<PAGE>   1

                                  United States
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   For the Fiscal Year Ended December 31, 1998
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                           Commission File No. 0-20222

                     PRINCETON DENTAL MANAGEMENT CORPORATION
             (exact name of registrant as specified in its charter)

              DELAWARE                            36-3484607
      (State of Incorporation)       (I.R.S. Employer Identification No.)

                7421 WEST 100TH PLACE, BRIDGEVIEW, ILLINOIS 60455
          (Address of principal executive offices, including zip code)

                                 (708) 974-4000
              (Registrant's telephone number, including area code)

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

                                      NONE

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

                         COMMON STOCK, $0.0001 PAR VALUE

Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 the 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. [ ]

The Registrant's revenues for its most recent fiscal year ended December 31,
1998 were $12,066,127.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 1, 1999 (based upon the average bid and ask prices of
these shares in the over-the-counter market as of March 1, 1999) was
approximately $300,000.

As of March 1, 1999 there were 3,196,448 shares of the Registrant's Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE


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                                     PART I

ITEM 1.  BUSINESS.

OVERVIEW

         Princeton Dental Management Corporation ("Princeton" or the "Company")
is involved in the management of dental practices and laboratories. The market
of general dental practitioners and dental specialists is characterized as
highly fragmented. The Company's goal has been to acquire and consolidate dental
practices and to increase their profitability by centralizing certain
administrative, purchasing, marketing and other functions and implementing
certain revenue enhancement programs.

         Princeton was incorporated in Delaware in October 1986 and commenced
operations in 1987. Princeton's principal executive offices are located at 7421
West 100th Place, Bridgeview, Illinois 60455.

GENERAL DEVELOPMENT OF BUSINESS.

         Princeton was organized in October 1986 for the purposes of acquiring
dental practices and to provide various services to those dental practices,
including marketing, practice development, management, and support services.
From the date of incorporation through April 1992, the Company developed and
provided marketing and practice enhancement services for dental practices and
conducted demographic research.

         As of March 1, 1999, the Company managed and/or operated nine dental
practices and one dental laboratory, obtained through the acquisitions and sales
(the "Transactions") described below.

           In July 1992, the Company (through an affiliated professional
corporation) acquired all of the issued and outstanding shares of common stock
of American Dental Health-Battle Creek, P.C. ("Battle Creek"). Battle Creek
operates 3 dental practices in Battle Creek, Taylor and Ypsilanti, Michigan. The
acquisition price, which was a total of approximately $2,000,000, consisted of
$500,000 in cash, $1,000,000 in a promissory note and $500,000 worth of Company
common stock. With respect to the stock, the Company issued 163,578 shares,
which equated to $500,000 in market value of the stock at the time of
acquisition.

         In March 1993, the Company (through an affiliated professional
corporation) acquired substantially all of the assets of Century Dental Centers
I, P.C. ("Century"), a dental practice located in Springfield, Pennsylvania. The
acquisition price, which was a total of $547,000, consisted of $145,000 in cash,
$269,000 in a promissory note and $133,000 worth of Company common stock. With
respect to the stock, the Company issued 26,394 shares, which equated to
$133,000 in market value of the stock at the time of acquisition.

         Effective as of May 20, 1997, the Company sold the assets comprising
the Century Dental Center to Valley Forge Dental Associates, P.C. The Century
Dental practice, with 1996 revenues of approximately $965,000, represented
approximately 5.3% of the total revenue of the Company. The Century practice was
sold for $590,000. The sales price included $235,000 in cash where a $42,000
commission was paid, $140,000 in contingency payments, a $30,000 note
receivable, and forgiveness of debt and assumption of other liabilities of
approximately $185,000. (See Exhibit 10.59).

         In December 1993 the Company acquired all of the issued and outstanding
common stock of Mason Dental Inc. ("Mason"), a dental laboratory located in
Livonia, Michigan. The acquisition price, which was a total of $3,490,000,
consisted of no cash, $1,629,000 in a promissory note (subsequently adjusted
upwards by $316,406.25 due to a post-closing adjustment based on the value of
the Company's common stock), and $1,861,000 worth of Company common stock. With
respect to the stock, the Company issued 462,500 shares, which equated to
$1,861,000 in market value of the stock at the time of acquisition.

         In July, 1997, the original owners of Mason agreed to convert $150,000
worth of debt owed to them by the


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Company into 53,381 shares of the Company's Common Stock. (See Exhibits 10.56
and 10.58).

         In February 1994, the Company (through an affiliated professional
corporation) acquired all of the issued and outstanding common stock of C.D.
Nunnelly, D.D.S. & Associates, Inc., d/b/a Fairfield Dental Center
("Fairfield"), a dental facility located in Pensacola, Florida. The acquisition
price, which was a total of $1,397,000, consisted of $366,000 in cash, $541,000
in a promissory note and $490,000 worth of Company common stock. With respect to
the stock, the Company issued 166,667 shares, which equated to $490,000 in
market value of the stock at the time of acquisition.

         In January 1997, the Company sold all of the assets of Fairfield back
to Drs. Payne and Barfield, the individuals from whom the Fairfield practice was
originally purchased (See Exhibit 10.52). The sale price, which was a total of
$935,000, consisted of $475,000 in cash and approximately $460,000 in
forgiveness of debt and assumption of other liabilities.

         In April 1994, the Company (through an affiliated professional
corporation) acquired all the issued and outstanding stock of seven dental
practices and one dental laboratory, namely The Dental Team of Boca Raton, Inc.,
The Dental Team of Boynton Beach, Inc., The Dental Team of Coral Springs, Inc.,
The Dental Team of Deerfield Beach, Inc., The Dental Team of Delray Beach, Inc.,
The Dental Team of Pompano Beach, Inc., Palm Beach Dental Services, Inc. and
Pompano Square Dental Lab, Inc. (collectively referred to as "The Dental Team")
located in Palm Beach and Broward counties in Southeast Florida. The acquisition
price, which was a total of $4,611,000, consisted of $600,000 in cash, $831,000
in promissory notes and $3,180,000 worth of Company common stock. With respect
to the stock, the Company issued 1,247,059 shares, which equated to $3,180,000
in market value of the stock at the time of acquisition.

         In February 1997, the Company sold all of the assets comprising the
Dental Team of Delray Beach to Dr. Richard Staller, a former director of the
Company and one of the individual dentists from whom the Dental Team was
originally purchased (See Exhibit 10.51). The sale price, which was a total of
approximately $175,000, consisted of approximately $175,000 in forgiveness of
debt and assumption of other liabilities resulting from the acquisition notes
and Dr. Staller's employment and management agreements with the Company. An
additional $25,000 owing pursuant to his management agreement was also forgiven
in connection with this sale.

         Effective as of June 1, 1997, the Company sold the assets comprising 
the Mason Dental Southeast, Inc. / Renaissance Dental Studio to Mr. Lawrence
Ceraulo, individually and doing business as Certex Dental Studio. The Mason
Dental Southeast, Inc. / Renaissance Dental Studio, with 1996 revenues of
approximately $390,000, represented approximately 2.2% of the total revenue of
the. (See Exhibit 10.54). The Mason Dental Southeast, Inc. / Renaissance Dental
Studio was sold for $92,096 in the form of a short-term note; an additional
short-term note payable to purchase supplies in the amount of $9,847; and
assumption of an existing note payable of $18,372.

NARRATIVE DESCRIPTION OF BUSINESS.

         The Company is involved in the management of dental practices and a
laboratory. Dental practices provide routine dental services and, in certain
cases, specialty services such as oral surgery, orthodontics, periodontics, and
endodontics. These services are offered to the general public on either a
fee-for-service basis or through a form of managed care. Dental laboratories
manufacture dental prosthetics (e.g. dentures, bridges, crowns, etc.) as
requested by dental practices.

         The business of providing dental care services through dental centers
is highly competitive. The Company's practices compete with both existing
neighborhood general practices as well as franchises and dental practices
located in shopping centers, malls, etc.

         The Company's operations are not significantly dependent on the source
or availability of any materials. Rather, the Company's viability and revenue
production is dependent upon the ability to attract and employ dental
practitioners and specialists. The Company's acquisition strategy typically
includes maintaining the employment of



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the dentists and specialists within the acquired practice groups. The Company
feels that there is no shortage of qualified available dental professionals that
would impair its ability to maintain and expand its business.

         The Company is not dependent upon any single customer or a few major
customers. However, a significant percentage of the Company's revenues are
generated from managed care agreements. Under customary managed care agreements,
providers agree to accept a reduced fee for service or payment on a capitation
(fixed fee) basis. In return for this concession, under the terms of such
agreements, the practice is a preferred or exclusive provider of services to a
certain population of potential patients. The Company recognizes that, while
these managed care contracts can significantly enhance the revenue of a given
practice, the loss of any of these contracts could likewise be significant.

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 practice of dentistry is subject to regulation under state laws
which, among other things, govern the ownership and control of dental practices,
advertising, fee splitting, referral fees, and other financial arrangements. For
example, some states may require the dentist's name (or possibly a corporate
name of which the practicing dentist is an officer) to be displayed clearly on
an outside sign or on the door of the practice, while other states may require
the billing for professional services to be made by the dentist who rendered the
services with that dentist's name clearly reflected thereon. No regulatory
authority has formally reviewed or approved Princeton's plan of operations and
no such formal review is presently contemplated or, to Princeton's knowledge,
available. No assurances can be given that, if any such review was available or
occurred, the result would be favorable. In addition, there can be no assurance
that such states will not enact more restrictive legislation that could require
Princeton to modify its operations and possibly adversely affect its
profitability prospects.

         In most states, including Florida and Michigan, 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.

         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 ten years and are subject to automatic renewal. 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



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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.

         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 practices. The cost of such compliance has not been material.

         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. A few
states also regulate the content of advertisements of dental services and the
use of promotional gift items to attract new clients.

         Some states limit the ability of a non-licensed dentist or non-dentists
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 additional, statues in some states could restrict expansion
of the Company's operations in those jurisdictions.

INTELLECTUAL PROPERTY

         The Company believes that, in certain circumstances, the trade name of
the practice or group of practices acquired may have value within the area it
services. As part of each acquisition, the Company always acquires the
practices' trade names and trademarks. The Company typically will not change the
name of the acquired practices post-acquisition.

EMPLOYEES

         As of March 1, 1999, Princeton employed approximately 198 individuals
on a full-time basis, including two executive officers, and 39 on a part-time
basis (defined as less than 32 hours per week). Princeton is not a party to any
collective bargaining agreement and believes its employee relationships are
satisfactory.

