<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------
                                  FORM 10-KSB


(Mark one)
   (X)         ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

               For the fiscal year ended September 30, 1998
                                         ------------------
                                       OR

  (  )         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

               For the transition period from                 to 
                                               --------------    --------------
               Commission File No. 33-11935
                                              -----------   

               DENTAL SERVICES OF AMERICA, INC.
               (Name of small business issuer in its charter)

 
         DELAWARE                        8021                   59-2754843
--------------------------    ---------------------------   -----------------
 (State or jurisdiction of    (Primary Standard Industrial   (I.R.S. Employer
      incorporation            Classification Code Number)  Identification No.)
     or organization)
 
          2260 S.W. 8th Street, Miami, Florida                    33135
          ------------------------------------              ------------------
          (Address of principal executive offices)              (Zip Code)

          Issuer's Telephone Number, Including Area Code: (305) 642-9090
                                                          --------------

                    Securities registered under Section 12(b) of the Act:
<PAGE>
 
                                                          Name of Each Exchange
     Title of Each Class                                   on Which Registered

             None                                                  None
     -----------------------                             ----------------------

             Securities registered under Section 12(g) of the Act:

                                     None
                               ----------------
                               (Title of Class)

Check whether the issuer (1) has filed all reports required to be 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
                          ----         -----     

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB[X]

The Issuer's revenues for its most recent fiscal year are $2,275,219.

The aggregate market value of the common stock held by non-affiliates of the
registrant, computed by reference to the closing price of $1.875 per share for
the common stock on January 12, 1999, is $8,620,174.

The number of shares outstanding of the issuer's common stock, $.005 par value
per share, as of December 31, 1998 is 6,036,893.

                                       2
<PAGE>
 
                                     PART I
                                     ------

Item 1.  Description of Business

Development of Business
-----------------------

Dental Services of America, Inc. (formerly known as Campbell Capital Corp.;
hereinafter referred to as the "Company") was organized under the laws of the
State of Delaware on January 6, 1987 by International Asset Management Group,
Inc. ("IAMG"), the promoter and parent of the Company, for the purpose of
providing a vehicle to raise capital and seek business opportunities. The
Company completed an initial public offering of its securities in August 1987,
raising net proceeds of approximately $110,000. Subsequent to the public
offering, the Company invested most of its capital in Asbestos Management
Enterprise, Inc., which investment was subsequently lost when Asbestos
Management Enterprise, Inc. ran out of capital and was forced to discontinue
operations. During 1993, the Company's then current board of directors
determined to seek a business acquisition and to bring the Company into
compliance with its reporting obligations under Section 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").

Effective as of July, 1996, the Company acquired 100% of the issued and
outstanding capital stock of Dental Practice Administrators, Inc. ("DPA"), a
Florida corporation which was formed in 1995 to engage in the business of
operating dental centers. In conjunction with the acquisition of DPA, the
Company changed its corporate name to Dental Services of America, Inc.
References herein to the "Company" may be deemed to refer to Dental Services of
America, Inc. and/or to its wholly owned subsidiaries and the affiliated dental
centers and dental practices managed by the Company.

During the fiscal year ended September 30, 1998, the Company significantly
expanded the scope and the nature of its operations.  Prior to the fiscal year
ended September 30, 1998, the Company developed and operated a limited number of
dental centers, all of which were located in or in close proximity to high
volume medical clinics serving primarily Medicaid patients.  The Company's
dental centers also served primarily Medicaid patients.

During fiscal 1998, the Company began to implement its strategy of acquiring
existing dental centers and dental practices which serve primarily non-Medicaid
patients.  During fiscal 1998, the Company developed and opened three new dental
centers and acquired thirteen  existing dental centers or practices, and
substantially increased the percentage of revenue generated from non-Medicaid
patients.  The recent acquisitions have been focused on established dental
practices with a high volume of private pay and/or managed care patients.  Most
of these acquisitions occurred during the third and fourth quarters of fiscal
1998, so the Company's financial results for the full fiscal year do not reflect
a full year of operations for these recently acquired dental centers and
practices.  At the end of fiscal 1998, the Company was deriving approximately
67% of its total revenues from non-

                                       3
<PAGE>
 
Medicaid patients, compared to approximately 5% of total revenue derived from
non-Medicaid patients at the end of fiscal 1997.

Seven of the dental centers acquired by the Company in 1998 were acquired in a
single transaction. Effective as of June 1, 1998, the Company acquired the
equipment, fixtures, leasehold, improvements and inventory of seven dental
centers located in Miami-Dade County, Florida.  Two of the seven dental centers
service primarily Medicaid patients.  The other five dental centers service
primarily managed care patients.  The seven dental centers acquired in this
transaction are strategically well-located so as to provide, when combined with
the Company's other dental centers, comprehensive coverage for virtually all of
Miami-Dade County.  Such comprehensive coverage enhances the value of and
benefits produced by the Company's local marketing program.  In the same
transaction, the Company acquired 100% of the stock of Dental Management
Consultants, Inc., a Florida corporation which was managing the seven dental
centers acquired by the Company.

The stock of Dental Management Consultants, Inc. and the dental practice assets
were acquired from Maurice H. Nahmad, D.D.S. and from various professional
corporations owned by Dr. Nahmad.  The total purchase price paid by the Company
was $2,675,000, payable in the form of $1,675,000 cash at closing and a five
year promissory note for $1,000,000, with interest at 9%.  The promissory note
is secured by a mortgage on the building owned by the Company located at 2260
S.W. 8th Street, Miami, Florida, in which the Company's principal executive
offices and a dental center are located. The Company also entered into a three
year employment agreement with Dr. Nahmad, for Dr. Nahmad to serve, at an
initial salary of $150,000 per year (subject to 20% annual increases), as Chief
Operating Officer of Dental Practice Administrators, Inc, the Company's wholly-
owned subsidiary, which is party, on behalf of the Company, to the dental
management services agreements with dentist-owned corporations which control the
dental practices managed by the Company.

In September, 1998, the Company suspended Dr. Nahmad, with pay, from his
position as Chief Operating Officer of Dental Practice Administrators, Inc.  The
Company contends that Dr. Nahmad violated the terms of his employment agreement,
and the Company and Dr. Nahmad are currently engaged in a dispute concerning the
parties' respective rights and responsibilities under such employment agreement.

The Company believes that the acquisition of eight dental centers in a single
transaction provided an excellent opportunity for the Company to quickly expand
its revenue base and to establish a foundation for further expansion.

During fiscal 1998, the Company completed a private offering of its common stock
and common stock purchase warrants, generating gross proceeds of $6,000,000,
which was used for the acquisition and development of dental practices, for
repayment of indebtedness, and for working capital.  See Item 5.  Market for
Common Equity of Related Stockholder Matters - Recent Sales of Unregistered
Securities.

                                       4
<PAGE>
 
Business Operations
-------------------

Operating Strategy.  The Company's strategic objective is to develop or acquire
------------------                                                             
and operate a network of affiliated dental centers and dental practices which
provide convenient, comprehensive dental care to a broad range of patients in a
cost-efficient manner.  The Company strives to achieve operating efficiencies
and to enhance revenues at its affiliated dental centers and dental practices.

The Company is seeking to achieve operating efficiencies through  i)
centralizing management and administrative functions, including marketing,
payroll, accounting and management information systems, ii) utilizing innovative
dental center design and layout to promote increased productivity, iii)
utilizing dental assistants and other dental center personnel more efficiently;
iv) utilizing centralized purchasing and distribution of equipment and supplies,
and v) developing efficient return and recall procedures.

The Company believes it can enhance patient volume and practice revenue through
a centralized marketing program.  The Company markets the services provided at
its dental centers by use of direct mail, through community, civic and religious
organizations,  and through direct patient contact with written materials
provided at medical clinics located near the Company's dental centers.  The
Company recruits additional business through health fairs, public and private
schools and other community and civic events.

Dental centers and dental practices generally derive revenues from three
distinct payment sources: Medicaid, private-pay patients, and managed care
insurance payments.  The Company's management believes that, in order to
maintain stability and produce reliable revenue growth, a dental practice
management company must derive revenue from all three of these payment sources.
A company which is overly dependent upon Medicaid patients may be severely
adversely affected by changes in Medicaid law.  A company which is overly
dependent upon private-pay patients will be adversely affected as more persons
who currently pay for their own dental services become members of managed care
dental plans.  Excessive reliance on managed care revenue could result in a
company becoming overly dependent upon a small number of large payers which
could adversely affect a provider by lowering payment rates.

The Company's operating and growth strategy contemplates participating actively
in all three revenue sources.  The Company's initial efforts were directed
toward the establishment of dental centers to service primarily Medicaid
patients.  During the past year, the Company has continued to develop centers
servicing Medicaid patients, but has also been aggressively acquiring dental
practices which service primarily private-pay and managed care patients.  In
addition, the Company is increasing its revenue base by adding several dental
specialties in its existing dental centers.

Dental offices servicing the different patient bases are generally located in
different demographic areas (Medicaid centers are generally located in
economically disadvantaged areas, while private pay and managed care offices are
located in more affluent areas), are generally  staffed differently (because of
higher patient volumes in Medicaid and managed care offices, there is generally
a higher

                                       5
<PAGE>
 
ratio of staff persons for each dentist to provide services to patients), and
marketing for the various types of dental centers and practices is usually
targeted toward a particular patient base. Notwithstanding these differences,
the Company's objective is to provide the same high quality dental service at
all of its dental centers and dental practices.

Dental Centers and Dental Practices.  The Company currently operates a total of
-----------------------------------                                            
23 dental centers and dental practices, including two mobile dental centers and
one portable dental unit.  Material information regarding the Company's dental
centers and dental practices is set forth below:

The Company currently operates 12 fixed site dental centers in Miami-Dade
County, Florida, and one dental center in each of the following Florida cities:
Lighthouse Point, Flagler Beach, Plantation, Winter Park, Brandon and Edgewater.
The dental practices located in Lighthouse Point, Flagler Beach, Edgewater and
Winter Park are located in relatively high income areas and serve primarily
private-pay patients.  The Company acquired these practices in order to
determine whether the Company's program of centralized management, marketing and
trademarking, purchasing and distribution of supplies, and the provision of high
quality dental services, could be successfully transplanted to private-pay
dental practices located outside Miami-Dade County.  Based on initial operating
results being achieved by these practices, the Company believes that such
practices will operate successfully.  The Company is currently in the process of
developing a dental center in Jacksonville.  When completed, the Jacksonville
dental center will have 11 dental chairs and will be oriented primarily toward
servicing pediatric and Medicaid patients.

The Company operates two mobile dental centers servicing the Hillsborough County
Health Plan. One of these mobile practices operates in a 40 foot bus and the
other in a recreational vehicle.  Each of these vehicles has been outfitted as a
full service dental facility with several dental chairs and related dental
equipment.  Operation of mobile dental centers enables the Company to make
dental services available to indigent persons in inner city locations, who might
be unable to travel to fixed-site dental centers located in outlying areas.  The
Company's dental center in Brandon also services the Hillsborough County Health
Plan, as well as servicing the Head Start Program in Hillsborough County.  The
Company operates a portable unit in Miami - Dade County which services a number
of schools pursuant to a contract with the Miami-Dade County School Board.

Many of the dental centers established by the Company are situated within or in
close proximity to high volume medical centers servicing primarily Medicaid
patients.  In its program of acquiring existing dental centers or dental
practices, the Company seeks to acquire established dental practices, in
favorable locations, with a high volume of private pay and/or managed care
patients.

The Company's dental centers normally operate six days per week.  To accommodate
persons unable to schedule appointments during normal working hours, most
centers are open until 8:00 p.m. at least one or two evenings per week.  In
addition, the Company's mobile dental centers allow the Company to make dental
services available to persons unable to travel to fixed-site dental centers.
The Company also provides transportation, using Company-owned vans, for patients
of certain medical centers which service primarily Medicaid patients.  At all
times during normal business hours, all

                                       6
<PAGE>
 
centers have dentists, receptionists or staff to assist with appointments and
emergency situations. During off hours, appointments are scheduled through other
open dental centers which receive the telephone calls through forwarding, and an
integrated appointment scheduling system.

Three of the dental centers operated by the Company are located in premises
which are owned by the Company, including one dental center in the building in
which the Company's executive offices are located.  The remaining dental centers
are located in leased premises.  See Item 2. Description of Property.
 
In most states, including Florida, where all of the Company's dental centers and
dental practices are located, dental practices must be owned by a licensed
dentist.  In keeping with these legal requirements, the Company operates its
dental centers and dental practices and derives revenues from  the operations
thereof through comprehensive long-term management agreements with corporations
owned by licensed dentists.  The Company generally owns the dental equipment
utilized by the practice and provides such equipment, capital, staffing,
management and marketing services to the practice, allowing the dentists
employed by such corporations to focus on delivery of high quality dental care.
The licensed dentists receive compensation directly from the dentist-owned
corporation.  The Company receives the remaining gross revenue from dental
services provided at the dental centers and pays all operating and other
expenses, including staff salaries and benefits.

Management Agreements.  The Company enters into long-term management agreements
---------------------                                                          
with licensed dentists or dentist-owned corporations pursuant to which the
Company manages all non-clinical aspect of the dental practices.  The management
agreements typically run for a term of forty years.  Pursuant to such management
agreements, the Company provides facilities, dental and office equipment and
supplies, non-clinical staffing, management support, marketing and other
ancillary services.  The Company bills and collects all receivables on behalf of
the managed practices.

