
            which have been separately filed with the Commission) (2)
</TABLE>


<PAGE>   23

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------                                     -------
<S>         <C>
10.21       Form of Director Indemnification Agreement (1)

10.22       Sublease Agreement dated as of March 7, 1996 by and between Old
            American Country Mutual Fire Insurance Company and Oral Health
            Concepts Inc. (1)

10.23       Office Lease Agreement dated as of September 6, 1996 by and between
            Government Employees Insurance Company and Monarch Dental
            Associates, L.P. (1)

10.24       Employment Agreement dated as of July 1, 1997 by and among the
            Registrant, Monarch Dental Associates, L.P. and Warren F. Melamed,
            D.D.S. (3)

10.25       Employment Agreement dated as of July 1, 1997 by and among the
            Registrant, Monarch Dental Associates, L.P. and Mr. Gary W. Cage (3)

10.26       Non-Competition Agreement dated as of July 1, 1997 by and between
            the Registrant and Mr. Gary W. Cage (3)

*11.1       Statement re: Computation of per share earnings data

*13.1       Annual Report to Stockholders for the fiscal year ended December 31,
            1997 (such report, except for those portions thereof which are
            expressly incorporated by reference in this filing, is furnished for
            the information of the Commission and is not deemed "filed" as part
            hereof)

*21.1       Subsidiaries of the Registrant

*23.1       Consent of Arthur Andersen LLP

*24.1       Powers of Attorney (included on signature page hereto)

*27.1       Financial Data Schedule
</TABLE>


*   Filed herewith

(1) Filed as an exhibit to the Registrant's Pre-Effective Amendment No. 1 to its
    Registration Statement on Form S-1 (File No. 333-24409) filed with the
    Securities and Exchange Commission on May 20, 1997 and incorporated herein
    by reference thereto.

(2) Filed as an exhibit to the Registrant's Pre-Effective Amendment No. 2 to its
    Registration Statement on Form S-1 (File No. 333-24409) filed with the
    Securities and Exchange Commission on June 23, 1997 and incorporated herein
    by reference thereto.

(3) Filed as an exhibit to the Registrant's Pre-Effective Amendment No. 3 to its
    Registration Statement on Form S-1 (File No. 333-24409) filed with the
    Securities and Exchange Commission on July 17, 1997 and incorporated herein
    by reference thereto.

(4) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed
    with the Securities and Exchange Commission on August 15, 1997 and
    incorporated herein by reference thereto.

(5) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed
    with the Securities and Exchange Commission on November 19, 1997 and
    incorporated herein by reference thereto.