ITEM 2. DESCRIPTION OF PROPERTY

         The Company's principal executive offices are located at 7421 West
100th Place, Bridgeview, IL 60455. The Company currently leases approximately
2,646 square feet at the Bridgeview location on a month to month basis at a rate
of approximately $1,555.00 per month (plus real estate taxes and CAM) from an
entity controlled by Frank Leonard Laport, Chairman and CEO of Princeton (See
Exhibit 10.49). The Company also rents its phone system at the Bridgeview
location on a month to month basis at a rate of approximately $570.00 per month
from Mr. Laport (See Exhibit 10.50).

         The lease on the former corporate office located at 2739 U.S. Highway
19, Holiday, Florida 34691, remains Princeton's obligation through June 30,
1999. Princeton has sublet all of the space at this location. The net reduction
in rent in 1998 due to the sublease was $119,028. The minimum lease payments
under this operating



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lease, net of sublease, for the year subsequent to December 31, 1998 is $12,313
in 1999.

         On July 31, 1992, in connection with the Battle Creek Acquisition,
Princeton was assigned the right, pursuant to license agreements to operate
dental facilities in Meijers Thrifty Acres stores located in Battle Creek,
Taylor, and Ypsilanti, Michigan. The license agreements, which terminated on
December 31, 1997 also obligated Princeton to make license payments with respect
to the facilities. Pursuant to these licenses, Princeton was required to pay a
base license fee of $28,652 and an additional license fee based upon actual
collections received by each facility. In July, 1997 the company entered into a
Termination Agreement with respect to the Meijer leases, which terminated the
leases and obliged the Company to pay a total of $ 80,000 to Meijer over a
period of twelve months. The Termination Agreement also ended the base license
payments and additional license payments based on actual collections. In April
through June of 1997, the Company entered into new lease and/or management
agreements for new locations in Ypsilanti, Taylor and Battle Creek. The leases
at each of the Michigan locations are long-term leases, with initial monthly
rents ranging from $1,000 to $3,296. At the Ypsilanti location, the Company also
entered into a management agreement with the lead dentist entitling such dentist
to a percentage of net profits generated by such practice in return for
management services.

         On December 31, 1993, in connection with the Mason Acquisition,
Princeton assumed the triple net lease for $148,200 per year, payable on a
monthly basis to Stark Enterprises, an entity owned by three individuals who
were at one time shareholders of Princeton as a result of the merger and one of
whom, Gary A. Lockwood, is President and COO of Princeton. The lease, which
terminates at December 31, 2001 and is subject to renewal, covers approximately
18,000 square feet.

         On April 1, 1994, in connection with the Dental Team acquisition,
Princeton assumed nine facility leases ranging from $7,200 to $68,125 per year,
payable on a monthly basis with expiration dates ranging from April 30, 1998 to
March 1, 2004. The future minimum lease payments under these operating leases
for the years subsequent to December 31, 1998 are $173,130 in 1999, $104,563 in
2000, and $256,197 thereafter. In addition, the Boynton Beach office lease and a
storage facility lease are payable to B & S Properties, a partnership owned by
two individuals who are now shareholders of Princeton as a result of the merger,
which requires monthly payments totaling $3,600 through March 1, 2004. In
connection with the sale of the assets of the Dental Team of Delray Beach, the
lease for the Delray Beach location has been terminated. In connection with the
sale of the Florida dental lab, the purchaser assumed responsibility for that
lease.

          In the opinion of management, the Company's facilities are adequately
covered by insurance.

ITEM 3. LEGAL PROCEEDINGS

         On October 16, 1996, the Company was sued for $160,000 by Romajo
Partners Limited Partnership, a Partnership controlled by Dr. Seymour Kessler, a
former director of the Company. The Company received an adverse judgement in
that suit in October, 1997 and has paid Romajo Partners Limited Partnership
$162,627 as the judgement amount along with subsequent attorneys fees of
approximately $20,000 and costs.

         On June 12, 1998, the Company sued Dr. Charles Mitchell, a former
officer and director of the Company, and Stratum Management, Inc. an affiliate
of Dr. Mitchell and a former consultant to the Company, for breach of contract
and breach of fiduciary duty. That lawsuit is still pending.

         In October, 1998, the Company obtained judgement in a lawsuit brought,
in April 1998, against Dr. Richard Sokol, a former officer and director of the
company, and Lawrence Ceraulo and Primecast Dental, former contractors for the
Company, for breach of contract and breach of fiduciary duty. The Company is in
the process of seeking to enforce such judgement.

         The Company is the defendant in several pending employee discrimination
and vendor/creditor law suits in which it is the defendant. Such law suits
include law suits brought against the Company by (i) J.F. Jelenko & Co. claiming
$90,338 owed; (ii) Office Max/Office Depot claiming $25,000 owed; (iii) Chuhak &
Tecson claiming 



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approximately $50,000 (the Company has counter-claimed alleging legal
malpractice; (iv) Primecast Dental claiming unspecified damages; (v) a class
action discrimination suit bought against the Company in Michigan seeking
unspecified damages; (vi) a disability discrimination claim brought against the
Company in Michigan seeking unspecified damages and (vii) a sexual
discrimination suit brought against the Company in Florida seeking unspecified
damages. The Company is vigorously defending these lawsuits.

         The Company has been advised by Henry Schein, Inc. and Zahn Dental
Company that such companies are claiming that the Company owes them an aggregate
of approximately $500,000. The Company has advised Henry Schein, Inc and Zahn
Dental Company that it would vigorously contest any such claim and believes that
it has significant counter-claims against Henry Schein, Inc.

         While no litigation have been commenced, the Company has been advised
by the Dickerson Investment Group, an entity controlled by Mr. Donnell
Dickerson, that such company is claiming that the Company owes it approximately
$70,000. The Company has advised that it will vigorously contest any such claim.

         The Company is involved in a number of other legal proceedings related
to malpractice, worker's compensation, general employment, vendor and contract
disputes all in various stages of proceedings. Management believes settlements,
if any, in excess of insurance coverage would be immaterial. There is no other
litigation pending to which Princeton is a party or of which any of its property
is the subject, other than routine litigation incidental to its business.
Further, there are no proceedings known to be contemplated by governmental
authorities relating to either Princeton or its properties.

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

         Effective August 18, 1997, the Company shareholders approved a one to
five reverse stock split of the Company's Common Stock. All figures have been
restated to reflect such reverse stock split.

         Effective  December 18, 1998,  the Company held it's Annual  Meeting at
which Frank L. Laport, Gary A. Lockwood, George B. Collins and Dr. Zigmund
Porter were elected as directors and Kirkland, Russ, Murphy and Tapp were
confirmed as the auditors for the Company.

PART II

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

         Effective August 18, 1997, the Company shareholders approved a one to
five reverse stock split of the Company's Common Stock.

         The Company's common stock and warrants are currently traded in the
OTC:Bulletin Board market. Prior to October 15, 1998, the Companies securities
were quoted on the NASDAQ SmallCap Market under the symbols PDMC and PDMCW,
respectively, since April 15, 1992.

         Effective as of October 15, 1998, the Company was informed by The
Nasdaq Stock Market, Inc. ("Nasdaq") that the Company's securities would be
delisted from the Nasdaq SmallCap Market effective at the close of business on
October 15, 1998 due to the inability of the Company to meet the Nasdaq listing
requirement that the Company maintain at least $2,000,000 in net tangible
assets.




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         The following table sets forth the high and low bid quotations for the
Company's common stock and warrants for the two most recent fiscal years. Such
quotations reflect inter-dealer quotations, without retail mark-up, markdowns or
commissions, and may not represent actual transactions.


<TABLE>
<CAPTION>
                                         COMMON STOCK             WARRANTS

              FISCAL YEAR ENDED
              DECEMBER 31, 1998        HIGH         LOW        HIGH         LOW

              <S>                     <C>         <C>          <C>        <C> 
              First Quarter           $2.25       1.875        .125       .0625
              Second Quarter           2.25       1.50         .125       .0625
              Third Quarter            1.625       .75         .125       .0625
              Fourth Quarter            .50        .1875        .05       .0000

              FISCAL YEAR ENDED
              DECEMBER 31, 1997

              First Quarter           $5.00        1.55         .16         .03
              Second Quarter           5.30        2.50         .19         .03
              Third Quarter            4.06        2.35         .09         .03
              Fourth Quarter           3.50        1.78         .13         .03
</TABLE>

HOLDERS

    As of February 9, 1999, there were 127 and 83 holders of record of the
Company's common stock and warrants, respectively. These numbers include
shareholders and warrant holders of record who may hold stock and warrants for
the benefits of others. The Company does not consider it practical to attempt to
determine the number of individuals who are beneficial owners of its shares and
warrants.

    Also, as described in detail in Item 12, the Investor Group (as defined in
Item 12) presently holds various Convertible Debt, Preferred Stock and Warrants
which, if exercised or converted, would result in the Investor Group owning a
majority of the issued and outstanding shares of Common Stock of the Company

DIVIDENDS

    The Company has never paid cash dividends on its common stock and does not
expect to pay such dividends in the foreseeable future. Management currently
intends to retain all available funds for the development of its business and
for use as working capital.

RECENT SALES OF UNRESTRICTED SECURITIES

    During 1998, the Company sold 106,500 shares of the Company's Common Stock
in private placements at prices ranging from $1.98 to $1.08 per share. The
shares of Common Stock sold in such private placements were unregistered and
restricted.

    During 1998, the Company also issued 1,065,483 shares of unregistered, 
restricted common stock of the Company for an aggregate price of $41,250, from
conversion of certain outstanding default warrants. See "Certain Relationships
and Related Transactions".


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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
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.

OVERVIEW

          In early 1997, the Company sold three of its existing dental practices
and one of its dental labs (Fairfield, Dental Team at Delray Beach, Century and
Mason Dental Lab Southeast) (See Item 1).

          During 1997, the Company significantly improved operating results
which, when combined with the waiver of interest and dividends pursuant to the
Modification Agreement and the Allonge (See Exhibits 10.55, 10.56 and 10.58) the
gain from the sale of three dental offices and one dental lab, an accompanying
reduction of the depreciation and a reduction of the monthly amortization based
on the write down of goodwill at December 31, 1996, resulted in a small net
profit for 1997.

          In 1998, the Company incurred significant operating and net losses, 
due primarily to the expiration of the waiver of interest and dividends which
had been in place in 1997 (See Exhibits 10.55, 10.56 and 10.58), a one-time
charge of $250,000 for anticipated State of Michigan taxes and a one time charge
of $123,900 incurred in connection with the exercise of the default warrants.