As compensation for all management services provided by the Company, the managed
practice agrees to pay to the Company, as an administrative management fee, all
of the practice revenues in excess of the amounts required to pay compensation
to the dentist(s) and dental hygienists  employed by the practice.  The Company
is responsible for paying all practice expenses including staff salaries, from
and out of the management fee.  If revenues are not sufficient to pay clinical
salaries, the unpaid portion of the management fee is accrued.

Prepaid Dental Care Plan.  In April, 1997, the Company obtained a license from
------------------------                                                      
the Florida Department of Insurance to operate a prepaid dental care plan in
Florida.  After obtaining the license, the Company focused its attention on the
operation and expansion of its dental center operations, and did not devote
substantial attention or resources to further development of the prepaid dental
plan. The plan currently has approximately 1,100 members.  The Company has
recently reached an agreement in principle with Oral Health Services, which is
licensed to operate a prepaid dental plan, for Oral Health Services to assume
responsibility for the Company's plan members.  The Company

                                       7
<PAGE>
 
will retain its license to operate a prepaid dental plan, but currently has no
plans to develop that business.


Expansion Strategy
------------------

The Company plans to continue to expand its dental center business through
acquisition and development of additional dental centers and dental practices,
leading to the establishment of networks of dental centers, managed and operated
by the Company.  The Company plans to continue to increase revenues from
Medicaid patients, private-pay patients and managed care patients.  The Company
will continue to develop centers servicing primarily Medicaid patients and to
increase the patient flow to its dental centers by contracting with third-party
payers, health insurance companies and managed health care organizations.  The
Company's dental centers have entered into arrangements with, or have been
credentialed to provide services for patients of, approximately 450 insurance
plans or other payors.

The Company intends to continue to expand its business operations both through
the establishment of new dental centers within or in close proximity to
established medical and health care related facilities, and through the
acquisition of existing dental practices in favorable locations.  The Company
will also seek to provide dental care services at certain institutional
locations, such as schools and correctional facilities, through portable and
mobile dental centers.  The Company anticipates offering its own network of
dental centers on a fee-for-service and capitated basis to third-party payers,
insurance companies and managed care organizations.

The Company is currently focusing on providing general dentistry services to its
patients.  The Company has expanded its revenue base by adding specialized
dental services, which can be provided for the Company's existing patient base.
The Company plans to engage dental specialists, on an independent contractor
basis, to provide endodontic, periodontic and orthodontic care, dental implants
and maxillo-facial surgery for the Company's patient base.  The Company believes
it will be able to negotiate favorable contracts for the provision of such
services because it has a sizable patient population already utilizing the
general dentistry services provided at the Company's dental centers.

The Company plans to focus its expansion efforts within the state of Florida.
The Company believes that at this stage of its development, it can achieve
substantial operating economies by concentrating its operations in a single
state.

In order to build a profitable and successful full-service dental services
company, the Company will focus on achieving the following objectives:

     1. Establishing  a statewide network of high quality dental care centers,
        managed and operated by the Company.

                                       8
<PAGE>
 
     2. Contracting the network with third-party payers, insurance companies and
        managed health care organizations.

     3. Establishing patient loyalty through high quality service,  innovative
        marketing programs, and name recognition.

     4. Providing specialized dental care services to the existing patient base.

Government Regulation
---------------------

The field of dentistry is highly regulated, and there can be no assurance that
the regulatory environment in which the Company operates will not change
significantly in the future.

Every state imposes licensing and other requirements on individual dentists,
dental facilities, dental services and dental managed care plans.  In addition,
federal and state laws regulate third party payers for dental services.
Insurance laws and regulations and prepaid managed dental care plan licensing
laws and regulations establish licensing, financial, operational, marketing and
other requirements relating to prepaid managed dental care plans.  In the
future, the Company may become subject to compliance with additional
regulations.

The operation and management of the dental centers must meet federal, state and
local regulatory standards in the areas of health and safety.  Those standards
have not had any material affect on the operation of the dental centers or the
operations of the Company.  Based on management's familiarity and knowledge of
the operations of the dental centers and the activities of the affiliated
dentists, management believes that the dental centers and the dentists are in
compliance in all material respects with all applicable federal, state and local
laws and regulations relating to health and safety.  The Company meets certain
OSHA and other governmental regulation and guidelines in its dental clinics.
The cost of such compliance has not been material.

In most states, including Florida where all of the Company's dental centers are
located, dental practices must be owned by a licensed dentist.  In keeping with
these legal requirements, the Company operates its dental centers and derives
revenues from such centers through comprehensive long-term management agreements
with one or more corporations, which are owned by licensed dentists.

The laws of many states prohibit dentists from splitting fees with non-dentists
and prohibit non-dental entities (such as the Company) from practicing
dentistry, and from employing dentists or, in certain circumstances, dental
assistants.  The laws of some states prohibit advertising dental services under
a trade or corporate name and further require that all advertisements of dental
services be in the name of the dentist providing the services.  A few states
also regulate the content of advertisements of dental services and the use of
promotional gift items to attract new clients.

                                       9
<PAGE>
 
Some states limit the ability of a non-licensed dentist or non-dentist to own or
control equipment or offices used in a dental practice.  Some of the states
allow leasing of equipment and office space to a dental practice, under a
bonafide lease, if the equipment and office remains in the complete care and
custody of the dentist.  Management believes, based on its familiarity and
knowledge of the operations of the Company and the activities of the affiliated
dentists, that the Company's current and planned activities do not violate
applicable statutes and regulations.  There can be no assurance, however, that
future interpretation of such laws, or the enactment of new laws, will not
require structural and organizational modifications of the Company's existing
contractual relationship with the affiliated dentists or the operation of the
dental centers.  In addition, statutes in some states could restrict expansion
of the Company's operations in those jurisdictions.

The Company regularly monitors changes in laws and regulations relating to the
dental industry, dentistry and the business of prepaid managed dental care
plans.  The Company may be required to modify its agreements, operations and
marketing from time to time in response to changes in the business and
regulatory environment.  The Company plans to structure all of its agreements,
operations and marketing in accordance with applicable laws and regulations,
although there can be no assurance that its arrangements will not be
successfully challenged or that required changes may not have a material adverse
effect on operations or profitability.  If the Company seeks to expand its
prepaid dental plan business, the failure of the Company's prepaid managed
dental care plans to maintain regulatory compliance could adversely affect the
Company's ability to conduct that portion of its business and may result in (i)
revocation of the Company's prepaid managed dental care plan's license, (ii)
enrollment limitations, and/or (iii) limits on the Company's ability to receive
the proper approval for new products, premium increases or market expansions.

Competition
-----------

The business of providing dental care services through dental centers is very
competitive, though highly fragmented.  Each dental center will compete with
dentists who maintain single offices or operate satellite offices, as well as
with dentists who maintain group practices or operate in multiple offices.  The
dental centers will compete with general and specialist dental practitioners, as
well as with other health care related companies and medical care centers which
provide dental services. The Company also competes against other dental practice
management companies.  The Company may compete with such other dental management
companies in seeking to acquire additional practices, and in seeking to expand
the patient base of affiliated practices managed by the Company. While there can
be no assurances, management believes that it will be able to effectively
compete in the dental marketplace because of the marketing programs and
operational systems that are currently being used and developed by the Company.

Employees
---------

As of the date hereof, the Company has 20 affiliated dental practitioners, and 8
dental hygienists, all of whom are employed by affiliated dental practices.  The
Company and/or its consolidated subsidiaries employs a total of 76 full-time
employees, including 34 dental assistants.  None of the Company's employees are
members of a labor union, and the relationship between the

                                       10
<PAGE>
 
Company and its employees is favorable. The Company provides various incentives
and benefits to its employees, such as health care insurance and stock option
plans.

Research and Development
------------------------

The Company has not been engaged in research and development of products or
delivery systems as of September 30, 1998.

Item 2.  Description of Property

The Company's principal executive offices are located at 2260 SW 8th Street
Miami, Florida  33135. The Company owns this three-story office building which
it acquired in 1997 from its Chairman Luis Cruz (See Item 12 below). The
                                                 ---                    
building contains approximately 10,000 square feet of office space and is in
good condition. The premises contain the Company's principal executive offices
and a full service dental center with four dental chairs.  The Company believes
this building will be sufficient for its needs as both a corporate headquarters
and as a site for a dental center for the foreseeable future.  This building is
subject to a mortgage in favor of Dr. Maurice Nahmad to secure the Company's
promissory note to Dr. Nahmad.

The Company owns a one story, free standing building containing approximately
1,400 square feet located at 215 South Third, Flagler Beach, Florida.  This
building contains a dental practice with four dental chairs acquired by the
Company during fiscal 1998.  The building was acquired as part of the practice
acquisition.  The Company allocated $170,000 of the aggregate purchase price to
the purchase of the real estate.

The Company owns a 1,200 square foot office condominium located at 8370 West
Flagler Street, Miami, Florida, in which a dental center developed by the
Company is located.  This dental center has four dental chairs.

The Company owns a 2,200 square foot, one-story, free standing building in
Jacksonville, Florida, where a dental center is currently being developed.  When
completed, this dental center will have eleven dental chairs.

The remaining dental centers operated by the Company are in leased premises.
The Company's obligations under these lease agreements are, in many cases,
subject to the Company continuing to operate a dental center in the specific
location.  In the event the Company reduces or discontinues use of a particular
facility, many of the agreements provide for a termination or reduction of the
rental obligation.

The Company believes that the facilities which it owns and which it leases are
adequate and suitable for utilization as dental centers.

                                       11
<PAGE>
 
Item 3.  Legal Proceedings

In December, 1998, two lawsuits were filed against the Company in the U.S.
District Court for the Middle District of Florida by two former employees of the
Company, alleging sexual harassment, and employment discrimination, and seeking
compensatory and punitive damages.  The suits are styled Caro vs. Dental
                                                         ----     ------
Practice Administrators, Inc., and Campbell vs. Dental Practice Administrators,
----------------------------       --------     -------------------------------
Inc.  The Company  does not believe there is any merit to the plaintiffs'
---                                                                      
claims.

The Company is a defendant in a lawsuit by a former director and employee      
alleging breach of employment contract and breach of a share exchange agreement.
Shyam vs. Dental Services of America, Inc. and International Asset Management
-----     --------------------------------     ------------------------------
Group. The Company has settled a portion of the claim by issuing 20,000 shares
-----
of common stock. See Recent Sales of Unregistered Securities. Plaintiff
                 ---  
continues to seek damages for unpaid wages and benefits. The Company does not
believe there is any merit to plaintiff's remaining claims.

Item 4.  Submission of Matters to a Vote of Security-Holders

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1998.

                                    PART II
                                   ----------

Item 5.  Market for Common Equity and Related Stockholder Matters

Market for Common Equity

The Company's Common Stock is currently trading on the NASDAQ Bulletin Board
under the symbol "FLOS."  If and when the Company meets applicable listing
requirements, the Company will apply to have its securities listed on the NASDAQ
SmallCap Market.

In November, 1997, the Company's shareholders approved a one-for-five reverse
split of the Company's common stock, effective as of January 1, 1998. All
references herein to the number of outstanding shares and/or the market price of
the Company's common stock refer to post-split shares.

Set forth below are the high and low bid prices for the Company's common stock
for the past  two fiscal years on the NASDAQ Bulletin Board. These quotations
reflect inter-dealer prices, without retail mark-up, markdown or commissions,
and may not represent actual transactions.

<TABLE>
<CAPTION>
Security           High     Low
--------           ------  -------
<S>               <C>     <C> 
Common Stock
----------------
1997
First Quarter     $11.25  $ 9.375
Second Quarter     10.00     5.00
Third Quarter       7.20     1.48
Fourth Quarter     5.625   2.1875
</TABLE>

                                       12
<PAGE>
 
<TABLE>
<CAPTION>
   Security       High    Low
   --------      ------  ------
<S>              <C>     <C> 
1998
First Quarter     $ 5.00  $.9375
Second Quarter      2.36    .875
Third Quarter      5.125    1.25
Fourth Quarter     3.375    1.75
</TABLE>

Holders

As of December 31, 1998, the Company had approximately 180 record holders of its
Common Stock and believes that there are approximately 600 beneficial holders
of its Common Stock.

The transfer agent for the Company's Common Stock is American Stock Transfer and
Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005.

Dividends

The Company has never paid dividends on its Common Stock.  The Company presently
intends to retain future earnings, if any, to finance the growth of its business
and does not anticipate that any cash dividends will be paid on the Common Stock
in the foreseeable future.

Recent Sales of Unregistered Securities

During fiscal 1998, the Company successfully completed a private placement of
2,000,000 Units of the Company's securities. Each Unit consisted of two shares
of the Company's Common Stock and one warrant to purchase a share of common
stock at an exercise price of $5.00 per share. The warrants are exercisable
until September 30, 1999. Units were sold for a price of $3.00 per Unit. The
Company received gross proceeds of $6,000,000 from the private placement. The
private placement commenced in April, 1998, and was completed in September,
1998.