RESULTS OF OPERATIONS

          Revenue for the year ended December 31, 1998 was $12,066,127 compared
with $13,795,792 for the year ended December 31, 1998, a decrease of $1,729,665.
The change in revenue is due primarily to reduction in dental practice
production due to the sale of three dental practices and a dental lab during
1997. Operating expenses decreased $1,183,203 to $12,698,766 for the year ended
December 31, 1998 from $13,881,969 for the year ended December 31, 1997. This
decrease is due in large part to the reduction in dental practice revenue.

          Interest expense increased $643,754 to $880,145 for the year ended
December 31, 1998 versus $236,391 incurred in the comparable period last year.
The increase is primarily due to the expiration of the waiver of interest and
dividends pursuant to the Modification Agreement and the Allonge. (See Exhibits
10.55, 10.56 and 10.58)

          The Company showed a net loss of $1,618,476 for the year period ended
December 31, 1998, as compared to net income of $8,419 for the year period ended
December 3, 1997. The net loss for the year ended December 31, 1998 shows
substantial deterioration over the prior year ended December 31, 1997, primarily
as a result of the expiration of the waiver of interest and dividends pursuant
to the Modification Agreement and the Allonge (See Exhibits 10.55, 10.56 and
10.58), a charge of $250,000 for Michigan taxes and the gain from the sale of
three dental offices and one dental lab during 1997. 



                                       9
<PAGE>   10

FINANCIAL CONDITION

         Changes in the Company's financial condition at December 31, 1998 as
compared with December 31, 1997 resulted primarily from the expiration of the
waiver of interest and dividends pursuant to the Modification Agreement and the
Allonge and a general reduction in practice revenues and the sale of three
dental practices and a dental laboratory during the year ended December 31,
1997. During the year ended December 31, 1997, the Company realized significant
proceeds from the sale of Fairfield Dental, Center Century Dental Center, and
Mason Dental Southeast / Renaissance Dental Studio. The sale of the Dental Team
of Delray Beach was exclusively forgiveness of debt. The Company recognized no
cash from the sale of the Delray Beach practice.

         In the period from 1993 to present, the Company did not make certain
Michigan state tax filings. The Company is in the process of preparing these
filings and estimates its liability at approximately $500,000.

         Given the Company's recurring losses from operations, the significant
working capital deficits and the uncertainty in obtaining additional funding to
provide working capital in the short term, a substantial doubt has been raised
as to the Company's ability to continue as a going concern. Absent significant
and immediate additional funding, the Company will have to consider relief under
Chapter 11 of the United States Bankruptcy Code or some similar possibility. The
Company presently has no source for any additional funding.

LIQUIDITY AND CAPITAL RESOURCES 

         As of December 31, 1998, the Company had a working capital deficit of
$4,532,871 and a financial accumulated deficit of $15,341,247. Goodwill and
other intangibles comprise approximately 69% of total assets, leaving tangible
assets of approximately $2,275,451 and negative tangible net worth of
approximately $5,197,019.

         During the year ended December 31, 1998, the Company's cash and cash
equivalents increased $142,080. Cash provided by operations was $450,064,
resulting primarily from the Company's increase in accrued expenses of $932,222
and depreciation and amortization of $833,275.

         Investing activities provided $83,227 of cash, primarily related to a
note payment related to the sale of a dental practice. Cash of $321,362 was used
in financing activities, primarily as a result of the extinguishment of debt.

         The Company has extensive deferred maintenance on all of its
facilities. The Company estimates that it could cost in excess of $1.15 Million
to properly re-equip and refurbish all facilities. At present the Company has no
source of funding to address such matters.

         Many computer systems in use today were designed and developed using
two digits, rather than four to specify the year. As a result, such systems may
recognize the year 2000 as 00. This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. The Company utilizes software and related computer technologies essential
to its operations that may be affected by the Year 2000 issue.

         Management has developed a plan to modify its information technology to
be ready for year 2000 and has begun converting critical data processing
systems. Management expects the project to be substantially complete by
November, 1999 and incur total expenditures of approximately $190,000 related to
the project. See Note 15 for potential financing arrangements of year 2000
capital expenditures.

         The Company has reviewed the Year 2000 problem as it relates to the
Company's internal system and does not believe at this time that it will have a
material impact upon its business, operations or financial condition. However,
the Company's review is continuing and the Company can make no absolute
assurances in this regard.

         As disclosed in Item 12, the Company's primary source of outside
financing is from the Investor Group.



                                       10
<PAGE>   11

Given the Company's working capital deficit and negative tangible net worth, the
Company is heavily reliant on the Investor Group. The Company has not needed to
obtain additional material amounts of funding from the Investor Group during the
past year but remains in an ongoing state of default under the terms of the
Financing Arrangement. If the Investor Group was to call a formal default on the
Preferred Stock/Convertible Debt issued by the Company, the Company would have
no means of curing such default.

ITEM 7.  FINANCIAL STATEMENTS

         The  Company's  audited  financial  statements  for the fiscal  years 
ended December 31, 1997 and 1998 accompany this report as Item 13.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

         None.


PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF THE 
         EXCHANGE ACT

         The following persons are the directors and executive officers of the
Company as of the date of this report:


<TABLE>
<CAPTION>
                                         First Became          Beneficially Owned          Beneficially Owned
Employment                   Age          a Director            Number of Shares            Percent of Shares
----------                   ---          ----------            ----------------            -----------------
<S>                          <C>           <C>                   <C>                             <C>
Frank Leonard Laport          58            8/9/96               1,101,233(1)(3)                 34.45%

George B. Collins             67            8/9/96                   0(2)(3)                       0.0%

Gary A. Lockwood              52            8/9/96                      0                          0.0%

Dr. Zigmund C Porter          61           8/15/97                      0                          0.0%
</TABLE>


       (1) With respect to Mr. Laport, includes shares currently held by Mr.
       Laport's IRA. With respect to both Mr. Laport and Amsterdam Equities
       Limited, does not include shares issuable upon full conversion of Series
       A Stock and Convertible Debt currently held by Amsterdam Equities Limited
       and Mr. Laport. See "Certain Relationships and Related Transactions".

       (2) Mr. Collins serves as a representative of Amsterdam Equities Limited.
       Conversion of the Convertible Debt and Series A Stock presently held by
       Amsterdam Equities Limited, which totals approximately $3 Million as of
       this date, would result in the additional issuance to Amsterdam Equities
       Limited of approximately 1,635,673 shares of Company Common Stock. On a
       fully diluted basis and assuming full conversion, this would result in
       Amsterdam Equities Limited owning shares of Company Common Stock which,
       when added to its existing stock holdings, would be equal to
       approximately 36% of the Company. As of this date, the conversion of this
       debt into equity at the existing conversion formula would result in a
       conversion price per share significantly in excess of current market
       levels for the Company's Common Stock. Amsterdam Equities Limited has not
       indicated to the Company whether it intends to convert its debt to
       equity. See "Certain Relationships and Related Transactions".

       (3) Conversion of the Series A Stock presently held by Mr. Laport, which
       totals approximately $360,000 as of this date, would result in the
       additional issuance to Mr. Laport of approximately 129,028 shares of
       Company Common Stock. On a fully diluted basis, and assuming full
       conversion by Amsterdam Equities Limited, this would result in Mr. Laport
       owning shares of Common Stock which, when added to his existing stock
       holdings, would be equal to approximately 24% of the Company (on a fully
       diluted basis and assuming conversion in full by Amsterdam Equities
       Limited and Mr. Laport). Mr. Laport is contractually prohibited from
       converting his Series A Stock unless Amsterdam Equities Limited also
       decides to convert its Convertible Debt. See "Certain Relationships and
       Related Transactions".

Frank Leonard Laport. Mr. Laport serves as CEO and Chairman and head of the
Florida operations of the Company. Mr. Laport, was born in Chicago, Illinois, 
March 8, 1941, admitted to the Bar: 1966, Illinois; 1969, Florida;



                                       11
<PAGE>   12

1974, Indiana; 1966, U.S. Tax Court; 1967, U.S. District Court, Northern
District of Illinois; 1969, U.S. District, Southern District of Florida; 1974,
U.S. District, Southern District of Indiana; U.S. Supreme Court. Licensed as
Illinois Real Estate Broker on July 1, 1964. Earned the Certified Commercial
Investment Member (C.C.I.M.) Designation of the Realtors National Marketing
Institute, an affiliate of the National Association of Realtors in 1983.
Education: Elmhurst College (B.S., in B.A., 1963); DePaul University, Law School
(J.D. 1966).

George B. Collins. Mr. Collins, born Kansas City, Missouri, April 23, 1931;
admitted to bar, 1953, Arkansas; 1955 Illinois; 1970, U.S. Tax Court; 1972, U.S.
Supreme Court; 1982, U.S. District Court, Northern District of Illinois, Trial
Bar; U.S. Court of Appeals, Second, Seventh and Ninth Circuits. Education:
Arkansas A. & M. College (B.S. 1952); University of Arkansas (L.L.B., 1954).
Omicron Delta Kappa. Associate Editor, Arkansas Law Review, 1951-1952. Author:
"Usury," 8 Arkansas Law Review, September 1954. Teaching Associate, Northwestern
University School of Law, 1954-1955. co-author: "Defending White Collar Crimes,"
Practicing Law Institute 1976; "White Collar Crimes; Defense Strategies",
Practicing Law Institute, 1977; "White Collar Crimes:, Practicing Law Institute,
1978; "White Collar Crimes." Practicing Law Institute, 1980. Member: Chicago
(Member, 1955-1978, Vice Chairman, 1967 and Chairman, 1968, Committee on Legal
Education, Member, Committee on Professional Fees, 1966; Vice Chairman, 1973;
1974-1975; Chairman, 1975, Committees on: Environmental Law, 1973; Circuit Court
Operations, 1976. Member 1976-1986, Vice Chairman, 1979-1980; 2981 and chairman
1980-1981, Lawyers Referral Plan Committee), Illinois State, Arkansas and
American Bar Associations.

Gary A. Lockwood. Mr. Lockwood was named Chief Operating Officer of Princeton
Dental Management Corporation in June, 1996. In this capacity, he is responsible
for all of the Company's operating units in Michigan. Previously he served as
Chief Executive Officer of the Company's dental laboratories in Michigan and
Florida. Mr. Lockwood brings to his post more than 20 years of dental management
experience as owner of Michigan-based Mason Dental, Inc. one of the nation's
largest manufacturers of dental prosthetics. Prior to Mason's acquisition by the
Company, he served as President and Director of Diversified Dental Services, a
wholly owned subsidiary of Mason Dental. Mr. Lockwood has held executive
positions and directorships with realty, financial management and banking
organizations. A Michigan native, he is a graduate of Northern Michigan
University with a degree in business administration.