The Units were sold only to accredited investors (as that term is defined in
Rule 501 under the Securities Act of 1933) pursuant to an exemption from
registration for transactions not involving a public offering set forth in
Section 4(2) of the Securities Act of 1933, and pursuant to Rule 506 of
Regulation D under the Securities Act of 1933.

The Units were offered and sold by certain officers and directors of the
Company.  No underwriters participated in the offer and sale of the Units, and
no sales commissions were paid in connection with the sale of the Units.

In September, 1998, the Company issued 200,000 shares of its common stock to
Magnum Opus Capital, Inc. ("Magnum Opus") and 200,000 shares of its common stock
to Medconomics, Inc. ("Medconomics") as partial consideration for consulting
services provided to the Company by Magnum Opus and Medconomics with respect to
the following matters: investor relations, public 

                                       13
<PAGE>
 
relations, identifying potential acquisition candidates and negotiating
acquisitions, obtaining financing, structuring the terms of the Company's
private offering and identifying potential investors. The Company also issued
warrants to purchase 900,000 shares of the Company's common stock to Magnum Opus
(300,000 of which are exercisable at $1.50 per share and expire September 30,
1999; 300,000 are exercisable at $3.00 per share and expire September 30, 2001;
and 300,000 are exercisable at $5.00 per share and expire September 30, 2001),
and warrants to purchase 900,000 shares of the Company's common stock to
Medconomics (such warrants bearing the same exercise prices and expiration dates
as the warrants issued to Magnum Opus). All of such shares and warrants were
issued without registration pursuant to the exemption from registration for
transactions not involving a public offering set forth in Section 4(2) of the
Securities Act of 1933. The Company also paid Magnum Opus $120,000 and
Medconomics $80,000 as consideration for services provided.

In December, 1998, the Company issued 20,000 shares of common stock to Sujit
Shyam, a former director and employee of the Company, in partial settlement of a
lawsuit brought by Mr. Shyam against the Company in which he had alleged breach
of employment agreement and breach of a share exchange agreement.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Forward-Looking Statements

          The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on behalf of
the Company.  All statements contained in this Report, other than statements of
historical facts, which address activities, events or developments that the
Company anticipates will or may occur in the future, including such things as
the acquisition or development of additional dental centers or dental practices,
future capital expenditures, and other such matters, are forward-looking
statements within the meaning of the Act.  These forward-looking statements are
based largely on the Company's expectations and assumptions and are subject to a
number of risks and uncertainties, many of which are beyond the Company's
control.  Actual results could differ materially from the forward-looking
statements as a result of a number of factors, including but not limited to, the
Company's early stage of development, the need for additional financing, intense
competition, regulatory changes and other unforeseen circumstances.  In light of
these risks and uncertainties, all of the forward-looking statements made herein
are qualified by these cautionary statements, and there can be no assurance that
the actual results or developments anticipated by the Company will be realized.
The Company undertakes no obligation to update or revise any of the forward-
looking statements contained herein.

Selected Financial Data

The following table sets forth the selected financial data for the Company for
the periods indicated and should be read in conjunction with the financial
statements and notes appearing elsewhere in this Annual Report on Form 10-KSB:

                                       14
<PAGE>
 
<TABLE>
<CAPTION>
                               Years Ended September 30,
--------------------------------------------------------
                                  1998           1997
--------------------------------------------------------
<S>                           <C>            <C>
Selected Data from
  Statement of Operations
--------------------------------------------------------
Revenue                        $ 2,275,219   $   673,660
--------------------------------------------------------
Net Loss                        (3,479,888)   (2,455,946)
--------------------------------------------------------
Net Loss per share                   (1.22)        (1.52)
--------------------------------------------------------
Cash Dividends                        none          none
--------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
                                 As of September 30,
----------------------------------------------------
                                  1998        1997
----------------------------------------------------
<S>                            <C>         <C>
Selected Balance Sheet Data
----------------------------------------------------
Total Assets                   7,409,540   2,659,944
----------------------------------------------------
Total Liabilities              2,985,006     886,023
----------------------------------------------------
    Long Term Debt             1,333,725           -
----------------------------------------------------
Working Capital                 (961,352)   (441,319)
----------------------------------------------------
Total Stockholder's Equity     4,374,533   1,723,921
----------------------------------------------------
</TABLE>


The following table outlines the payor mix for the Company's revenue for the
periods presented:

<TABLE>
<CAPTION>
                     Years Ended September 30,
----------------------------------------------
                        1998           1997
----------------------------------------------
<S>                 <C>            <C>
HMOs/Indemnity                30%            -
----------------------------------------------
Private Insurers              37%            5%
----------------------------------------------
Medicaid                      33%           95%
----------------------------------------------
 Total                       100%          100%
----------------------------------------------
</TABLE>

                                       15
<PAGE>
 
Results of Operations

The tables and discussion set forth below generally compares expenses to total
revenues of the dental practices managed by the Company.  The Company reports
net patient revenue and associated clinical salaries and benefits of managed
dental practices in accordance with the consolidation requirements established
by the Emerging Issues Task Force ("EITF"), an advisory committee of the
Financial Accounting Standards Board.  The consolidation requirements are set
forth in EITF Bulletin 97-2.

The following table sets forth, as a percentage of net revenue, certain items in
the Company's statements of operations for the years indicated.  The performance
of the Company during these years are not indicative of future financial results
or conditions.

<TABLE>
<CAPTION>
                                            Years Ended September 30,
---------------------------------------------------------------------
                                               1998           1997
---------------------------------------------------------------------
<S>                                        <C>            <C>
Net revenue                                 $ 2,275,219   $   673,660
---------------------------------------------------------------------
Dental Center expenses:
---------------------------------------------------------------------
   Clinical  salaries and benefits              913,834       318,030
---------------------------------------------------------------------
   Dental supplies and lab fees                 587,912       114,314
---------------------------------------------------------------------
   Occupancy                                    265,069       190,913
---------------------------------------------------------------------
       Total Dental Center expenses           1,766,815       623,257
---------------------------------------------------------------------

---------------------------------------------------------------------
 
       Gross Profit                             508,404        50,403
---------------------------------------------------------------------
General and administrative                    1,295,298       949,148
---------------------------------------------------------------------
Other salaries & Benefits                     1,789,552       299,577
---------------------------------------------------------------------
   Advertising                                  255,873       103,173
---------------------------------------------------------------------
   Depreciation and amortization                417,478       200,837
---------------------------------------------------------------------
   Other                                        230,091       953,614
---------------------------------------------------------------------
       Total general and administrative       3,988,292     2,506,349
---------------------------------------------------------------------

---------------------------------------------------------------------
 
       Net Loss                              (3,479,888)   (2,455,946)
---------------------------------------------------------------------
</TABLE>

                                       16
<PAGE>
 
Net Revenue

Net revenue increased 238% from $ 673,660 for the year ended September 30, 1997
to $2,275,219 for the year ended September 30, 1998.  This increase was mainly
caused by a 214% increase in net revenue attributable to the 12 dental centers
acquired during the year.

Salaries and Benefits

Clinical salaries and benefits increased 187% from $318,030 for the year ended
September 30, 1997, to $913,834 million for the year ended September 30, 1998.
This increase was attributable primarily to the acquisition of 12 dental centers
and development of 3 dental centers during fiscal 1998, and the resulting
payment of salaries to the clinical staffs of the new centers.  As a percentage
of net revenue, clinical salaries decreased from 47% for the year ended
September 30, 1997 to 40% for the year ended September 30, 1998.  The decrease
was caused primarily by the substantial increase in revenues.  However, the
Company had a significant  increase in staffing due to the addition of
internally developed and acquired dental centers.

Other (non-clinical) salaries increased 497% from $299,577 for the year ended
September 30, 1997, to $1,789,552 for the year ended September 30, 1998. This
increase was caused by the acquisition and development of additional dental
centers in 1998. A significant portion of this increase ($276,000) was
attributable to a compensation expense incurred in connection with the grant of
stock options to an individual who sold seven dental practices to the Company
and became an employee of the Company. As a percentage of net revenues, other
salaries increased from 44% for the year ended September 30, 1997, to 78% for
the year ended September 30, 1998. This increase was caused primarily by the
increase in staffing due to the addition of internally developed and acquired
dental centers.

While an internally developed dental center can operate with a relatively
limited dental staff in the early stages of its development, the services of a
dentist, dental hygienist, dental assistant and front desk are still necessary.
As a result, staff salaries as a percentage of net revenue will typically be
higher in the first six months of operation until patient visits are increased.
In addition, for acquired dental centers, staff salaries as a percentage of net
revenue will typically be higher in the first three to six months following
acquisition as the Company implements its method of operation model to increase
productivity and efficiency.

Subsequent to September 30, 1998, the Company has reduced its staff and staff
salaries at all levels, including affiliated dental practitioners and
hygienists, dental assistants and other full-time employees, in an effort to
significantly reduce the Company's operating expenses.  Management believes that
such reductions in staff and staff salaries will result in savings of
approximately $130,000 per month.  Management believes that the recent
reductions in staff will not adversely affect the Company's operations.

Dental Supplies and Lab Fees

Dental supplies and lab fees increased 414% from $114,314 for the year ended
September 30, 1997, to $587,912 for the year ended September 30, 1998.  This
increase was caused by the increase in

                                       17
<PAGE>
 
patient visits and dental services provided at the 20 dental centers and
practices, and the two mobile units and one portable unit. As a percentage of
net revenue, dental supplies and lab fees increased from 17% for the year ended
September 30, 1997, to 26% for the year ended September 30, 1998. This increase
was caused primarily by increased per unit costs for supplies, which management
believes is attributable to increased consolidation and reduced competition in
the dental supply industry.

Occupancy

Occupancy  expenses increased 39% from $190,913 for the year ended September 30,
1997, to $265,069 for the year ended September 30, 1998.  This increase was
caused primarily by the addition of internally developed and acquired dental
centers.  As a percentage of net revenue, occupancy expenses decreased from 28%
for the year ended September 30, 1997 to 11% for the year ended September 30,
1998.  This decrease was caused primarily by substantial increase in revenues.

General and Administrative Expenses

General and administrative expenses, increased 36% from $949,148 for the year
ended September 30, 1997, to $1,295,298 for the year ended September 30, 1998.
This increase was caused primarily by the growth of the Company. As a percentage
of net revenue, general and administrative expenses decreased from 141% for the
year ended September 30, 1997 to 57% for the year ended September 30, 1998.

Depreciation and Amortization.

Depreciation and amortization expense at the Dental Centers increased 108% from
$200,837  for the year ended September 30, 1997, to $417,478 for the year ended
September 30, 1998. The increase was primarily associated with the addition of
internally developed and  acquired dental centers. As a percentage of net
revenue, depreciation expense decreased from 30% for the year ended September
30, 1997, to 18% for the year ended September 30, 1998.

Adjustments to Income and Expenses

During the fourth quarter of the year ended September 30, 1998, the Company 
recorded approximately $1,130,000 of adjustments, which had the effect of 
increasing the Company's loss from operations. See Footnote 11 in the Notes to 
                                               ---
Consolidated Financial Statements. Such adjustments include, among others, a 
$276,000 increase in compensation expense attributable to the grant of options 
to an individual who sold seven dental practices to the Company and became an 
employee of the Company, a $300,000 write off of certain accounts receivable and
the addition of $105,000 to reserves for uncollectible accounts receivable, and 
a $151,000 understatement of accounts payable. Such adjustments are 
attributable, to a substantial extent, to periods prior to the fourth quarter of
the year September 30, 1998, and if timely recognized and recorded, would have 
increased the Company's loss from operations for such prior periods.

Financial Condition, Liquidity and Capital Resources

The Company's cash and cash equivalents were $189,000, and  $353,150 at
September 30, 1998 and 1997 respectively.

The Company has financed the acquisition and development of additional dental
centers and its working capital requirements with the net proceeds of a
$6,000,000 private placement of securities completed in fiscal 1998, and, in the
case of certain acquisitions, with financing from the sellers of the acquired
dental practices.  Subsequent to the completion of the private placement, the
Company has relied heavily upon loans from two shareholders/officers/directors
to provide working capital to support the Company's operations.   The Company is
currently considering the sale or refinancing

                                       18
<PAGE>
 
of certain real properties owned by the Company to generate additional cash for
working capital and/or expansion.

The Company anticipates that once the operations of newly acquired dental
practices and dental centers are normalized, the Company will generate
sufficient cash flow on an ongoing basis to sustain the operations of the
Company.  There can be no assurance, however, as to whether the Company can
generate sufficient cash flow from its existing dental centers and dental
practices to support its operations.  There can be no assurance that the
Company's principal shareholders, who have previously loaned funds to the
Company, will be willing or able to continue to loan funds, if the Company
requires additional funds. The Company is currently investigating other sources
of financing, but there can be no assurance that any such financing will be
available when it is required or, even if it is available, that it will be
available on terms acceptable to the Company.

As a result of the significant expansion of the Company's operations through the
acquisition of dental practices during 1998, the Company's expenses increased
substantially.  Commencing in approximately September, 1998, and continuing on
an ongoing basis, the Company's management has been examining all aspects of the
Company's operations, with a view toward reducing expenses wherever possible.
Substantial progress has been made in the area of reducing personnel expense.
The Company's objective is to reduce operating expenses and to generate
sufficient cash flow from its existing dental centers to allow the Company to
continue as a going concern.  If management's projections regarding increased
revenues and decreased expenses are accurate, the Company anticipates that it
will be operating on a break-even basis by the end of the second quarter or the
beginning of the third quarter of fiscal 1999.  There can be no assurance that
the Company will meet this objective.

Year 2000 Matters

Some computer applications were originally designed to recognize calendar years
by their last two digits.  As a result, beginning in the year 2000, such
applications may be unable  to accurately process certain date-based
information.  The Company could potentially be adversely affected by this
problem, to the extent its own computer systems are not year 2000 compliant, or
if the computer systems of its principal suppliers are not year 2000 compliant.
The consequences of incomplete or untimely resolution of year 2000 problems
represent an uncertainty that could adversely affect future financial results.

The Company  recognized and began addressing this problem during its fiscal year
ended September 30, 1998,  The Company has reviewed its computer systems for
year 2000 compliance and has implemented measures to ensure that its business
operations will not be disrupted.  The computer software used by the Company has
all been purchased relatively recently, and is year 2000 compliant.  The Company
has been assured by its principal software vendors that the Company's computer
systems are year 2000 compliant.  The Company is presently taking steps to
insure that other systems which may be affected (e.g., alarm systems) are year
                                                 ---                          
2000 compliant.  The Company does not believe the cost of such actions as may be
required will be material.

                                       19
<PAGE>
 
Item 7.  Financial Statements

See index to Financial Statements in Item 13 which is included in Part III of
this report.

Item 8.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

In December, 1997, the Company engaged the services of McKean Paul, Chrycy
Fletcher & Co. as the Company's accounting firm. The Company dismissed its
former accountant, Harvey Judkowitz, C.P.A., at the time it engaged its new
accounting firm because the Company wished to  have the resources of a larger
accounting firm available to it as it expands its business. The change was
initiated and approved by the Company's executive officers. There were no
disagreements with the Company's former accountant.

PART III

Item 9   Directors, Executive Officers, Promoters and Control Persons

The following table set forth certain information concerning the directors and
executive officers of the Company as of January 11, 1999.

<TABLE>
<CAPTION>
Name                    Age                    Position
----                    ---                    --------
-------------------------------------------------------------------------
<S>                     <C>  <C>
Luis Cruz, M.D.          37  Chairman, President, Chief Executive Officer
-------------------------------------------------------------------------
Ramiro Casanas           44  Chief Financial Officer
-------------------------------------------------------------------------
Jose M. Garcia           49  Senior Vice President, Secretary, Director
-------------------------------------------------------------------------
Robert M. Leopold        72  Director
-------------------------------------------------------------------------
Gerardo Necuze           33  Vice President, Operations
-------------------------------------------------------------------------
Roger Prieto, D.D.S.     34  Director, Chief Dental Director
-------------------------------------------------------------------------
Theodore Swaebe          32  Director
-------------------------------------------------------------------------
</TABLE>

Directors of the Company are elected at the annual meeting of stockholders or
appointed by the Board of Directors and hold office until the following annual
meeting and until their successors are elected and qualified. All officers serve
at the discretion of the Board of Directors.

Set forth below is a brief summary of the background of each director and
executive officer.

Luis Cruz, M.D., has served as the Company's Chairman and Chief Executive
Officer since June 23, 1997. Dr. Cruz is a licensed physician in the states of
Florida and Georgia. He was the founder and Chief Executive Officer of Miami
Dade Health Plans, Inc., a Florida licensed HMO, and Miami

                                       20
<PAGE>
 
Dade Home Health Agency, Inc. from 1989 till 1993, when the business was sold to
CAC-Ramsay HMO, Inc. He sits in the Board of Gibraltar Bank and is the sole
owner and president of various real estate holding companies including Cruz &
Cruz, Inc. and W.L. Dairy Farms, Inc.

Ramiro Casanas became the Company's Chief Financial Officer, effective as of
January 8, 1999. He has served as the Company's Controller since July, 1998.
Mr. Casanas is a certified public accountant.  His experience includes 10 years
of international finance with Warner Lambert & Co. Since relocating to Florida,
he has also served as CFO for Palm Springs General Hospital, Controller for
Tenet Health Systems and Controller for Bascom Palmer Eye Institute.

Jose M. Garcia has served as a Director of the Company since April, 1998 and was
appointed Vice President in charge of Acquisitions in June, 1998, when the
Company began its aggressive dental practice acquisition plans.  Mr. Garcia was
appointed as Secretary of the Company in January, 1999. Mr. Garcia founded San
Jose Funeral Homes in 1994.  The business was sold in 1997 to ECI.  At the time
of the sale, Mr. Garcia entered into a joint venture with  ECI for the
establishment of funeral homes in Hispanic markets.  Mr. Garcia is also the
President of Medex Medical Rehab Centers in Miami-Dade County, Florida.

Robert M. Leopold  serves as a Director of the Company. Mr. Leopold has been
President of Huguenot Associates, Inc., a financial and business consulting
company, since 1977, and Chairman of the Board of International Asset Management
Group, Inc. since 1983.  Mr. Leopold is a director of H.E.R.C. Products
Incorporated, Infodata Systems, Inc., and Standard Security Life Insurance
Company of New York, a wholly owned subsidiary of Independence Holding Company.

Gerardo Necuze was appointed as Senior Vice President, Operations, in September,
1998.  Mr. Necuze's experience includes 12 years of health care administration
with Tenet Health Systems.  Mr. Necuze has developed and managed independent
practice associations, management services organizations, and medical group
practices.  He has served as Administrator of Larkin Community Hospital as well
as Vice-President - Operations of Ornda Health Corp.

Roger Prieto, D.D.S., serves as the Company's  Chief Dental Director and
Director.  He was the Staff Dentist at Morris Heights Health Center in New York
from 1995 to 1996, when he joined the Company.  He obtained his Doctor in
Dentistry from University of Central East Dominican Republic in 1989 and a
D.D.S. degree from New York University College of Dentistry in 1994.  He has
practiced dentistry in the Dominican Republic and since moving to the United
States in 1990, practiced as a dental assistant in Miami, Florida and
Providence, Rhode Island prior to obtaining his D.D.S. degree. He is licensed to
practice dentistry in the states of Florida, New York and Rhode Island.

Theodore Swaebe, J.D., has served as a Director of the Company since April,
1998.  Mr. Swaebe received an MBA from the University of Miami in 1992 and a
Juris Doctor Degree from the University of Miami School of Law in 1995.  Since
1996, Mr. Swaebe has practiced law in Miami-Dade County, Florida specializing in
insurance litigation and personal injury.

                                       21
<PAGE>
 
Maria C. Suarez, who served as a Director of the Company since June, 1997, and
as Vice President and Secretary since November, 1997, resigned as a Vice
President as of September 30, 1998, and resigned as a Director and Secretary in
December, 1998.

Aldo Erazo resigned as President of Dental Practice Administrators, a subsidiary
of the Company, and as a Director of the Company in December 1998.

Ronaldo R. Figueroa, who served as the Company's Chief Financial Officer since
December, 1997, completed his previously agreed-upon term of employment in such
position as of January 8, 1999.

The Board of Directors has established an Audit Committee and a Compensation
Committee.  The Audit Committee reviews with the Company's independent
accountants the scope of their audit and their report thereon. The Compensation
Committee reviews and approves the compensation of executive offices and is
responsible for administering the Company's stock option plans.  Mr. Leopold and
Mr. Swaebe serve as members of the Audit Committee.  Mr. Swaebe, Mr. Leopold and
Dr. Cruz serve as members of the Compensation Committee.

Compliance with Section 16(a) of the Exchange Act:  Not Applicable.  During
fiscal 1998, the Company's securities were not registered pursuant to Section 12
of the Securities Exchange Act of 1934.

Item 10.  Executive Compensation

Director Compensation

Outside directors  receive a directors fee of $500 per meeting for each Board of
Directors meeting attended and $100 per meeting for each committee meeting
attended.

In addition, all Directors receive stock option grants on an annual basis under
the 1996 Director Stock Option Plan.  Five-year options to purchase 2,000 shares
of the Company's Common Stock are automatically granted to each Director on
October 1 of each year, starting October 1, 1996, at an option price equal to
the market price of the Common Stock on the date of the grant. Existing
Directors have each been granted five-year options to purchase 2,000 shares of
Common Stock at an option price equal to the market price as of the date of such
grant, and Directors appointed to the Board of Directors in the future will also
be granted options to purchase 2,000 shares of common stock when they are
appointed to the Board, at an option price equal to the market price of the
Common Stock as of the date of their appointment to the Board. In addition,
Directors will be granted options to purchase 1,000 shares for each committee of
which they are a member and options to purchase 2,000 shares for serving as
chairman of a committee.   Due to significant changes in the composition of the
Board of Directors during fiscal 1998, the Company determined not to grant any
options under the Directors Plan during fiscal 1998.  As of September 30, 1998,
options to purchase 8,000 shares at exercise prices between $2.50 and $5.415 per
share were outstanding under the Directors' Stock Option Plan.

                                       22
<PAGE>
 
Officers Compensation

Luis Cruz, M.D. has been serving since June 23, 1997, as the Company's Chief
Executive Officer without compensation.

Set forth below is a summary compensation table showing compensation paid to the
Company's current Chief Executive Officer and each executive officer receiving
annual compensation in excess of $100,000.

                           Summary Compensation Table

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                 Annual Compensation              Long-Term Compensation
-------------------------------------------------------------------------------------------------------------------
                                                                     Awards              Payouts
-------------------------------------------------------------------------------------------------------------------
                                                  Other                     Securities    
  Name                                           Annual      Restricted     Underlying    
  and                                            Compen-       Stock         Options/      LTIP      All Other
Principal                       Salary   Bonus   sation       Award(s)         SARs       Payouts   Compensation
Position                Year     ($)      ($)      ($)          ($)            (#)          ($)         ($)
-------------------------------------------------------------------------------------------------------------------
<S>                     <C>     <C>     <C>      <C>        <C>          <C>           <C>       <C>
 
Luis Cruz, M.D.          1998      0       0         0            0             0           0            0
  Chairman, Chief                                                                                  
  Executive Officer      1997      0       0         0            0        20,000           0            0
-------------------------------------------------------------------------------------------------------------------
</TABLE>


No executive officer of the Company received annual compensation from the
Company in excess of $100,000 during fiscal 1998.  Dr. Roger Prieto, who serves
as the Company's chief dental director, received compensation in the amount of
$115,000 during fiscal 1998, but such compensation was paid by Dental Doctor
Services, Inc., a corporation owned by Dr. Prieto which employs dentists and
which has entered into a long-term management agreement with the Company.


                           Option Grants for the Year
                            ended September 30, 1998

Set forth below is a table showing option grants to and option exercises by 
executive officers named in the summary compensation table above.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                      No. of Shares      % of Total       
                        Underlying     Options Granted    Exercise Price Per    Expiration  Date                   
Name                 Options Granted    to Employees            Share
------------------------------------------------------------------------------------------------
<S>                <C>                <C>               <C>                   <C>
Luis Cruz, M.D.              0                0%                 N/A                   N/A
------------------------------------------------------------------------------------------------
</TABLE>

                                       23
<PAGE>
 
                          Aggregated Option Exercises
                              and Year End Values

<TABLE>
<CAPTION>
                      Shares                               No. of Shares Underlying      Value of Unexercised in the               
                    Acquired on        Value             Unexercised Options at FY End     Money Options at FY End
    Name             Exercise         Realized             Exercisable/Unexercisable      Exercisable/Unexercisable
<S>                <C>             <C>             <C>                             <C>
Luis Cruz, M.D.               0         $0                        20,000/0                        $0/$0
</TABLE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information concerning stock ownership of
all persons known by the Company to own beneficially 5% or more of the
outstanding shares of the Company's Common Stock, each director, each executive
officer, and all officers and directors of the Company, as a group, as of
January 1, 1999, and their percentage ownership of Common Stock after exercise
of all stock options granted to directors and employees of the Company and
conversion of Convertible Preferred Stock.

    After Exercise of Options and Conversion of Convertible Preferred Stock
    ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                        Shares of Common Stock        Percentage of Common Stock                
      Name/1/                             Beneficially Owned              Beneficially Owned    
<S>                                    <C>                           <C>
 
Ramiro Casanas                                          0                           -
 
Luis Cruz, M.D./2/                              1,000,667                       15.61%
 
Jose M. Garcia                                    560,000                        8.74%
 
Robert M. Leopold/3/                              100,800                        1.57%
4 Gilder Street
Larchmont, NY 10504
 
Gerardo Necuze                                          0                           -
 
Roger Prieto, D.D.S./4/                           142,000                        2.21%
 
Theodore Swaebe                                    10,000                         .15%
1215 S.W. 7th Street
Miami, FL 33135
 
Medconomics, Inc./5/                              378,332                         5.9%
Miami, FL
All officers and directors as a                 1,813,467                       28.29%
 group (7 persons)
</TABLE>

                                       24
<PAGE>
 
/1/ Except as otherwise indicated, the address of all named holders is c/o
Dental Services of America, Inc., 2260 SW 8th Street, Miami, Florida 33135.

/2/ Assumes exercise by Dr. Luis Cruz at the lowest convertible number of the
Class A and Class C Convertible Preferred Stock held by him.  Dr. Luis Cruz owns
100,000 shares of Class A Convertible Preferred Stock and 250,000 shares of
Class C Convertible Preferred Stock, which shares represent 100% of each class
currently issued and outstanding.  Also includes options to purchase 20,000
shares held by Dr. Cruz.