Dr. Zigmund C. Porter. Dr. Porter, born Chicago, Illinois, April 20, 1938. Dr.
Porter received his B.S. from the University of Illinois in 1960 and his D.D.S.
from the University of Illinois in 1962. Dr. Porter also received a Certificate
of Periodontics and Oral Medicine from Tufts University School of Dental
Medicine, Boston, in 1962-64. Dr. Porter has been a licensed periodontist for
over 25 years and has held numerous teaching and hospital positions. Including
serving as Professor of Periodontics, University of Illinois, and Director of
Post-Graduate Periodontics from 1964-85, and holding positions at Hinsdale
Hospital, MacNeal Hospital, Illinois Masonic Hospital and the University of
Illinois. Dr. Porter has given numerous lectures and published numerous articles
and texts regarding periodontics and has received a number of citations and
awards for his work in the dental field.

Compliance with Section 16 of the Exchange Act

              Section 16 of the Securities and Exchange Act of 1934 requires the
Company's Directors and Executive Officers, and persons who own more than 10% of
the Company's Common Stock, to file with the Securities and Exchange Commission
(the "SEC") and the NASDAQ System, initial reports of ownership and reports of
changes in ownership of Common Stock. In addition these individuals are also
required by SEC regulations to furnish the Company with copies of all Section 16
forms they file. To the Company's knowledge, during the fiscal year ended
December 31, 1998, all Section 16 filing requirements applicable to its
executive officers, directors and greater than 10% beneficial owners were
complied with the exception of certain forms 3 and 4 which were not filed on a
timely basis by Mr. Lockwood, an officer and director of the Company.

                        [ TABLE TO FOLLOW ON NEXT PAGE ]



                                       12
<PAGE>   13

                        ITEM 10. EXECUTIVE COMPENSATION

             The following table sets forth the compensation accrued by the
    Company for the last three fiscal years to the Company's Chief Executive
    Officers and to those executive officers whose compensation exceeded
    $100,000 in any of the last two fiscal years.


    SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                              Other Annual       Restricted      Options      LTIP       All Other
Name and Principal Position        Year      Salary ($)       Compensation         Stock          SARS       Payouts    Compensation
---------------------------        ----      ----------       ------------         -----          ----       -------    ------------
                                                                                   Awards          (#)         (#)
                                                                                   ------          ---         ---
<S>                                 <C>      <C>                  <C>             <C>            <C>          <C>           <C>  
Charles R. Mitchell                 1998           0                 0                0             0            0            0
Former President                    1997           0                 0                0             0            0            0
(President 10/95 to 8/96)           1996        44,000               0            10,000(1)         0            0            0

Gary A. Lockwood                    1998      123,077(2)             0                0             0            0            0
President and                       1997      119,095(2)             0                0             0            0            0
Chief Operating Officer             1996      117,000(2)             0                0         20,000(2)        0            0
(President 8/96 to Present)


Frank Leonard Laport, Esq.          1998         0(3)              0(3)               0             0            0            0
CEO & Chairman of the Board         1997         0(3)              0(3)               0             0            0            0
                                    1996         0(3)              0(3)               0             0            0            0
</TABLE>


       (1) Dr. Mitchell was awarded 50,000 shares of Common Stock in connection
       with the execution of his employment contract dated January 1996. Dr.
       Mitchell received no direct compensation in the form of salary or
       consulting fees directly during 1995. However, Stratum Management Inc., a
       company Dr. Mitchell was affiliated with prior to his appointment as
       President, had been paid $35,833 per month in the form of consulting fees
       during 1995 and $41,000 per month during 1996. In addition, Stratum
       received warrants to purchase 120,000 shares (subsequently reduced to
       77,600 shares) of Company common stock at an exercise price of $1.00. Dr.
       Mitchell's wife and siblings remained shareholders and employees of
       Stratum during Dr. Mitchell's tenure with the Company.

       (2) Compensation received was primarily for the management of Dental
       Labs. G. Lockwood did not receive compensation in an executive officer
       capacity during 1995. Compensation does not include (i) amounts received
       by Stark Enterprises, of which Mr. Lockwood is a partial owner, pursuant
       to the lease for the Company's lab facility in Livonia, MI, or (ii)
       amounts received by The Island Group, of which Mr. Lockwood is a partial
       owner pursuant to that certain Acquisition Promissory Note. See "Certain
       Relationships and Related Transactions".

       (3) Mr. Laport currently serves without direct compensation, although a
       compensation committee has been formed to develop a compensation package
       for Mr. Laport. Compensation does not include amounts received by Mr.
       Laport pursuant to the Leases between the Company and Mr. Laport for the
       Company offices at 7421 W 100th Place, Bridgeview, IL. In addition, Mr.
       Laport is a member of the Investor Group along with Amsterdam Equities
       Limited. See "Certain Relationships and Related Transactions".



                                       13
<PAGE>   14

COMPENSATION OF OUTSIDE DIRECTORS

         Each outside director of the Company receives $1,000 for each meeting
attended, and directors are entitled to be reimbursed for all reasonable
out-of-pocket expenses incurred in connection with their duties as directors.
For the year ended December 31, 1998, outside directors' fees and expenses
amounted to $0, with all directors waiving fees.

OPTION GRANTS IN LAST FISCAL YEAR

         As of March 1, 1998 options to purchase an aggregate of 140,000 shares
of Common Stock at exercise prices ranging from $20.00 to $4.35 had been granted
and were outstanding under the Company's 1993 Incentive and Non-Statutory Stock
Option Plan. The dates such options were granted range from June 3, 1993 to June
6, 1996.

         As of March 21, 1996, as amended on July 17, 1996, the Company issued
to each of John H. Hagan and Dr. Seymour Kessler options to purchase 16,200
shares each (reduced from options to purchase 25,000 shares each originally
granted). The options were exercisable at a price of $5.95 per share, and
expired in March 1999.

         In June 1996, the Company issued to Gary A. Lockwood options to
purchase 20,000 shares. The options vest over a 3.5 year period. The options
were exercisable at a price of $4.35 per share, and expire in January 2003.

         Effective as of January 1996, as amended on July 17, 1996, the Company
issued Warrants to Purchase up to 77,600 shares of Company common stock (reduced
from 120,000 shares originally) to Stratum Management, Inc., a consulting group
affiliated with Dr. Charles R. Mitchell (See Item 12). The Warrants were
exercisable at an exercise price of $5.00. The Warrants expired in 1998.

         Effective as of April 1996, the Company issued Warrants to purchase to
the Investor Group for an aggregate of 4,125,000 shares of Company common stock
(subject to anti-dilution provision). The Warrants had an exercise price of
$0.10 per share and, due to the failure by the Company to achieve certain stated
financial goals, were exercisable after January 1, 1997 and are presently
exercisable (See Item 12). Effective as of July, 1997 the exercise price of the
warrants were reduced to $0.01 per share (subject to anti-dilution adjustment)
in connection with a year-long interest waiver by the Investor Group, which
saved the Company in excess of $700,000 in interest expense. Effective as of
November 4, 1998, the Company was advised that (i) Amsterdam Equities Limited
had transferred any and all interest which they had in the default warrants to
Frank Leonard Laport, and (ii) that Mr. Laport had proceeded to exercise such
default warrants. Exercise of all of the default warrants for the stated
exercise price resulted in Mr. Laport receiving approximately 1,065,483
additional shares of Company Common Stock.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION 
VALUES

None

EMPLOYMENT AGREEMENTS

         Frank Leonard Laport, Chairman and CEO of the Company, currently serves
without compensation or an employment agreement.

         Effective as of June 1, 1996, the Company entered into an Amendment to
Employment Agreement with Gary A. Lockwood, President and COO of the Company,
which provided for (i) an increase in annual salary, effective as of June 1,
1996, from $97,000 to $105,469.71 (with subsequent annual increases based on the
Consumer Price Index) for Mr. Lockwood's operation of the Company's Mason Dental
subsidiaries, and (ii) a salary of $12,000 per annum and options to purchase up
to 10,000 shares of Company stock for Mr. Lockwood's services as President and
COO of the Company (See Exhibit 10.48).



                                       14
<PAGE>   15

         Effective as of January 1, 1996, the Company entered into an Employment
Agreement with Dr. Charles R. Mitchell (See Item 12). The Employment Agreement,
which provided for a per annum salary of $96,000 and the outright grant of
10,000 shares of Company common stock, was terminated in all respects effective
August 1, 1996 (See Exhibits 10.37 and 10.46).

ITEM 11.  SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership by Certain Beneficial Owners

         The following table sets forth the security ownership by certain
beneficial owners for persons owning 5% or more of the Company's Common Stock as
of March 1, 1999.


<TABLE>
<CAPTION>
         NAME AND ADDRESS OF               AMOUNT AND NATURE            PERCENT
           BENEFICIAL OWNER            OF BENEFICIAL OWNERSHIP         OF CLASS
           ----------------            -----------------------         --------
<S>                                        <C>                           <C>
Amsterdam Equities Limited                   189,002(1)(2)               5.91%
Norfolk House
Frederick Street, Second Floor
Nassau, N.P., Bahamas



Frank Leonard Laport                       1,101,233(1)(3)              34.45%
7421 W. 100th Place
Bridgeview, IL  60455
Chairman, CEO

--------------------------------------------------------------------------------
Total                                      1,290,235                    40.36%
</TABLE>


       (1) With respect to Mr. Laport, includes shares currently held by Mr.
       Laport's IRA. With respect to both Mr. Laport and Amsterdam Equities
       Limited, does not include shares issuable upon full conversion of Series
       A Stock and Convertible Debt currently held by Amsterdam Equities Limited
       and Mr. Laport. See "Certain Relationships and Related Transactions".

       (2) Conversion of the Convertible Debt and Series A Stock presently held
       by Amsterdam Equities Limited, which totals approximately $3 Million as
       of this date, would result in the additional issuance to Amsterdam
       Equities Limited of approximately 1,635,673 shares of Company Common
       Stock. On a fully diluted basis and assuming full conversion, this would
       result in Amsterdam Equities Limited owning shares of Company Common
       Stock which, when added to its existing stock holdings, would be equal to
       approximately 36% of the Company. As of this date, the conversion of this
       debt into equity at the existing conversion formula would result in a
       conversion price per share significantly in excess of current market
       levels for the Company's Common Stock. Amsterdam Equities Limited has not
       indicated to the Company whether it intends to convert its debt to
       equity. See "Certain Relationships and Related Transactions".

       (3) Conversion of the Series A Stock presently held by Mr. Laport, which
       totals approximately $360,000 as of this date, would result in the
       additional issuance to Mr. Laport of approximately 129,028 shares of
       Company Common Stock. On a fully diluted basis, and assuming full
       conversion by Amsterdam Equities Limited, this would result in Mr. Laport
       owning shares of Common Stock which, when added to his existing stock
       holdings, would be equal to approximately 24% of the Company (on a fully
       diluted basis and assuming conversion in full by Amsterdam Equities
       Limited and Mr. Laport). Mr. Laport is contractually prohibited from
       converting his Series A Stock unless Amsterdam Equities Limited also
       decides to convert its Convertible Debt. See "Certain Relationships and
       Related Transactions".



                                       15
<PAGE>   16

SECURITY OWNERSHIP BY MANAGEMENT

         The following table sets forth as of March 1, 1999 the number of shares
of Common Stock of the Company beneficially owned by each named Executive
Officer and Director and by each director and officer as a group.
Except as otherwise indicated all shares are owned directly.


         NAME AND ADDRESS OF          AMOUNT AND NATURE               PERCENT
           BENEFICIAL OWNER        OF BENEFICIAL OWNERSHIP            OF CLASS
           ----------------        -----------------------            --------

Frank Leonard Laport                   1,101,233(1)(2)                 34.45%
7421 W. 100th Place
Bridgeview, IL  60455
Director, Chairman, CEO


Gary A. Lockwood                               0                         0.0%
12752 Stark Road
Livonia, MI 48150
Director, President, COO



George B. Collins                              0(2)                        0%
One North LaSalle
Chicago, IL  60602
Director


Dr. Zigmund C. Porter                          0                           0%
3200 N. Lake Shore Drive
Chicago, IL  60657
Director


--------------------------------------------------------------------------------
All officers as a group                1,101,233(1)(2)                 34.45%


       (1) With respect to Mr. Laport, includes shares currently held by Mr.
       Laport's IRA. Does not include shares issuable upon full conversion of
       Series A Stock and Convertible Debt currently held by Amsterdam Equities
       Limited and Mr. Laport. See "Certain Relationships and Related
       Transactions".

       (2) Mr. Collins currently serves as a representative of Amsterdam
       Equities Limited. Conversion of the Convertible Debt and Series A Stock
       presently held by Amsterdam Equities Limited, which totals approximately
       $3 Million as of this date, would result in the additional issuance to
       Amsterdam Equities Limited of approximately 1,635,673 shares of Company
       Common Stock. On a fully diluted basis and assuming full conversion, this
       would result in Amsterdam Equities Limited owning shares of Company
       Common Stock which, when added to its existing stock holdings, would be
       equal to approximately 36% of the Company. As of this date, the
       conversion of this debt into equity at the existing conversion formula
       would result in a conversion price per share significantly in excess of
       current market levels for the Company's Common Stock. Amsterdam Equities
       Limited has not indicated to the Company whether it intends to convert
       its debt to equity. See "Certain Relationships and Related Transactions".

           Conversion of the Series A Stock presently held by Mr. Laport, which
       totals approximately $360,000 as of this date, would result in the
       additional issuance to Mr. Laport of approximately 129,028 shares of
       Company Common Stock. On a fully diluted basis, and assuming full
       conversion by Amsterdam Equities Limited, this would result in Mr. Laport
       owning shares of Common Stock which, when added to his existing stock
       holdings, would be equal to approximately 24% of the Company (on a fully
       diluted basis and assuming conversion in full by Amsterdam Equities
       Limited and Mr. Laport). Mr. Laport is contractually prohibited from
       converting his Series A Stock unless Amsterdam Equities Limited also
       decides to convert its Convertible Debt. See "Certain Relationships and
       Related Transactions".



                                       16
<PAGE>   17

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FINANCING ARRANGEMENT 

1. On April 22, 1996, the Company entered into a financing arrangement pursuant
to which the Company issued Convertible Debt (the Convertible Debt) to Amsterdam
Equities Limited in the amount of $2,483,620 and 3,599.77 shares of Series A
11.75% Cumulative Convertible Preferred Stock (the Preferred Stock) to Amsterdam
Equities Limited (195 shares), Frank Leonard Laport (1,904.77 shares), and
Beverly Trust Company, as custodian for the Frank Leonard Laport Rollover
Individual Retirement Account No. 75-49990 (1,500 shares) (collectively, the
Investor Group). The Convertible Debt and Preferred Stock replaced indebtedness
of the Company at April 22, 1996, in the amount of $1,976,700 incurred under
that certain letter agreement dated December 7, 1994 (the Letter Agreement) and
that certain Secured Revolving Demand Note dated January 27, 1995 (the Secured
Note). Under the terms of the Convertible Debt and Preferred Stock Agreements
(also referred to herein collectively as the Financing Arrangement) the Investor
Group could choose to lend additional funds, in increments to be determined
solely by the Investor Group. The Convertible Debt and Preferred Stock were
initially to bear interest and have a coupon rate, respectively of 11.75%, plus
the payment of any withholding taxes which might be due and owing with respect
to any person which is a foreign entity. Payments on the Convertible
Debt/Preferred Stock were interest only due in quarterly installments which were
to begin in September 1996. The Convertible Debt/Preferred Stock originally had
a maturity of seven years from the date of closing, subject to acceleration in
the event of a default. Subsequent to September 30, 1996 the Company was unable
to pay the interest only requirements of the Convertible Debt and Preferred
Stock Agreements, therefore, effective October 1, 1996 interest began to accrue
at the default rate of 21.75%.

         Pursuant to that certain Modification Agreement ("Modification
Agreement") entered into between the Investor Group and the Company and dated as
of July 1, 1997, the Investor Group agreed, conditioned upon continued listing
by the Company on the Nasdaq SmallCap Market and similar concessions by another
significant Company creditor, to waive all accumulated and ongoing interest
and/or dividends on the Convertible Debt/Preferred Stock for the period from
January 1, 1997 through December 31, 1997. That waiver ended on January 1, 1998,
and interest and dividends have again been accruing.

         The waiver of interest and dividends during 1997 on the part of the
Investor Group resulted in a total savings to the Company in excess of $700,000.

         In addition to the amounts owed under the Letter Agreement and the
Secured Note, the terms of the Convertible Debt and Preferred Stock Agreements
called for the conversion of 58,333 shares of the Company's Regulation D Common
Stock held by the Investor Group into $350,000 of Convertible Debt and Preferred
Stock.

         An additional provision of the Convertible Debt and Preferred Stock
Agreements included the payment of $300,000 as a closing fee and required the
Company to reimburse the legal fees and costs and expenses of the Investor Group
in connection with the negotiation and the closing of the transaction which
totaled $216,897. The closing fees and reimbursement of the costs and expenses
were payable in the form of Convertible Debt and Preferred Stock. In total, the
Company incurred costs of $544,716 in connection with the refinancing which has
been capitalized and will be amortized over a period of seven years or until the
Convertible Debt/Preferred Stock is called.

         The terms of the Convertible Debt and Preferred Stock Agreements
provided the Investor Group with certain rights pertaining to the registration
of any common stock to which the Investor Group may convert from Convertible
Debt or Preferred Stock, certain anti-dilution rights, and a right of first
refusal on any future offering of Company securities.

         Under the terms of the transaction, the Company also issued a warrant
to purchase 100 shares of Series B Preferred Stock. The Series B Preferred Stock
entitled Amsterdam Equities Limited to elect a Class B director who would have
super-majority voting powers on the Company's Board of Directors. Effective as
of August, 1996, Mr.



                                       17
<PAGE>   18

Laport was elected as the Class B Director. The Class B Director has taken no
action to date.

         The Convertible Debt and Preferred Stock may be converted into the
common stock of the Company, at the sole option of the Investor Group, at
various conversion rates as set forth in the conversion formula contained in the
Convertible Debt and Preferred Stock Agreements. If the Investor Group were to
convert all outstanding Convertible Debt and Preferred Stock at the present
time, and exercise the default warrants (see below), the conversion would result
(when combined with existing holdings) in the Investor Group owing approximately
65% of the issued and outstanding shares of Company's common stock (after
conversion and assuming full conversion and anti-dilution).

         In addition, pursuant to the terms of the Financing Arrangement, the
Company issued to the holders of the Convertible Debt and the Preferred Stock a
series of default warrants to purchase an aggregate number of shares of common
stock equivalent to fifty percent (50.0%) of the issued and outstanding Common
Stock of the Company at an exercise price of $0.10 per share (subsequently
reduced to $0.01 per share under the terms of the Modification Agreement). This
modification effectively reduced the aggregate exercise price of approximately
$412,500 for the default warrants to an aggregate exercise price of
approximately $41,250 (not accounting for any adjustments due to the
anti-dilution provision of the Warrants and due to changes in the total issued
and outstanding shares of the Company's common stock). Initially, the Investor
Group could exercise the warrants only upon the occurrence of an event of
default under the terms of the Financing Arrangement or upon the failure by the
Company to achieve certain minimum financial goals of net income of at least one
dollar in the fiscal year ending December 31, 1996, and various net income tests
in subsequent years. The Company has been in ongoing default under the Financing
Arrangement and the stated financial goals have not been met, and, accordingly,
these default warrants have been capable of being exercised by the Investor
Group upon payment of a minimal exercise price since January 1, 1997. At present
the cumulative effect of the issuance of shares pursuant to the default warrants
to the Investor Group and the conversion of outstanding Convertible
Debt/Preferred Stock would result in ownership by the Investor Group of
approximately 65% of the Company's total issued and outstanding common stock
after such conversion and exercise.

         Effective as of November 4, 1998, the Company was advised that (i)
Amsterdam Equities Limited had transferred any and all interest which they had
in the default warrants to Frank Leonard Laport, and (ii) that Mr. Laport had
proceeded to exercise such default warrants. Exercise of all of the default
warrants for the stated exercise price resulted in Mr. Laport receiving
approximately 1,065,483 additional shares of Company Common Stock.

2. George B. Collins, a director of the Company, holds a Power of Attorney from
Amsterdam Equities Limited and generally serves as the representative of
Amsterdam Equities Limited on the Board of the Company.

3. Mr. Laport, an officer and director of the Company, owns the property and the
phone system located at 7421 West 100th Place, Bridgeview, IL and leases a
portion of such space and phone system to the Company. The Leases between the
Company and Mr. Laport are on a month-to-month basis and provide for aggregate
monthly payments from the Company to Mr. Laport of approximately $ 2,000. In
addition, the Company is responsible for a pro-rata portion of the expenses
associated with the property, including real estate taxes, utilities, etc. This
lease was entered into subsequent to Mr. Laport becoming an officer and
director.