/3/  Includes 96,800 shares owned by International Asset Management Group, Inc.
("IAMG"), a company of which Mr. Leopold is an officer and a director.  Mr.
Leopold disclaims beneficial ownership of such shares.  Also includes options to
purchase 4,000 shares held by Mr. Leopold.

/4/  Includes options to purchase 100,000 shares held by Dr. Prieto.

/5/  The majority shareholder and sole director of Medconomics, Inc. is Carlos
Garcia.  Carlos Garcia is the son of Jose M. Garcia.  Mr. Jose M. Garcia
disclaims beneficial ownership of shares held by Medconomics, Inc.

Item 12.      Certain Relationships and Related Transactions

In July, 1996, the Company acquired 100% of the outstanding capital stock of DPA
in a transaction in which the shareholders and certain other persons who had
made investments in or provided services to DPA acquired from IAMG 874,000
shares of the Company's common stock and 1,820,000 Non-Public Warrants formerly
held by IAMG.

Persons receiving securities of the Company in such transaction included Roger
Prieto, D.D.S. (80,000 shares). Dr. Prieto subsequently contributed 40,000
shares back to the Company for cancellation.

Dr. Roger Prieto serves as a Director to the Company's Board of Directors as
well as the Company's Chief Dental Director. Dr. Prieto is also the President of
the dental practices which the Company renders management services to. Dr.
Prieto derives his full annual salary from his position in these dental
practices.

In June, 1997, Luis Cruz, M.D., currently Chairman and Chief Executive Officer
of the Company, entered into a Preferred Stock Purchase Agreement with the
Company pursuant to which the Company issued to Dr. Cruz (i) 250,000 shares of
its Series C Convertible Preferred Stock, par value $.01 per share, and (ii)
100,000 shares of its Series A Convertible Preferred Stock, par value $.01 per
share, in consideration for (a) a three story building of approximately 10,000
square fee, located at 2260 SW 8th Street, Miami, Florida (which building
currently serves as the Company's Corporate Headquarters and the location of a
dental clinic), and (b) $495,000 in cash. The preferences, rights,

                                       25
<PAGE>
 
powers and privileges of the Series C Convertible Preferred Stock and Series A
Convertible Preferred Stock are set forth in Exhibit 4 to this filing.

Effective as of October 23, 1998, Luis Cruz, M.D. loaned the Company $200,175,
and Jose M. Garcia loaned the Company $200,000.  Each of such loans bears
interest at the rate of 10% per annum, is due and payable on October 23, 2000,
and is convertible into shares of the Company's common stock  at the conversion
price of $1.50 per share.  If the notes are converted prior to September 30,
1999, the holder will also receive warrants to purchase a share of common stock,
at the rate of one warrant for each two shares acquired.  The warrants are
exercisable at a price of $5.00 per share, and expire on September 30, 1999.
Subsequent to the above-described loans, Dr. Cruz loaned the Company an
additional $275,000, and Mr. Garcia loaned the Company an additional $30,000.
Such loans bear interest at the prime rate of interest plus 1% per annum and are
not convertible.

Item 13.  Exhibits, Lists and Reports on Form 8-K

Financial Statements

The following financial statements of the Company are included in this report:

Independent Auditor's Report;
Consolidated Balance Sheet as of September 30, 1998 and 1997;
Consolidated Statement of Operations for the two years ended September 30, 1998;
Consolidated Statement of Stockholders' Equity for the two years ended September
30, 1998;
Consolidated Statement of Cash Flows for the two years ended September 30, 1998;
and
Notes to Consolidated Financial Statements.

Exhibits

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

3.1                 Amended and Restated Articles of Incorporation (1)
3.2                 Bylaws (2)
4.1                 Instruments defining the rights of holders of Series A
                    Convertible Preferred Stock and Series Convertible
                    Preferred Stock (3)
10.1                1996 Director Stock Option Plan (2)
10.2                1996 Employee Stock Option Plan (2)
10.3                Management Agreement dated July, 1997, between Dental Doctor
                      Services Inc. and Dental Practice Administrators, Inc. (4)
10.4                Preferred Stock Purchase Agreement dated June 22, 1997
                      between the Company and Luis Cruz, M.D. (5)
21.1                Subsidiaries of the Registrant (2)
27.1                Financial Data Schedule (4)

                                       26
<PAGE>
 
---------------

(1)  Incorporated by reference to an exhibit of the same number to Registration
     Statement on Form SB-2, Registration No. 333-13591, and to the exhibit to
     Form 8-K filed December 22, 1997.

(2)  Incorporated by reference to an exhibit of the same number to
     Registration Statement on Form SB-2, Registration No. 333-13591.

(3)  Incorporated by reference to an exhibit of the same number to Registrant's
     Annual Report on Form 10-KSB for the year ended September 30, 1997.

(4)  Filed herewith.

(5)  Incorporated by reference to the exhibit to Form 8-K filed June 30, 1987.

Form 8-K

The Company did not file any reports on Form 8-K during the last quarter of the
Company's fiscal year ended September 30, 1998.

                                       27
<PAGE>
 
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Annual Report on Form 10-KSB to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on the 14th day of January, 1999.


                                    DENTAL SERVICES OF AMERICA, INC.


                                    By:  /s/ Luis Cruz, M.D.
                                        ---------------------------------------
                                        LUIS CRUZ,M.D.


<TABLE>
<CAPTION>
Signature                             Title                      Date
<S>                       <C>                                <C>

/s/ Luis Cruz, M.D.       Chairman, Chief Executive Officer  January 14, 1999 
------------------------  
Luis Cruz, M.D.


/s/ Jose M. Garcia        Director, Senior Vice President    January 14, 1999 
------------------------ 
Jose M. Garcia


/s/ Roger Prieto, D.D.S.  Chief Dental Officer, Director     January 14, 1999
------------------------
Roger Prieto, D.D.S.


/s/ Robert M. Leopold     Director                           January 14, 1999
------------------------
Robert M. Leopold


/s/ Theodore Swaebe       Director                           January 14, 1999
------------------------
Theodore Swaebe


/s/ Ramiro Casanas        Chief Financial Officer            January 14, 1999
------------------------
Ramiro Casanas

</TABLE>

                                       28
<PAGE>
 
               DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

                    CONSOLIDATED FINANCIAL STATEMENTS AS OF
                          SEPTEMBER 30, 1998 AND 1997

                 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
                                        
<PAGE>
 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
 DENTAL SERVICES OF AMERICA, INC.:

We have audited the accompanying consolidated balance sheets of DENTAL SERVICES
OF AMERICA, INC. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DENTAL SERVICES OF
AMERICA, INC. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplates
continuation of the Company as a going concern.  As shown in the financial
statements, the Company has incurred net losses of $3,479,888 and $2,455,946,
respectively, for the years ended September 30, 1998 and 1997, the Company's
current liabilities exceeded its current assets by $961,352 and $441,319,
respectively, as of September 30, 1998 and 1997, and the Company is currently
experiencing difficulties in meeting cash flow needs.  These factors, among
others, raise substantial doubt about the Company's ability to continue as a
going concern.  Management's plan in regard to these matters is described in
Note 2.  The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


                     McKEAN, PAUL, CHRYCY, FLETCHER & CO.

Miami, Florida,
 December 24, 1998

                                       1
<PAGE>
 
               DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                          SEPTEMBER 30, 1998 AND 1997
                                        
<TABLE>
<CAPTION>
                                                                    September 30,       September 30, 
                                                                        1998                1997
                                                                        ----                ----
<S>                                                                 <C>                 <C> 
                              ASSETS
                              ------
 
Current Assets:
  Cash and cash equivalents                                            $   189,000         $   353,150    
  Accounts receivable, net                                                 236,646              55,207    
  Other current assets                                                     264,283              36,347    
                                                                       -----------         -----------    
    Total Current Assets                                                   689,929             444,704    
                                                                       -----------         -----------    
                                                                                                          
Property and Equipment, net                                              3,432,409           1,546,541    
Intangible Assets, net                                                   3,207,435             574,400    
Other Assets                                                                79,766              94,299    
                                                                       -----------         -----------    
                                                                                                          
    Total Assets                                                       $ 7,409,539         $ 2,659,944    
                                                                       ===========         ===========    
                                                                                                          
                   LIABILITIES AND STOCKHOLDERS' EQUITY                                                   
                   ------------------------------------                                                   
                                                                                                          
Current Liabilities:                                                                                      
  Current portion of long term debt                                    $   294,171         $         -    
  Accounts payable                                                         719,725             148,249    
  Accrued expenses                                                         349,885             100,274    
  Deposits on series 10, preferred stock                                   287,500             637,500    
                                                                       -----------         -----------    
    Total Current Liabilities                                            1,651,281             886,023    
                                                                       -----------         -----------    
                                                                                                          
Long Term Debt                                                           1,333,725                   -    
                                                                       -----------         -----------    
Commitments and Contingencies                                                    -                   -    
                                                                       -----------         -----------    
Redeemable Common Stock, $.005 par value; 5,000 shares issued and                                         
  outstanding                                                               50,000              50,000    
                                                                       -----------         -----------    
                                                                                                          
                                                                                                          
Stockholders'  Equity:                                                                                    
  Series A, convertible preferred stock, $0.01 par value, 100,000                                         
    shares authorized, issued and outstanding                                1,000               1,000    
                                                                                                          
  Series C, convertible preferred stock , $0.01 par value, 250,000                                        
    shares authorized, issued and outstanding                                2,500               2,500    
                                                                                                          
  Common stock, $0.005 par value; 25,000,000 shares authorized,                                           
    6,036,893 and 1,840,743 shares issued and outstanding,                                                
    respectively                                                            30,184               9,204    
                                                                                                          
                                                                                                          
  Additional paid-in capital                                            10,885,017           4,775,497    
  Accumulated deficit                                                   (6,544,168)         (3,064,280)   
                                                                       -----------         -----------    
   Total Stockholders' Equity                                            4,374,533           1,723,921    
                                                                       -----------         -----------    
                                                                                                          
    Total Liabilities and Stockholders' Equity                         $ 7,409,539         $ 2,659,944    
                                                                       ===========         ===========     
</TABLE>

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

                                       2
<PAGE>
 
               DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                              For the Year Ended
                                                                      September 30,        September 30, 
                                                                           1998                 1997
                                                                           ----                 ----
<S>                                                                   <C>                <C>
Dental group practices revenue, net                                      $ 2,275,219         $   673,660    
                                                                         -----------         -----------    
                                                                                                            
Operating Expenses:                                                                                         
 Clinical salaries and benefits                                              913,834             318,030    
 Other salaries and benefits                                               1,789,552             299,577    
 Dental supplies                                                             450,135              97,669    
 Laboratory fees                                                             137,777              16,645    
 Occupancy                                                                   265,069             190,913    
 Advertising                                                                 255,873             103,173    
 Depreciation, amortization and impairment loss on                                                          
   intangible assets                                                         417,478             200,837    
                                                                                                            
 Consulting services                                                         110,389             860,239    
 General and administrative                                                1,295,298             949,148    
                                                                         -----------         -----------    
                                                                                                            
  Total operating expenses                                                 5,635,405           3,036,231    
                                                                         -----------         -----------    
                                                                                                            
    Operating loss                                                        (3,360,186)         (2,362,571)   
                                                                         -----------         -----------    
                                                                                                            
Other Income (Expense):                                                                                     
 Interest expense                                                           (110,466)            (25,635)   
 Other, net                                                                   (9,236)            (67,740)   
                                                                         -----------         -----------    
  Total other income (expense)                                              (119,702)            (93,375)   
                                                                         -----------         -----------    
                                                                                                            
    Loss before income taxes                                              (3,479,888)         (2,455,946)   
                                                                                                            
Income Taxes                                                                       -                   -    
                                                                         -----------         -----------    
                                                                                                            
    Net loss                                                             $(3,479,888)        $(2,455,946)   
                                                                         ===========         ===========    
                                                                                                            
Weighted Average Common Shares Outstanding                                 2,849,182           1,611,160    
                                                                         ===========         ===========    
                                                                                                            
    Net Loss Per Common Share                                            $     (1.22)             $(1.52)   
                                                                         ===========         ===========    
</TABLE>
                                                                                
  The accompanying notes to financial statements are an integral part of these
                                  statements.

                                       3
<PAGE>
 
               DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                     Series A/                                     Additional                                 
                                     Series C              Common Stock              Paid-In        Accumulated               
                                  Preferred Stock       Shares        Amount         Capital          Deficit            Total
                                  ---------------       ------        ------         -------          -------            ----- 
<S>                               <C>                  <C>             <C>          <C>              <C>               <C>     
Balance at October 1, 1996               $     -      1,469,000      $ 7,345      $ 1,818,682       $  (608,334)     $ 1,217,693 
 Exercise of Non-Public                                                                                                          
  warrants at $2.50 per share                  -         98,950          495          246,880                 -          247,375 
 Exercise of Class A warrants                                                                                                    
  at $2.50 per share                           -         59,460          297          148,353                 -          148,650 
 Redemption of Class A                                                                                                           
  warrants at $0.05 per warrant                -              -            -             (512)                -             (512)
 Issuance of 100,000 shares of                                                                                                   
  Series A preferred stock and                                                                                                   
  250,000 shares of Series C                                                                                                     
  preferred stock                          3,500              -            -        1,741,500                 -        1,745,000 
 Exercise of stock options                     -         53,333          267          528,894                 -          529,161 
 Issuance of common stock for                                                                                                    
  consulting services                          -        120,000          600          186,900                 -          187,500 
 Issuance of stock for                                                                                                           
  acquisition of dental practice                                                                                                 
  assets                                       -         40,000          200          104,800                 -          105,000 
 Net loss                                      -              -            -                -        (2,455,946)      (2,455,946)
                                         -------      ---------      -------      -----------       -----------      ----------- 
Balance at September 30, 1997              3,500      1,840,743        9,204        4,775,497        (3,064,280)       1,723,921 
                                                                                                                                 
                                                                                                                                 
 Exercise of Non-Public                                                                                                          
  warrants at $2.50 per share                  -          2,400           12            5,988                 -            6,000 
 Redemption of Private warrants                                                                                                  
  at $0.025 per warrant                        -              -            -           (5,000)                -           (5,000)
 Shares returned by DPA                                                                                                          
  holders                                      -       (236,500)      (1,183)         (80,317)                -          (81,500)
 Proceeds from sale of                                                                                                           
  4,000,000 shares of common                                                                                                     
  stock and 2,000,000 warrants,                                                                                                  
  net of issuance costs of                                                                                                       
  $1,153,500                                   -      4,000,000       20,000        4,826,500                 -        4,846,500 
 Issuance of common stock for                                                                                                    
  consulting services provided                                                                                                   
  in connection with private                                                                                                     
  offering                                     -        400,000        2,000        1,001,500                 -        1,003,500 
 Issuance of stock for                                                                                                           
  acquisition of dental practice                                                                                                 
  assets                                       -         30,250          151           84,849                 -           85,000 
 Compensation expense on                                                                                                         
  200,000 stock options                        -              -            -          276,000                 -          276,000 
 Net loss                                      -              -            -                -        (3,479,888)      (3,479,888)
                                         -------      ---------      -------      -----------       -----------      ----------- 
Balance at September 30,                 $ 3,500      6,036,893      $30,184      $10,885,017       $(6,544,168)     $ 4,374,533 
 1998                                    =======      =========      =======      ===========       ===========      ===========  
</TABLE>
                                                                                
  The accompanying notes to financial statements are an integral part of these
                                  statements.

                                       4
<PAGE>
 
               DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                        
<TABLE>
<CAPTION>
                                                                              For the Year Ended
                                                                         September 30,   September 30, 
                                                                             1998            1996
                                                                             ----            ----
<S>                                                                      <C>             <C> 
Cash Flows From Operating Activities:
 Net loss                                                                 $(3,479,888)        $(2,455,946)
 Adjustments to reconcile net loss to net cash used in operating
  activities:
   Depreciation, amortization and impairment 
    loss on intangible assets                                                 417,479             200,837
   Issuance of stock for consulting services                                        -             583,062
   Provision for doubtful accounts receivable                                 105,000                   -
   Compensation expense on stock options granted                              276,000                   -
   Changes in operating assets and liabilities:
     Accounts receivable                                                     (286,439)             (5,899)
     Current assets and other assets                                         (123,055)             (8,815)
     Accounts payable and accrued expenses                                    730,740             180,833
                                                                          -----------         -----------
       Net cash used in operating activities                               (2,360,163)         (1,505,928)
                                                                          -----------         -----------
 
Cash Flows From Investing Activities:
 Purchase of property and equipment                                        (1,006,789)           (140,356)
 Acquisition of assets of dental practices                                 (2,634,999)           (200,000)
                                                                          -----------         -----------
       Net cash used in investing activities                               (3,641,788)           (340,356)
                                                                          -----------         -----------
 
Cash Flows From Financing Activities:
 Proceeds from sale of stock, net of issuance costs and exercise
  of warrants and options                                                   5,506,000           1,024,624
 
 Deposits on series 10 preferred stock                                              -             637,500
 Redemption of warrants                                                        (5,000)               (512)
 (Payment of) increase in debt                                                336,801             (21,450)
                                                                          -----------         -----------
       Net cash provided by financing activities                            5,837,801           1,640,162
                                                                          -----------         -----------
 
Decrease In Cash and Cash Equivalents                                        (164,150)           (206,122)
 
Cash and Cash Equivalents, beginning of period                                353,150             559,272
                                                                          -----------         -----------
 
Cash and Cash Equivalents, end of period                                  $   189,000         $   353,150
                                                                          ===========         ===========
</TABLE> 
 
                                  (CONTINUED)

                                       5
<PAGE>
 
               DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                             For the Year Ended
                                                                      September 30,      September 30,
                                                                          1998               1997
                                                                          ----               ----
<S>                                                                   <C>                <C> 
                                              (CONTINUED)
Noncash Investing and Financing Activities:
 Value of net assets acquired of dental practices -
  Property and equipment                                              $   855,454        $        -
                                                                       ==========         =========
  Management service agreement                                        $   219,546        $        -
                                                                       ==========         =========
  Issuance of notes payable                                           $ 1,075,000        $        -
                                                                       ==========         =========
 
Series 10 proceeds applied to private offering of common stock        $   350,000        $        -
                                                                       ==========         =========
Write off of intangible assets in connection with returned shares     $    81,500        $        -
                                                                       ==========         =========
Property and equipment acquired through issuance of notes payable     $   216,095        $        -
                                                                       ==========         =========
Stock issued for acquisition of assets of dental practices            $    85,000        $  105,000
                                                                       ==========         =========
Stock issued in exchange for land and building                        $         -        $1,250,000
                                                                       ==========         =========
 
Supplemental Disclosures:
 Cash paid during the year for interest expense                       $    86,466        $    6,510
                                                                       ==========         =========
 Cash paid during the year for income taxes                           $         -        $        -
                                                                       ==========         =========
</TABLE>
                                                                                
  The accompanying notes to financial statements are an integral part of these
                                  statements.

                                       6
<PAGE>
 
               DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

  The Company was incorporated in 1987 under the name Campbell Capital Corp.,
  and was a 90.91% owned subsidiary of International Asset Management Group,
  Inc. ("IAMG").  The Company remained relatively inactive until the acquisition
  of 100% of the common stock of Dental Practice Administrators, Inc. ("DPA") in
  July 1996.  DPA was formed in October 1995 and managed 6 dental practices in
  Florida when acquired.  In connection with the acquisition, the Company name
  was changed to Dental Services of America, Inc.

  The Company provides management services to dental practices ("DP") under
  long-term management service agreements ("MSA").  Corporate practices of
  dentistry laws in Florida (the state in which the Company currently operates)
  prohibit the Company from owning dental practices.  In response to these laws,
  the Company has executed management service agreements with various dental
  practices.  Under the terms of the MSA, the Company, among other things, bills
  and collects patient receivables and provides all administrative support to
  the DP.  The DP are owned by corporations whose sole shareholder is a licensed
  dentist and a member of the Company's Board of Directors.  Licensed dentists
  at each practice supervise the professional dental staff and provide all of
  the clinical services to the patients.  At September 30, 1998 and 1997, the
  Company managed 21 and 7 DP, respectively, all located in Florida.

  In 1997, the Emerging Issues Task Force ("EITF") of the Financial Accounting
  Standards Board evaluated certain matters relating to the physician practice
  management industry (EITF issue number 97-2) and reached a consensus on the
  accounting for transactions between physician practice management companies
  ("PPM") and physician practices and the financial reporting of such entities.
  For financial reporting purposes, EITF 97-2 mandates the consolidation of
  affiliated physician practices with the PPM when certain conditions have been
  met, even though the PPM does not have an equity investment in the physician
  practice. The accompanying financial statements are prepared in conformity
  with the consensus reached in EITF 97-2.  Accordingly, all accounts of the DP
  are included in the accompanying consolidated financial statements.

  At September 30, 1998 and 1997, and for the years ended September 30, 1998 and
  1997, the consolidated financial statements include the accounts of the
  Company, its wholly owned subsidiaries and the affiliated DP.  DP that were
  acquired during the year are included in consolidated statement of operations
  from the respective acquisition date through September 30, 1998.  All
  intercompany accounts and transactions have been eliminated in consolidation.

2.  GOING CONCERN

  The accompanying consolidated financial statements have been prepared in
  conformity with generally accepted accounting principles, which contemplates
  continuation of the Company as a going concern.  However, the Company has
  incurred net losses of $3,479,888 and $2,455,946 for the years ended September
  30, 1998 and 1997, respectively, and current liabilities exceeded current
  assets by $961,352 and $441,319 at September 30, 1998 and 1997, respectively,
  and the Company is experiencing difficulties in meeting cash flow needs.
  These conditions raise substantial doubt as to 

                                       7
<PAGE>
 
  the ability of the Company to continue as a going concern. Management
  anticipates that the Company will generate sufficient cash flows from its
  existing and newly acquired DP (see Note 3 for acquisitions) and from efforts
  to reduce operating expenses. Management has also indicated the Company could
  obtain funds by re-financing certain of its assets and debt and from
  additional loans from officers. Management believes these plans will allow it
  to continue as a going concern and ultimately attain successful operations in
  the future. The eventual outcome of the success of management's plans cannot
  be ascertained with any degree of certainty. The accompanying consolidated
  financial statements do not include any adjustment that might result from the
  outcome of this uncertainty.

3. ACQUISITIONS

  During fiscal 1997, the Company reorganized its DP in an attempt to achieve
  profitability. After analyzing the utilization patterns of its DP and the
  income derived from those facilities, management determined it was in the
  Company's best interest to close 3 practices and sell 1 practice, previously
  acquired in July 1996.  The effect of the closures and sale was an impairment
  write off of intangible assets of $157,701 net of accumulated amortization of
  $4,211 ($153,490 net) in 1997.  During 1998, the Company closed 2 DP resulting
  in an impairment write off of intangible assets of $145,735 net of accumulated
  amortization of $13,542 ($132,193 net).

  In August 1997, the Company acquired the assets of a dental practice for
  $200,000 and the issuance of 40,000 shares of the Company's restricted stock
  which were valued at $2.625 per share ($105,000) on the acquisition date
  ($305,000 in the aggregate).  The cost of the acquisition in excess of the
  fair value of tangible assets acquired ($30,000) has been allocated to a
  management service agreement, as the Company entered into an agreement to
  manage the center.  The original value assigned to the management service
  agreement ($275,000) is included in "Intangible Assets" in the accompanying
  1997 consolidated balance sheet.

  From April through June 1998, the Company acquired the assets of 12 DP and all
  of the outstanding capital stock of a management company affiliated with
  certain acquired DP, for $3,795,000 in the aggregate, consisting of cash
  payments of $2,635,000, the issuance of notes payable totaling $1,075,000 and
  the issuance of 30,250 shares of restricted common stock, valued at $2.81, the
  fair market value of the common stock on the acquisition date ($85,000 in the
  aggregate).  The acquisitions have been accounted for using the purchase
  method of accounting.  The excess of the cost of the acquisitions ($2,939,546)
  over the fair value of tangible assets acquired ($855,454) has been allocated
  primarily to MSA as the Company entered into agreements to manage the centers,
  and are included in "Intangible Assets" in the accompanying consolidated
  balance sheet.  These allocations may be adjusted to the extent that
  management becomes aware of additional information within one reporting year
  of the acquisition date which results in a material change in the estimated
  fair market value of assets acquired.

  The following unaudited pro forma information reflects the effect of the
  acquisition on the consolidated results of operations of the Company had the
  acquisitions occurred on October 1, 1997 and 1996, respectively.  The pro
  forma results have been prepared for comparative purposes only and are not
  necessarily indicative of what the actual results of operations would have
  been had the acquisitions occurred as of that date, nor does it purport to
  represent future operations of the Company.

                                       8
<PAGE>
 
<TABLE>
<CAPTION>
                                                      Year Ended         Year Ended
                                                     September 30,      September 30,
                                                         1998               1997
                                                         ----               ----
                                                      (UNAUDITED)        (UNAUDITED)
<S>                                                <C>                <C>
Revenues, net                                           $ 5,446,571        $ 5,112,890
                                                        ===========        ===========
Net loss                                                $(3,065,230)       $(1,999,112)
                                                        ===========        ===========
Net loss per common share                               $     (1.07)       $     (1.22)
                                                        ===========        ===========
Weighted average shares outstanding                       2,875,785          1,641,410
                                                        ===========        ===========
</TABLE>
                                                                                

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Use of Estimates
  ----------------
  The preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities and disclosures of
  contingent assets and liabilities at the date of the financial statements and
  revenue and expenses during the period reported.  Actual results could differ
  from those estimates.

  Revenue Recognition
  -------------------
  Patient revenues from affiliated DP ("Patient Revenue") represent the
  estimated realizable amount to be received from patients, third-party payors
  and others for services rendered by affiliated dentists, net of contractual
  adjustments.  Revenue is recognized as services are provided.

  Cash and Cash Equivalents
  -------------------------
  The Company considers all highly liquid investments with a maturity of three
  months or less at the date of acquisition to be cash equivalents.  The
  concentration of credit risk associated with cash and equivalents is
  considered low due to the credit quality of the issuers of the financial
  instruments.