4. Mr. Lockwood, an officer and director of the Company, is a part owner of
Stark Enterprises, which owns the property located at 12752 Stark Road in
Livonia, MI. The Company leases such property from Stark Enterprises. Pursuant
to such lease, which expires in 2002, the Company pays monthly payments of
approximately $ 13,000 to Stark Enterprises. In addition, Mr. Lockwood also has
a partial ownership interest in The Island Group. In connection with the
Company's initial acquisition of its Mason Dental lab facility, the Company
issued a promissory note to The Island Group, which such Note requires monthly
payments of $21,000 and runs through 2005.



                                       18
<PAGE>   19

Note 4 - CONVERSION OF DEBT

         Pursuant to the Allonge and Fifth Amendment to Acquisition Promissory
Note dated as of July 1, 1997, the Company, Mason Dental Midwest, Inc. and the
Constituent Shareholders of the Delaware corporation formally known as Mason
Dental, Inc., agreed to convert $150,000.00 worth of the outstanding debt held
by the Constituent Shareholders into 53,381 shares of the company's common stock
which was previously held as treasury stock.



PART IV

                ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
                                        
                          (a)(1) Financial Statements:


Report of Independent Certified Public Accountants

Consolidated Balance Sheets as of December 31, 1998 and 1997

Consolidated Statements of Operations for the years ended December 31, 1998 and 
1997

Consolidated Statements of Shareholders' Equity for the years ended December 31,
1998 and 1997

Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 
1997

Notes to Consolidated Financial Statements
















                                       19
<PAGE>   20

(a)(2) Exhibits:

The following documents are filed as exhibits to this Report:

2.1 Agreement and Plan of Reorganization between the Registrant and Dental Laser
Center of the Palm Beaches, Inc., The Dental Team of Boca Raton, Inc., The
Dental Team of Boynton Beach, Inc., The Dental Team of Coral Springs, Inc., The
Dental Team of Deerfield Beach, Inc., The Dental Team of Delray Beach, Inc., The
Dental Team of Pompano Beach, Inc., Palm Beach Dental Service, Inc., PBD Supply,
Inc., and Pompano Square Dental Lab, Inc. (incorporated by reference to Exhibit
2. 1 to the Registrant's Form 1O-KSB for the fiscal year ended December 31, 1993
(Registration Number 33-43298-A) filed with the Commission on April 14, 1994).

2.2 Share Acquisition and Merger Agreement between Registrant and C.D.
Nunnelley, D.D.S. & Associates (incorporated by reference to the Exhibit to the
Company's Form 8-K filed with the Commission on March 15, 1994).

2.3 Agreement and Plan of Reorganization between the Registrant and Mason
Dental, Inc. (incorporated by reference to the Exhibit to the Registrant's
Registration Statement on Form S-4 (Registration No. 33-69406) filed with the
Commission on September 27, 1993).

3.1 Restated Certificate of Incorporation of the Registrant, as restated through
August 19, 1991 (incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-18 (Registration No. 33-43298-A) filed with the
Commission on October 10, 1991).

3.2 Amendments to the Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Amendment No. 3 to the Registrant's
Registration Statement on Form S-18 (Registration No. 33-43298-A) filed with the
Commission on April 10, 1992).

3.3 Bylaws of the Registrant, as amended and restated December 1, 1992
(incorporated by reference to Exhibit 3.2 or the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission of
February 1, 1993).

4.2 Warrant Agreement between the Registrant and the Warrant Agent (incorporated
by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form
SB-2 (Registration No. 33-57698) filed with the Commission on February 1, 1993).

4.3 Letter Amendment to Warrant Agreement between the Registrant and the Warrant
Agent (incorporated by reference to Exhibit 4.5 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).

9.1 Voting Trust Agreement between the Registrant and Jerry I. Bratman, D.D.S.,
Judith K. Bratman, Theodore M. Strauss, D.D.S., Madelyn Strauss, and Richard J.
Staller, D.D.S. (incorporated by reference to Exhibit 9. 1 to the Registrant's
Form 10-KSB for the fiscal year ended December 31, 1993 (Registration Number
33-43298-A) filed with the Commission on April 14, 1994.)

10.1 Registrant's Stock Option Plan, as amended (incorporated by reference to
the exhibit of the same number to the Registration Statement on Form SB-2
(Registration No. 33-57698) filed with the Commission on February 1, 1993).

10.2 Letter Agreement dated December 7, 1994 between an investment group and the
Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-QSB/A (Amendment No. 1) (Registration No. 33-43298-A)



                                       20
<PAGE>   21

filed with the Commission on December 20, 1994).

10.2/A Amendment to Letter Agreement dated April 10, 1995 between an investment
group and the Registrant (incorporated by reference to the Exhibit to the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1994
(Registration Number 33-43298-A) filed with the Commission on April 14, 1995)

10.3 $300,000 Line of Credit Agreement with First American Bank-Northeast
Illinois, as amended (incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-18 (Registration No.
33-43298-A) filed with the Commission on October 10, 1991).

10.3/A Modification Agreement and Installment Note dated February 3, 1995
between First of America Bank-Illinois, N.A. and the Registrant (incorporated by
reference to the Exhibit to the Registrant's Form 10-KSB for the fiscal year
ended December 31, 1994 (Registration Number 3343298-A) filed with the
Commission on April 14, 1995.)

10.4 Secured Revolving Demand Note dated January 27, 1995 between an investment
group and the Registrant (incorporated by reference to the Exhibit to the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1994
(Registration Number 33-43298-A) filed with the Commission on April 14, 1995.)

10.4/A Allonge and Amendment to Secured Revolving Demand Note dated March 9,
1995 between an investment group and the Registrant (incorporated by reference
to the Exhibit to the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1994 (Registration Number 33-43298-A) filed with the Commission on
April 14, 1995.)

10.5 Share Purchase Agreement between Princeton Management and Glenn C. Lehr,
D.D.S. (incorporated by reference to the Exhibit to Registrant's Form 8-K filed
with the Commission on October 13, 1992).

10.6 Balloon Promissory Note Payable to Glenn C. Lehr, D.D.S. (incorporated by
reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).

10.7 Installment Promissory Note Payable to Glenn C. Lehr, D.D.S (incorporated
by reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).

10.8 Stock Pledge and Escrow Agreement between Princeton Management and Glenn C.
Lehr incorporated by reference to the Exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).

10.9 Sublicense Agreement and Consent between Princeton Management and Amdent,
P.C. (Battle Creek, MI) (incorporated by reference to the Exhibit of the same
number to the Registrant's Registration Statement on Form SB-2 (Registration No.
33-57698) filed with the Commission on February 1, 1993).

10.10 Sublicense Agreement and Consent between Princeton Management and Amdent,
P.C. (Taylor, MI) (incorporated by reference to the Exhibit of the same number
to the Registrant's Registration Statement on Form SB-2 (Registration No.
33-57698) filed with the Commission on February 1, 1993).

10.11 Sublicense Agreement an Consent between Princeton Management and Amdent,
P.C. (Ypsilanti, MI) (incorporated by reference to the Exhibit of the same
number to the Registrant's Registration Statement on Form SB-2 (Registration No.
33-57698) filed with the Commission on February 1, 1993).

10.12 Management Agreement between Princeton Dental Management Corporation and
Amdent P.C.


                                       21
<PAGE>   22

(incorporated by reference to the Exhibit of the same number to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-57698) filed with the
Commission on February 1, 1993).

10.13 Dental Equipment Lease between Princeton Management and Amdent, P.C.
(Ypsilanti, MI) (incorporated by reference to the Exhibit of the same number to
the Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).

10.14 Dental Equipment Lease between Princeton Management and Amdent, P.C.
(Taylor, MI) (incorporated by reference to the Exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).

10.15 Dental Equipment Lease between Princeton Management and Amdent, P.C.
(Battle Creek, MI) incorporated by reference to the Exhibit of the same number
to the Registrant's Registration Statement on Form SB-2 (Registration No.
33-57698) filed with the Commission on February 1, 1993).

10.16 Facilities Management Agreement between Princeton Management and Glenn C.
Lehr, D.D.S. incorporated by reference to the Exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).

10.17 Management Agreement and Stock Pledge and Escrow Agreement between
Princeton Management, Glenn C. Lehr, D.D.S., and Lebow and Tobin (incorporated
by reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).

10.18 Assignment and Consent Agreement (Ypsilanti, MI) (incorporated by
reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).

10.19 Assignment and Consent Agreement (Taylor, MI) (incorporated by reference
to the Exhibit of the same number to the Registrants Registration Statement on
Form SB-2 (Registration No. 33-57698) filed with the Commission on February 1,
1993).

10.20 Assignment and Consent Agreement (Battle Creek, MI) (incorporated by
reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).

10.21 Asset Purchase Agreement between Princeton Management Northeast and
Century Dental Center 1, P.C. (incorporated by reference to the Exhibit to the
Company's Form 8-K, as filed with the Commission on April 15, 1993).

10.22 The Company's 1993 Incentive and Non-Statutory Stock Option Plan
(incorporated by reference to the Exhibit of the same number to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-57698) filed with the
Commission on June 18, 1993).

10.23 Installment Promissory Note payable to Mason Dental, Inc. shareholders
(incorporated by reference to Exhibit 10.30 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 1993 (Registration Number 33-43298-A) filed
with the Commission on April 14, 1994).

10.24 Allonge and Amendment to Acquisition Promissory Note dated April 10, 1995
between Mason Dental, Inc. and the Registrant (incorporated by reference to the
Exhibit to the Registrant's Form 10-KSB for the fiscal year



                                       22
<PAGE>   23


ended December 31, 1994 (Registration Number 33-43298-A) filed with the
Commission on April 14, 1995.)

10.25 Shareholder Agreement between the Registrant and Mason Dental, Inc.
Affiliate Shareholders (incorporated by reference to Exhibit 10.31 to the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1993
(Registration Number 33-43298-A) filed with the Commission on April 14, 1994).

10.26 Security Agreement between Princeton Medical Management Southeast, Inc.
and Clement W. Barfield, D.D.S., and Philip A. Payne, D.D.S. (incorporated by
reference to Exhibit 10.32 the Registrant's Form 10-KSB for the fiscal year
ended December 31, 1993 (Registration Number 33-43298-A) filed with the
Commission on April 14, 1994).

10.27 Security Agreement between Princeton Medical Management Southeast, Inc.
and Jerry I. Bratman, D.D.S., Theodore M. Strauss, D.D.S., and Richard J.
Staller, D.D.S. (incorporated by reference to Exhibit 10.33 to the Registrant's
Form 10-KSB for the fiscal year ended December 3l, 1993 (Registration Number
33-43298-A) filed with the Commission on April 14, 1994).