  Accounts Receivable
  -------------------
  Accounts receivable consist primarily of receivables from patients, insurers,
  government programs and contracts between the affiliated DP and third-party
  payors for dental services provided by dentists, and are net of contractual
  adjustments and an allowance for doubtful accounts.  The allowance for
  doubtful accounts was $105,000 and $0 at September 30, 1998 and 1997,
  respectively.

  Property and Equipment
  ----------------------
  Property and equipment are stated at cost.  Depreciation and amortization is
  computed over the estimated useful lives of the assets on a straight-line
  method.  Expenditures for maintenance and repairs are charged to expenses as
  incurred and expenditures for additions and betterments are capitalized.  The
  cost of assets sold or otherwise disposed of and the related accumulated
  depreciation are eliminated from the accounts and any resulting gain or loss
  is reflected in the statement of operations.

  Intangible Assets
  -----------------
  The Company's acquisitions involve the purchase of tangible and intangible
  assets and the assumption of certain liabilities of the affiliated DP.  As
  part of the purchase allocation, the Company allocates the purchase price to
  the tangible assets acquired and liabilities assumed, based on estimated fair
  market values.  The Company believes that the affiliated DP with which it has

                                       9
<PAGE>
 
     MSA are long-lived entities with an indeterminable life and that the
     dentists, patient demographics and various contracts will be continuously
     replaced. Accordingly, the excess of cost over net tangible assets
     purchased is allocated to intangible assets (MSA) and amortized on a
     straight-line basis over 15 years, or such shorter period as may be
     indicated by the facts and circumstances.

     During the year, the Company revised the estimated life for amortizing
     intangible assets on the straight-line basis from 25 years to 15 years. The
     change in the estimated useful lives was made to more accurately reflect
     management's estimates of the life of a DP. The effect of this change
     increased the loss for 1998 by approximately $12,131.

     Long Lived Assets
     -----------------

     It is the Company's policy to evaluate the recoverability of asset
     balances, including management service agreements, on a periodic basis. To
     perform this review, the Company estimates the sum of expected future
     undiscounted net cash flows from the assets. If the estimated net cash
     flows are less than the carrying amount of the asset, the Company
     recognizes an impairment loss in an amount necessary to write-down the
     asset to a fair value as determined from the expected future cash flows.

     Income Taxes
     ------------

     The Company has established deferred tax assets and liabilities for
     temporary differences between financial statement and tax bases of assets
     and liabilities using enacted tax rates in effect in the years in which the
     differences are expected to reverse. Deferred tax assets are reduced by a
     valuation account when, in the opinion of management, it is more likely
     than not the tax assets will not be realized.

     Loss Per Share
     --------------

     Basic loss per common share is computed by dividing net loss attributable
     to common stockholders by the weighted average number of shares of common
     stock outstanding during the year. Diluted loss per share, which assumes
     that the convertible preferred stock is converted into common stock and the
     stock options and warrants to purchase shares of common stock (see Notes 8
     and 10) are exercised, is not presented because the effect would be anti-
     dilutive for both 1998 and 1997. The Company's reported loss per share for
     1997 has been revised to comply with the requirements of SFAS No. 128
     "Earnings Per Share"; however, there was no change to the amount previously
     reported.

     Fair Value of Financial Assets, Liabilities, and Redeemable Common Stock
     ------------------------------------------------------------------------

     The Company estimates that the carrying value of all of its monetary
     assets, liabilities, and redeemable common stock approximates fair value
     because of the short-term maturities of these instruments as of September
     30, 1998 and 1997. The Company estimates the fair value of its long term
     debt based upon the existing interest rates for instruments with a similar
     nature and degree of risk.

     Recent Accounting Pronouncements
     --------------------------------

     In June 1997, the Financial Accounting Standards Board ("the FASB") issued
     Statement No. 130, "Reporting Comprehensive Income", which establishes
     standards for reporting and display of comprehensive income and its
     components (revenue, expenses, gains, and losses) in a full set of general-
     purpose financial statements. SFAS No. 130 is effective for fiscal years
     beginning after December 15, 1997. The Company will adopt SFAS No. 130 in
     fiscal 1999.

     The FASB has also issued SFAS No. 131, "Disclosures about Segments of an
     Enterprise and Related Information", which establishes standards for the
     way that public business enterprises report

                                      10
<PAGE>
 
    information about operating segments in annual financial statements and
    requires selected information about operating segments in interim financial
    reports. This Statement is effective for financial statements for periods
    beginning after December 15, 1997 (effective for the Company's fiscal 1999
    year) with restatement of earlier periods required in the initial year of
    application. The Company is currently determining if these disclosure
    requirements will be applicable and, therefore, required in future periods.


5.  PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following:
 
<TABLE>
<CAPTION>
                                                             Estimated         September 30,      September 30,
                                                            Useful Life            1998               1997
                                                            -----------            ----               ----
<S>                                                       <C>                <C>                <C>
      Land                                                            -            $  351,000         $  300,000
      Building                                                 39 years             1,283,559            950,000
      Dental equipment                                      5 - 7 years             1,160,131            151,796
      Vehicles                                                  5 years               187,347             18,144
      Furniture, fixtures and office equipment              5 - 7 years               515,734            113,848
      Leasehold improvements                                   10 years               150,954             40,577
                                                                                   ----------         ----------
       Total cost                                                                   3,648,725          1,574,365
      Less accumulated depreciation and amortization                                 (216,316)           (27,824)
                                                                                   ----------         ----------
       Property and equipment, net                                                 $3,432,409         $1,546,541
                                                                                   ==========         ==========
</TABLE>
                                                                                
      Depreciation and amortization expense was $192,469 and $23,632 for the
      years ended September 30, 1998 and 1997, respectively.


6.    INTANGIBLE ASSETS

      Intangible assets consisted of the following:

<TABLE>
<CAPTION>
                                                          Amortization      September 30,      September 30,
                                                             Period             1998               1997
                                                             ------             ----               ----
   <S>                                                  <C>                 <C>                <C>
      Management service agreements                            15 years        $3,304,398           $592,088
      Less accumulated amortization                                               (96,963)           (17,688)
                                                                               ----------           --------
        Intangible assets, net                                                 $3,207,435           $574,400
                                                                               ==========           ========
</TABLE>
                                                                                
     An analysis of intangible assets is as follows:

<TABLE>
     <S>                                                                         <C>
      Intangible assets at October 1, 1996                                        $  470,250
        Additions                                                                    275,000
        Amortization                                                                 (17,149)
        Impairment loss relating to 3 closed centers and 1 sold center,
         net of accumulated amortization of $ 4,211                                 (153,701)
                                                                                  ----------
      Intangible assets at September 30, 1997                                        574,400
        Additions                                                                  2,939,546
        Amortization                                                                 (92,818)
</TABLE> 

                                      11
<PAGE>
 
<TABLE> 
   <S>                                                                       <C> 
      Write off relating to return of common stock                              (81,500)
     Impairment loss relating to 2 closed centers, net of accumulated
       amortization of $13,542                                                 (132,193)
                                                                             ----------
   Intangible assets at September 30, 1998                                   $3,207,435
                                                                             ==========
</TABLE>
                                                                                
7.    LONG TERM DEBT

     Long term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                               September 30,       September 30,
                                                                                   1998                1997  
                                                                                   ----                ----  
   <S>                                                                         <C>                 <C>       
   Note payable on property acquired; bearing interest at 12% per                                            
    annum; $1,006 principal and interest due monthly; balance payable                                        
    May 1, 1999, secured by building.                                          $   72,871           $       - 
   Note payable on property acquired; bearing interest at 9% per                                             
    annum; $2,385 principal and interest due monthly through June 1,                                         
    2001, secured by building.                                                     69,491                   -
   Note payable issued in connection with acquisition of DP; bearing                                         
    interest at 9% per annum; $20,758 principal and interest due                                             
    monthly through June 1, 2003; secured by first mortgage on                                               
    building.                                                                     959,926                   -
   Note payable to financial institution; bearing simple interest at                                         
    9.5% per annum; $2,367 principal due monthly through January 28,                                         
    2003; secured by mobile unit.                                                 125,433                   -
   Convertible promissory notes with officers; bearing simple                                                
    interest at 10% per annum; principal and accrued interest payable                                        
    on October 23, 2000.  Accrued interest may be paid at the                                                
    Company's option in cash or stock.  Principal convertible at                                             
    holders' option at any time prior to maturity into 133,333 shares                                        
    of common stock.  If converted prior to September 30, 1999, the                                          
    holder will also receive warrants to purchase 66,666 shares of                                           
    common stock (exercise price $5.00 per share).                                400,175                   -
                                                                               ----------                    
                                                                                1,627,896                    
   Less current portion of long term debt                                        (294,171)                  -
                                                                               ----------           ---------
                                                                                                             
   Long term portion                                                           $1,333,725           $       - 
                                                                               ==========           ========= 
</TABLE>
                                                                                
     The following are the scheduled maturities of long term debt at September
     30, 1998:

<TABLE>
     <S>                          <C>
     1999                         $  294,171
     2000                            239,396
     2001                            652,155
     2002                            250,332
     2003                            191,842
                                  ----------
                                  $1,627,896
                                  ==========
</TABLE>

                                      12
<PAGE>
 
8.   STOCKHOLDERS' EQUITY

     Common Stock
     ------------

     In November 1997, the Company declared a one-for-five reverse common stock
     split effective January 1, 1998. All references to the number of shares and
     per share amounts have been restated to reflect the effect of the reverse
     split.

     In July 1996, the Company issued 5,000 shares of common stock for services
     rendered with rights to put the shares of common stock back to the Company
     at $10.00 per share ($50,000 in the aggregate) at any time through December
     31, 1998. The put rights expire if the Company's common stock trades at
     prices in excess of $11.25 per share for at least ten days during the
     period from August 1, 1998 through December 31, 1998. As of September 30,
     1998 and 1997, these shares and the associated put rights have been
     classified as "Redeemable Common Stock" in the accompanying consolidated
     balance sheets.

     In June 1997, the Company issued 120,000 shares of common stock to a
     consultant for services to be rendered, which were valued at the market
     price of the common stock on the date of issuance ($1.5625 per share or
     $187,500 in the aggregate). The amount has been expensed as "Consulting
     services" in the accompanying 1997 consolidated statement of operations, as
     the consultant no longer provides services to the Company. Also, from
     November 1996 to February 1997, the Company issued 53,333 stock options to
     the same consultant, for the purchase of common stock at an exercise price
     of $2.50 per share when the market price of the Company's stock ranged from
     $8.125 to $11.250 per share. All options were exercised in February 1997,
     resulting in proceeds to the Company of $133,332 and a charge to operations
     for consulting services of $395,829. The consultant received $130,000 in
     fees simultaneously with the exercise of the options, which has also been
     included in "Consulting services".

     In May 1997, the Company requested certain stockholders who had received
     stock from IAMG in connection with the DPA acquisition to return a portion
     of their stock to the Company. In December 1997, 236,500 shares were
     returned and accounted for as a $81,500 reduction of "Intangibles Assets"
     and "Stockholders' Equity".

     During 1998, the Company sold 2,000,000 units through a private offering
     (consisting of 4,000,000 shares of common stock and 2,000,000 warrants
     ("the 98 Warrants") to purchase common stock), for $6,000,000. Each warrant
     is convertible into one share of common stock at an exercise price of $5.00
     per share through September 1999. Also, the Company issued 400,000 shares
     of common stock, 1,800,000 warrants and paid $150,000 to consultants who
     provided services in connection with the offering, which has been reflected
     as issuance costs and offset against the proceeds of the offering. The
     400,000 shares of common stock were valued at the fair market value on the
     dates of issuance (ranging from $2.44 to $2.75, or $1,003,500 in the
     aggregate).

     During 1998 pursuant to an employment agreement, 200,000 options to acquire
     common stock were issued at an exercise price of $1.50 per share. The
     market value of the Company's common stock on

                                      13
<PAGE>
 
     the date of grant was $2.88. The Company recognized compensation expense of
     $276,000 representing the difference between the exercise price and the
     fair value on the date of grant.


     Warrants to Purchase Common Stock
     ---------------------------------

     As of September 30, 1995, the Company had 1,000,000 Non-Public warrants
     outstanding, which were held by IAMG and convertible into one share of
     common stock at an exercise price of $2.50. In connection with the
     acquisition of DPA in July 1996, IAMG transferred 364,000 warrants and also
     sold 511,000 warrants to outside investors, of which 353,000 warrants were
     converted into common stock at $2.50 per share resulting in proceeds to the
     Company of $882,500. During fiscal 1997, 98,950 shares of common stock were
     issued upon the conversion of Non-Public warrants at $2.50 per share
     resulting in proceeds to the Company of $247,375. During November 1997,
     2,400 shares of common stock were issued upon the conversion of Non-Public
     warrants at $2.50 per share resulting in proceeds to the Company of $6,000.
     The remaining 545,650 Non-Public warrants expired in December 1997.

     As of September 30, 1995, the Company had 100,000 Class A Warrants
     outstanding, which entitled the holder to purchase, at $2.50 per share, one
     share of common stock and receive one Class B Warrant upon the exercise of
     Class A Warrants. The Class B Warrants entitle the holder to purchase one
     share of common stock at an exercise price of $5.00 per share. During
     fiscal 1997, 59,460 shares of common stock and 59,460 Class B Warrants were
     issued upon the exercise of Class A Warrants resulting in proceeds to the
     Company of $148,650. The Class A and Class B warrants may be redeemed by
     the Company, in whole or in part, at any time and from time to time, at the
     redemption price of $0.05 per warrant upon thirty days written notice.
     During fiscal 1997, the Company redeemed 10,240 Class A Warrants for $512.
     The remaining 30,300 Class A warrants expired in December 1997. The
     remaining 59,460 Class B warrants expired in June 1998.

     In July 1996, the Company issued 200,000 Private Warrants valued at $0.10
     per warrant ($20,000 in the aggregate) to IAMG, in consideration for past
     consulting and administrative services. Each Private Warrant entitled the
     holder to purchase one share of common stock at an exercise price of $12.50
     per share and are callable at $0.025 per warrant. The Private Warrants were
     called in December 1997 for $5,000.

     In connection with the $6,000,000 private offering in 1998, the Company
     issued 2,000,000 warrants, which entitle the holder to purchase one share
     of common stock at an exercise price of $5.00 per share until September 30,
     1999. The warrants are subject to redemption at $0.01 per warrant on thirty
     days written notice. Also in connection with the private offering, the
     Company issued warrants to consultants who provided services as follows:

<TABLE>
<CAPTION>
          Number of        Conversion                              
          Warrants           Price           Expiration Date       
          --------           -----           ---------------       
          <S>              <C>              <C>                    
            600,000          $1.50          September 30, 1999     
            600,000          $3.00          September 30, 2001     
            600,000          $5.00          September 30, 2001     
          ---------                                                
          1,800,000                                                
          =========                                                 
</TABLE> 

                                      14
<PAGE>
 
The outstanding warrants, conversion price and expiration dates at September 30,
1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                          1998                           1997
                           ---------------------------------------------------------------
     Warrant Type                             Conversion                     Conversion          Expiration Date
     ------------                             ----------                     ----------          --------------- 
                              Outstanding        Price       Outstanding        Price
                              -----------        -----       -----------        -----
<S>                          <C>              <C>            <C>             <C>             <C>
Non-Public Warrants                     -               -        548,050         $ 2.50      Expired in December 97          
Class A Warrants                        -               -         30,300           2.50      Expired in December 97          
Class B Warrants                        -               -         59,460           5.00      Expired in June 98              
Private Warrants                        -               -        200,000          12.50      Called in December 97           
98 Warrants                     2,000,000    $       5.00              -              -      September 99                    
98 Consultants                  1,800,000    $1.50- $5.00              -              -      September 99 & 01                
                                ---------                        -------                                                 
                                                                                                                         
 Total warrants                                                                                                          
  outstanding                   3,800,000                        837,810                                                 
                                =========                        =======                                                  
 Weighted average
  conversion price                                  $4.13                        $ 5.06
                                                    =====                        ======
</TABLE>

As of September 30, 1998, the Company reserved 3,800,000 shares of common stock
for the exercise of these warrants.

Series A and Series C, Convertible, Preferred Stock
---------------------------------------------------

In June 1997, the Company issued 100,000 shares of Series A, Convertible,
Preferred Stock for $495,000 to the President of the Company and 250,000 shares
of Series C, Convertible, Preferred Stock in exchange for land and a building to
be used as the Company's administrative offices and as a dental clinic, valued
at $1,250,000 which had also been owned by the President. The Series A and
Series C preferred stock is redeemable, in whole or in part, at the option of
the Company at a redemption price of $5.00 per share. The shares are not
entitled to receive dividends, but are entitled to four votes and one vote,
respectively, on all matters to which stockholders of the Company have a right
to vote. The shares may be converted at any time at the option of the holder
into two shares (subject to upward adjustment upon the Company achieving certain
pre-determined earning requirements) and one share, respectively, of the Company
common stock unless certain events have occurred, as defined, which terminate
the conversion feature. Upon dissolution, liquidation or winding up of the
Company, the holders of Series A and Series C convertible, preferred stock are
entitled to a liquidation preference payment of $5.00 per share before any
distributions to common shareholders.

Deposit on Series 10 Preferred Stock
------------------------------------

In July and August 1997, the Company received $637,500 in connection with an
offering of Series 10, 12% convertible preferred stock. The preferred stock was
never issued and in November 1997, the Board of Directors rescinded the
offering. Accordingly, the Series 10, 12% convertible preferred

                                      15
<PAGE>
 
     stock has been reflected as a current liability in the accompanying
     consolidated balance sheet. During the current year, investors who
     initially deposited $350,000 in connection with the preferred stock
     offering applied their funds, plus accrued interest, to the private
     offering of the Company's common stock. The Company plans on repaying the
     remaining balance of funds received of $287,500.

     Dental Preferred Stock
     ----------------------

     The Company has designated 5,000,000 shares of preferred stock as Dental
     Preferred Stock and has authorized the issuance of such stock to licensed
     dental practitioners and other dental professionals, including licensed
     dentists, dental office managers, dental assistants and dental hygienists.
     None have been issued to date.

9.   INCOME TAXES

     The Company's basis of consolidation for federal income tax purposes
     differs than for financial statements presentation, principally by
     excluding the DP. The Company has net operating loss carryforwards for
     federal income tax purposes of approximately $5,560,000 and $2,439,000 at
     September 30, 1998 and 1997, respectively, which begin to expire in 2011.

     The components of deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                               September 30,   September 30,
                                                   1998            1997
     <S>                                       <C>             <C>             
     Deferred tax (liabilities) assets:                        
      Net operating loss carryforwards         $ 2,168,000       $ 829,000
      Less valuation allowance                  (2,168,000)       (829,000)
                                               -----------       ---------
      Net deferred tax (liabilities) assets    $         -       $       -
                                               ===========       ========= 
</TABLE>

     Realization of the above deferred tax assets is dependent on generating
     sufficient taxable income in the future to offset the deductible temporary
     differences generating the deferred tax assets. Net deferred tax assets
     have been fully reserved, as their net realizability is not assured at the
     current time.


10.  STOCK OPTION PLANS

     The Company has a Director Stock Option Plan which authorizes the granting
     of options to directors of the Company to acquire a maximum of the greater
     of 60,000 shares or 5% of the number of shares of common stock outstanding
     (301,845 and 92,037 at September 30, 1998 and 1997, respectively). Under
     the plan, 5 year options to purchase 2,000 shares of common stock are
     granted each year at an option price equal to the market price on the date
     of grant. In addition, Directors will be granted 1,000 options to purchase
     shares of common stock for each committee they participate in and 2,000
     options to purchase shares of common stock for serving as chairman of a
     committee. Due to significant changes in the composition of the Board of
     Directors during 1998, the Company determined not to grant any options to
     Directors during 1998. During 1998 pursuant to a consultants agreement with
     one Director, 100,000 options to acquire common stock were issued at an
     exercise price of $1.50 per share. These options were granted pursuant to
     the Director Stock Option Plan.

                                      16
<PAGE>
 
     The Company also has an Employee Stock Option Plan which authorizes the
     granting of options to executive officers, employees (including employees
     who are directors), independent contractors and consultants of the Company
     to acquire a maximum of the greater of 100,000 shares of common stock or 8%
     of the shares of common stock outstanding (482,951 and 147,259 at September
     30, 1998 and 1997, respectively). Subsequent to year end, 50,000 options
     were forfeited in connection with the termination of an employee.

     Pursuant to the plans, unless otherwise determined, one-third of the
     options granted are exercisable upon grant, one-third are exercisable on
     the first anniversary of the grant and the final one-third are exercisable
     on the second anniversary of the grant. However, options granted under the
     plans shall become immediately vested if the holder is terminated by the
     Company or is no longer a director of the Company subsequent to certain
     "changes in control" of the Company, as defined. All options expire after
     ten years from the date of grant. Generally, options granted under the
     plans may remain outstanding and may be exercised at any time up to three
     months after the person to whom such options were granted is no longer
     employed or retained by the Company or serving on the Company's Board of
     Directors.

     The following is a summary of stock option activity for the years ended
     September 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                            Director      Weighted        Employee     Weighted      
                                             Option        Average         Option       Average      
                                             Shares     Exercise Price     Shares    Exercise Price   
                                             ------    ---------------     ------    --------------  
     <S>                                   <C>         <C>               <C>         <C>             
     Outstanding at October 1, 1996            17,000           $2.500      18,000           $3.299  
      Granted                                  23,000            7.933     163,093            3.115   
      Cancelled or expired                    (10,000)           6.250     (17,960)           3.802   
      Exercised                                     -                      (53,333)           2.500   
                                              -------                      -------                    
     Outstanding at September 30, 1997         30,000            5.415     109,800            3.331   
      Granted                                 100,000            1.500     430,000            1.500   
      Cancelled or expired                    (22,000)           5.339     (37,340)           4.216   
                                              -------                      -------                    
     Outstanding at September 30, 1998        108,000           $1.806     502,460           $1.698  
                                              =======           ======     =======           ======   
                                                                                                     
     Exercisable at September 30,1998          39,333                      283,307                   
                                              =======                      =======                    
</TABLE>

     The Company applies the provisions of Statement No. 123, ("SFAS No. 123")
     "Accounting for Stock-Based Compensation", which requires the Company to
     either recognize expense for stock based awards based on the fair value on
     the date of grant or provide footnote disclosure regarding the impact of
     such charges. The Company continues to account for stock options pursuant
     to APB No. 25. Accordingly, the Company does not record compensation costs
     unless the market price exceeds the exercise price on the date of grant. If
     the Company had elected to recognize compensation cost based on the fair
     value of the options granted, the pro forma net loss and net loss per
     common share would be as follows:

<TABLE>
<CAPTION>
                                           For the Year Ended     For the Year Ended 
                                           September 30, 1998     September 30, 1997 
                                           ------------------     ------------------ 
     <S>                                   <C>                    <C>                
     Net loss - as reported                       $(3,479,888)           $(2,455,946)
                                                  ===========            =========== 
     Net loss - pro forma                         $(3,955,178)           $(2,718,125)
                                                  ===========            =========== 
                                                                                     
     Net loss per share - as reported             $     (1.22)           $     (1.52)
                                                  ===========            =========== 
     Net loss per share - pro forma               $     (1.39)           $     (1.69)
                                                  ===========            ===========  
</TABLE>

                                      17
<PAGE>
 
     The value of each option grant was estimated on the date of grant using the
     Black-Scholes option pricing model using the following weighted average
     assumptions: expected volatility approximating 250%, risk-free interest
     rate ranging from 6% to 7%, expected dividends of $0 and expected lives of
     10 years.


11.  COMMITMENTS AND CONTINGENCIES

     Leases
     ------
     The Company leases facilities under long-term operating leases that expire
     through 2004. Some of the leases provide for escalating fixed annual
     rentals. The Company is also required to pay other expenses. Future annual
     minimum lease payments required under the leases as of September 30, 1998
     are as follows: 1999 - $272,665; 2000 - $244,018; 2001 - $182,206; 2002 -
     $153,961; 2003 - $79,803; Thereafter - $2,934 (Total $938,587).

     Agreements
     ----------
     In connection with the 1998 acquisitions, an employment agreement was
     entered into with each full time dentist. Although the form of contract
     varies somewhat among practices and among dentists with different
     specialties, the typical contract provides for a defined compensation
     arrangement, including performance-based compensation, liquidated damages
     and a covenant not to compete. The additional consideration to be paid
     under these agreements is not presently determinable. However, such
     additional consideration, if any, is not expected to have a material impact
     on the financial condition or on the results of operations of the Company.

     The Company entered into employment agreements with various officers and
     certain key employees of the Company. The agreements generally provide for
     the employee's annual base salary, annual salary increases and stock
     options. The agreements also generally provide for non-competition
     agreements and severance payments of between one and three year's salary in
     the event the employee is terminated without cause.

     In September 1998, the Company suspended one of its officers with pay
     contending that the officer violated the terms of a three year employment
     agreement which requires an initial salary of $150,000 per year (subject to
     20% annual increases, $546,000 in the aggregate). The Company and the
     officer are currently engaged in a dispute concerning the rights and
     responsibilities under the employment agreement. Total amounts paid through
     September 30, 1998 pursuant to the agreement were $48,000. In connection
     with the employment agreement, this officer received 200,000 stock options
     for which the Company recognized $276,000 in compensation expense during
     the year ended September 30, 1998. If it is ultimately determined that the
     options must be surrendered, the Company would recognize a credit to
     operations for $276,000 at such time.

     Litigation
     ----------
     Subsequent to year end, the Company issued 20,000 shares of common stock to
     a former director/employee in partial settlement of a lawsuit against the
     Company for an alleged breach of employment and other agreements. The
     former director/employee is also seeking damage for unpaid wages and other
     benefits. The suit is in the preliminary stage and management believes it
     is without merit.

                                      18
<PAGE>
 
     The Company is involved from time to time in litigation arising in the
     ordinary course of its business, none of which is expected to have a
     material adverse effect on the Company's consolidated financial position or
     results of operations.


11.  YEAR END ADJUSTMENTS

     During the fourth quarter for the year ended September 30, 1998, the
     Company recorded approximately $1,130,000 of adjustments which had the
     effect of increasing the loss from operations and are considered material
     to the operating results of the fourth quarter of fiscal 1998.

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