10.28 Installment Promissory Notes payable to The Dental Team Shareholders
(incorporated by reference to Exhibit 10.34 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 1993 (Registration Number 33-43298-A) filed
with the Commission on April 14, 1994).

10.28/A Binding letter of agreement dated February 6, 1995 between The Dental
Team Shareholders and the Registrant (incorporated by reference to the Exhibit
to the Registrant's Form 10-KSB for the fiscal year ended December 31, 1995
(Registration Number 33-43299-A) filed with the Commission on April 14, 1995).

10.29 Settlement Agreement and Release between A.S. Goldmen & Co., Inc.
Shoenberg & Hieber, Inc. and the Company, dated April 10, 1995 and effective May
12, 1995 (incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-QSB for the quarterly period ended March 31, 1995 (Registration No. 0.20222)
filed with the Commission of May 15, 1995.

10.30 Allonge and Amendment to Secured Revolving Demand Note, dated April 15,
1995, between the Investment Group and the Registrant (incorporated by reference
to Exhibit 10.2 to the Registrant's Form 10-QSB/A for the quarterly period ended
March 31, 1995 (Registration No. 0-20222) filed with the Commission on May 30,
1995).

10.31 Amendment to Letter Agreement, dated May 22, 1995, between the Investor
Group and the Registrant (incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-QSB/A for the quarterly period ended March 31, 1995
(Registration No. 0-20222) filed with the Commission on May 30, 1995).

10.32 Allonge and Amendment to Secured Revolving Demand Note, dated June 23,
1995, between the Investor Group and the Registrant (incorporated by reference
to Exhibit 10.4 to the Registrant's Form 10-QSB for the quarterly period ended
March 31, 1996 (Registration No. 0-20222) filed with the Commission on June 12,
1996).

10.33 Allonge and Amendment to Secured Revolving Demand Note, dated August 24,
1995, between the Investor Group and the Registrant (incorporated by reference
to Exhibit 10.6 to the Registrant's Form 10-QSB for the quarterly period ended
March 31, 1996 (Registration No. 0-20222) filed with the Commission on June 12,
1996).

10.34 Amendment to Letter Agreement, dated August 24, 1995, between the Investor
Group and the Registrant (incorporated by reference to Exhibit 10.7 to the
Registrant's Form 10-QSB for the quarterly period ended March 31, 1996
(Registration No. 0-20222) filed with the Commission on June 12, 1996).




                                       23
<PAGE>   24


10.35 Allonge and Amendment to Secured Revolving Demand Note, dated September 8,
1995, between the Investor Group and the Registrant (incorporated by reference
to Exhibit 10.8 to the Registrant's Form 10-QSB for the quarterly period ended
March 31, 1996 (Registration No. 0-20222) filed with the Commission on June 12,
1996).

10.36 Amendment to Letter Agreement, dated September 8, 1995, between the
Investor Group and the Registrant (incorporated by reference to Exhibit 10.9 to
the Registrant's Form 10-QSB for the quarterly period ended March 31, 1996
(Registration No. 0-20222) filed with the Commission on June 12, 1996).

10.37 Employment Agreement by and between the Company and Dr. Charles R.
Mitchell, D.D.S. dated March 1996, with an effective date of January 1, 1996
(incorporated by reference to the exhibit to the Registrant's Form 10-QSB filed
with the Commission on September 23, 1996).

10.38 Consulting Agreement by and between the Company and Stratum Management,
Inc. dated January 1, 1996 (incorporated by reference to the exhibit to the
Registrant's Form 10-QSB filed with the Commission on September 23, 1996).

10.39 Amendment to the Warrant Agreement by and between the Company and Stratum
Management, Inc., dated July 17, 1996 (incorporated by reference to the exhibit
to the Registrant's Form 10-QSB filed with the Commission on September 23,
1996).

10.40 Non-Statutory Stock option agreement by and between the Company and John
H. Hagan, dated March 21, 1996 (incorporated by reference to the exhibit to the
Registrant's Form 10-QSB filed with the Commission on September 23, 1996).

10.41 Amendment to the Non-Statutory Stock Option Agreement by and between the
Company and John H. Hagan dated July 17, 1996 (incorporated by reference to the
exhibit to the Registrant's Form 10-QSB filed with the Commission on September
23, 1996).

10.42 Non-Statutory Stock Option Agreement by and between the Company and Dr.
Seymour Kessler dated March 21, 1996 (incorporated by reference to the exhibit
to the Registrant's Form 10-QSB filed with the Commission on September 23,
1996).

10.43 Amendment to the Non-Statutory Stock Option Agreement dated July 17, 1996,
by and between the Company and Dr. Seymour Kessler (incorporated by reference to
the exhibit to the Registrant's Form 10-QSB filed with the Commission on
September 23, 1996).

10.44 Series A 11.75% Cumulative Convertible Preferred Stock Purchase Agreement
by and between Frank Leonard Laport, Beverly Trust Company, as Custodian of the
Frank Leonard Laport Rollover Individual Retirement Account Number 75-49990, and
Amsterdam Equities Limited, dated April 22, 1996 (incorporated by reference to
the exhibit to the Registrant's Form 10-QSB filed with the Commission on
September 23, 1996).

10.45 Convertible Debt Agreement by and between the Company and Amsterdam
Equities Limited, dated April 22, 1996 (incorporated by reference to the exhibit
to the Registrant's Form 10-QSB filed with the Commission on September 23,
1996).

10.46 Letter of Agreement dated July 15, 1996 and effective August 9, 1996, by
and between the Company, Dr. Charles R. Mitchell, Stratum Management Inc., John
H. Hagan, Dr. Seymour Kessler, Amsterdam Equities Limited, Frank Leonard Laport,
and Beverly Trust Company (incorporated by reference to the exhibit to the
Registrant's Form 10-QSB filed with the Commission on September 23, 1996).



                                       24
<PAGE>   25

10.47 Settlement Agreement dated as of September 26, 1996, and effective as of
the date of filing, by and between the Gingle Group, the Investor Group and the
Company. (Incorporated by reference to Exhibit 10.47 to the Registrant's Form 
10QSB for the period ended December 30, 1996).

10.48 Amendment to Employment Agreement made as of June 1, 1996 by and among
Gary A. Lockwood, the Company and Mason Dental Midwest, Inc. (Incorporated by 
reference to Exhibit 10.48 to the Registrant's Form 10QSB for the period ended 
December 30, 1996).

10.49 Office Lease dated as of September 13, 1996 between the Company and
EquiVest, Inc., a company owned by Frank Leonard Laport. (Incorporated by 
reference to Exhibit 10.49 to the Registrant's Form 10QSB for the period ended 
December 30, 1996).

10.50 Equipment Lease dated as of September 13, 1996 between the Company and
Frank Leonard Laport. (Incorporated by reference to Exhibit 10.50 to the 
Registrant's Form 10QSB for the period ended December 30, 1996).

10.51 Letter Agreement dated February 4, 1996 between Dr. Richard Staller and
the Registrant regarding the sale of the assets of the Dental Team of Delray
Beach. (Incorporated by reference to Exhibit 10.51 to the Registrant's Form 
10QSB for the period ended June 30, 1997).

10.52 Letter Agreement effective as of January 10, 1997 by and among the
Registrant and Drs. Barfield and Payne regarding the sale of the assets of the
Fairfield Dental Center practice. (Incorporated by reference to Exhibit 10.52 to
the Registrant's Form 10QSB for the period ended December 30, 1996).

10.53 Letter Agreement dated as of December 1996 between the Registrant and
Dickerson Investment Group, Inc., an entity affiliated with a shareholder of the
Registrant, regarding the loan of $175,000 to the Registrant. (Incorporated by 
reference to Exhibit 10.53 to the Registrant's Form 10QSB for the period ended 
June 30, 1997).

10.54 Letter Agreement effective as of June 1, 1997 by and among the Registrant
and Mr. Larry Ceraulo d/b/a Certex Dental Studio regarding the sale of the
assets comprising Mason Dental Southeast, Inc. and Renaissance Dental Studio,
(Incorporated by reference to Exhibit 10.54 to the Registrant's Form 10QSB for
the period ended June 30, 1997).

10.55 Modification Agreement dated as of July 1, 1997 by and among the
Registrant, Amsterdam Equities Limited, Frank Leonard Laport, and Beverly Trust
Company, as Custodian of the Frank Leonard Laport Rollover Individual Retirement
Account No. 75-49990, (Incorporated by reference to Exhibit 10.55 to the
Registrant's Form 10QSB for the period ended June 30, 1997).

10.56 Allonge and Fourth Amendment to Acquisition Promissory Note dated as of
July 1, 1997, among the Company, Mason Dental Midwest, Inc. and the Constituent
Shareholders of the Delaware corporation formally known as Mason Dental, Inc.
(Incorporated by reference to Exhibit 10.56 to the Registrant's Form 10QSB for
the period ended June 30, 1997).

10.57 Promissory Note in the initial principal amount of $96,357 executed by
Lawrence Ceraulo, Victor Texidor, and Certex Dental Studio, Inc. in favor of
Mason Dental Southeast and dated as of August 1, 1997, (Incorporated by
reference to Exhibit 10.57 to the Registrant's Form 10QSB for the period ended
June 30, 1997).

10.58 Allonge & Fifth Amendment to Acquisition Promissory Note dated as of July
1, 1997, among the Company, Mason Dental Midwest, Inc. and the Constituent
Shareholders of the Delaware Corporation formally known as Mason Dental, Inc.
(Incorporated by reference to Exhibit 10.58 to the Registrant's Form 10QSB for 
the 


                                       25
<PAGE>   26
period ended December 31, 1997).

10.59 Agreement of purchase and sale dated as of May 1, 1997 between Princeton
Medical Management Northeast, Inc. and Valley Forge Dental Associates, Inc.
(Incorporated by reference to Exhibit 10.59 to the Registrant's Form 10KSB for 
the period ended December 31, 1997).

10.60 Financial Consulting Agreement between the Company and BullsEye Marketing,
Inc., dated as of July 14, 1998. (Incorporated by reference to Exhibit 10.60 to 
the Registrant's Form 10KSB for the period ended June 30, 1998).

10.61 Allonge and Amendment to Balloon Promissory Note and All Related 
Agreements dated as of July 1, 1998 by and among the company, Dr. Lehr and 
certain related entities. (Incorporated by reference to Exhibit 10.61 to the 
Registrant's Form 10KSB for the period ended June 30, 1998).

21.1 Subsidiaries of the Small Business Issuer (incorporated by reference to
Exhibit 22.1 to the Registrant's Form 10-KSB for the fiscal year ended December
31, 1993 (Registration Number 3343298-A) filed with the Commission on April 14,
1994). 











                                       26

<PAGE>   27

(b) REPORTS ON FORM 8-K The Registrant filed the following Form 8-K's during the
period from January 1, 1998 through March 30, 1999:

1)       Effective as of July 14, 1998, PDMC announced that it had entered into
         a Financial Consulting Agreement with BullsEye Marketing, Inc.

         The Agreement anticipated that BullsEye Marketing, Inc. would assist
         PDMC in generally building market awareness of PDMC. As specified in
         the Agreement, (see Exhibit 10.60), PDMC would pay the consultant
         $1,000 per month plus reasonable expenses and issue 250,000 warrants to
         the consultant. The warrants would be exercisable at the same exercise
         price as the current publicly held warrants.

2)       Effective as of September 18, 1998, PDMC announced that the Board of
         Directors of Princeton Dental Management Corporation ("PDMC") had
         announced that the expiration date of those certain warrants issued
         pursuant to that certain Warrant Agreement dated April 15, 1992 by and
         between PDMC and Continental Stock Transfer & Trust Company had been
         extended for a period of twelve (12) months, expiring on October 11,
         1999.

3)       Effective as of October 15, 1998, PDMC announced that, on October 15,
         1998, the Company was informed by The Nasdaq Stock Market, Inc.
         ("Nasdaq") that the Company's securities would be delisted from the
         Nasdaq SmallCap Market effective at the close of business on October
         15, 1998 due to the inability of the Company to meet the Nasdaq listing
         requirement that the Company maintain at least $2,000,000 in net
         tangible assets.





                                       27

<PAGE>   28

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report of Form 10-KSB for the year ended
December 31, 1998, to be signed on its behalf, by the undersigned thereunto duly
authorized.

              DATED:                   Princeton  Dental Management Corporation

                                         By: ___________________________________
                                                                Gary A. Lockwood
                                                          President and Director

SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report of Form 10-KSB for the year ended
December 31, 1998, to be signed on its behalf, by the undersigned thereunto duly
authorized.

              DATED:                   Princeton  Dental Management Corporation

                                         By: ___________________________________
                                                            Frank Leonard Laport
                                                     Chairman, CEO, and Director


              DATED:                   Princeton  Dental Management Corporation

                                         By: ___________________________________
                                                                Gary A. Lockwood
                                                     President, COO and Director


              DATED:                   Princeton  Dental Management Corporation

                                         By: ___________________________________
                                                               George B. Collins
                                                                        Director


              DATED:                   Princeton  Dental Management Corporation

                                         By: ___________________________________
                                                           Dr. Zigmund C. Porter
                                                                        Director


              DATED:                   Princeton  Dental Management Corporation

                                         By: ___________________________________
                                                            Barbara M. Kamenczak
                                                        Chief Accounting Officer


                                       28
<PAGE>   29









                                PRINCETON DENTAL
                             MANAGEMENT CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997
                   (WITH INDEPENDENT AUDITORS' REPORT THEREON)


<PAGE>   30

                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Princeton Dental Management Corporation:

We have audited the accompanying consolidated balance sheets of Princeton Dental
Management Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Princeton Dental Management Corporation at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that Princeton Dental Management Corporation will continue as a going concern.
As discussed in Note 15 to the consolidated financial statements, the Company's
recurring losses from operations and its net working capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern.
Management's operational plans in regard to these matters are also described in
Notes 13 and 15. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.



March 4, 1999
Clearwater, Florida


<PAGE>   31

                    PRINCETON DENTAL MANAGEMENT CORPORATION
                                        
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,                                                        1998                  1997    
-------------------------------------------------------------------------------------------------

                                     ASSETS

<S>                                                               <C>                    <C>
Current assets:
    Cash and cash equivalents                                     $   188,724               46,644
    Accounts receivable, net of allowances for doubtful
      accounts of $129,000 and $189,000, respectively                 821,190              922,383
    Current portion of loans receivable                               163,336              298,637
    Inventories                                                       100,048              107,951
    Other current assets                                               73,373               89,513
                                                                  -----------            ---------

                   Total current assets                             1,346,671            1,465,128

Property and equipment, net                                           550,976              756,579
Goodwill, net of accumulated amortization of $2,543,042
    and $2,081,576, respectively                                    5,080,892            5,542,358
Loans receivable                                                            -               50,000
Other assets, net                                                     377,804              441,936
                                                                  -----------            ---------












                                                                  $ 7,356,343            8,256,001
                                                                  ===========            =========
</TABLE>
<PAGE>   32
<TABLE>
<CAPTION>

DECEMBER 31,                                                                     1998                1997    
--------------------------------------------------------------------------------------------------------------

                               LIABILITIES AND SHAREHOLDERS' EQUITY ( DEFICIT)
<S>                                                                          <C>                  <C>
Current liabilities:
    Bank debit balances                                                      $          -               69,849
    Notes payable                                                                 130,591              130,591
    Current portion of capital lease obligations                                   17,345               18,849
    Current portion of long-term debt                                             500,947              779,184
    Convertible secured debt                                                    2,133,428            2,133,428
    Accounts payable                                                              976,901              922,994
    Accrued salaries and wages                                                    297,618              476,178
    Other accrued expenses                                                      1,822,712              711,930
                                                                             ------------         ------------

                   Total current liabilities                                    5,879,542            5,243,003

Long-term debt, excluding current portion                                       1,591,685            1,787,436
Capital lease obligations, excluding current portion                                1,243               18,588
                                                                             ------------         ------------

                   Total liabilities                                            7,472,470            7,049,027
                                                                             ------------         ------------

Shareholders' equity (deficit):
    Series A 11.75% Cumulative Convertible Preferred Stock par value $1.00 per
      share; authorized shares - 1,000,000; issued and outstanding - 2,848 at
      December 31, 1998 and 1997                                                    2,848                2,848
    Series B Preferred stock, par value $1.00 per share;
      authorized shares - 100; issued and outstanding -100
      at December 31, 1998 and 1997                                                   100                  100
    Common stock, par value $0.0001 per share;  authorized
      shares - 25,000,000; issued and outstanding - 3,196,448
      and 2,024,465 at December 31, 1998 and 1997                                     320                  202
    Less: 8,452 shares Common stock held in treasury, at cost
      at December 31, 1998 and 1997                                              (181,771)            (181,771)
    Additional paid-in capital                                                 15,403,623           15,108,366
    Accumulated deficit                                                       (15,341,247)         (13,722,771)
                                                                             ------------         ------------

                   Net shareholders' equity (deficit)                            (116,127)           1,206,974
                                                                             ------------         ------------

                                                                             $  7,356,343            8,256,001
                                                                             ============         ============
</TABLE>

See accompanying notes to consolidated financial statements.



<PAGE>   33

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                         1998                 1997    
--------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                    <C>
Revenue:
    Practice revenue                                                         $  7,715,627            9,604,047
    Laboratory revenue                                                          4,350,500            4,191,745
                                                                             ------------           ----------

                    Total revenue                                              12,066,127           13,795,792
                                                                             ------------           ----------

Expenses:
    Practice compensation and benefits                                          6,095,367            7,166,391
    Other practice expenses                                                     1,740,066            1,895,492
    Cost of laboratory revenue and laboratory expenses                          3,176,887            3,389,324
    General corporate expenses                                                    853,171              548,917
    Depreciation and amortization                                                 833,275              881,845
                                                                             ------------           ----------

                    Total operating expenses                                   12,698,766           13,881,969
                                                                             ------------           ----------

Operating loss                                                                   (632,639)             (86,177)

Gain on sale of practices/lab                                                           -              282,590
Loss on disposal of property and equipment                                              -               (7,896)
Interest expense                                                                 (880,145)            (236,391)
Default warrants redemption                                                      (123,900)                   -
Other income                                                                       18,208               56,293
                                                                             ------------           ----------

                    Net income (loss)                                        $ (1,618,476)               8,419
                                                                             ============           ==========

Basic net income (loss) per share of common stock                                    (.72)                   -

Basic weighted common shares outstanding                                        2,258,046            2,024,465
                                                                             ============           ==========

Diluted net income (loss) per share of common stock                                  (.72)                   -

Diluted weighted common shares outstanding                                      2,258,046            3,019,483
                                                                             ============           ==========
</TABLE>




See accompanying notes to consolidated financial statements.


<PAGE>   34


                     PRINCETON DENTAL MANAGEMENT CORPORATION

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                             Series A 11.75%
                                          Cumulative Convertible        Series B
                                              Preferred stock        Preferred stock     Common stock                   Additional  
                                          -----------------------   ----------------  ------------------   Treasury      Paid-in    
                                           Shares      Amount       Shares    Amount   Shares     Amount     Stock        Capital   
                                          --------  -------------   ------   -------  ---------   ------   ---------    ----------- 
 

Balances at  December 31, 1996              2,848   $   2,848        100     $  100   2,024,465   $  202    (331,771)    15,108,366 
                                                                                    
Issuance of common stock of 53,381                                                  
 shares, held in treasury upon                                                      
 conversion of convertible debt              --          --         --         --          --       --       150,000           --   
                                                                                    
Net income                                   --          --         --         --          --       --          --             --   
                                            -----   ---------        ---     ------   ---------   ------    --------     ---------- 
                                                                                    
Balances at December 31, 1997               2,848       2,848        100        100   2,024,465      202    (181,771)    15,108,366 
                                                                                    
Issuance of common stock of 106,500                                                 
 shares at $1.08 - $1.98 per share           --          --         --         --       106,500       11        --          130,215 
                                                                                    
Issuance of common stock of 1,065,483                                               
 shares, upon conversion of default                                                 
 warrants                                    --          --         --         --     1,065,483      107        --          165,042 
                                                                                    
Net loss                                     --          --         --         --          --       --          --             --   
                                            -----   ---------        ---     ------   ---------   ------    --------     ---------- 
                                                                                    
Balances at December 31, 1998               2,848   $   2,848        100     $  100   3,196,448   $  320    (181,771)    15,403,623 
                                            =====   =========        ===     ======   =========   ======    ========     ========== 
                                                                         

<CAPTION>
                                                               Net       
                                        Accumulated       Shareholders'  
                                          Deficit       Equity (Deficit) 
                                        -----------     ---------------- 
<S>                                     <C>             <C>              
Balances at  December 31, 1996          (13,731,190)        1,048,555    
                                                                         
Issuance of common stock of 53,381                                       
 shares, held in treasury upon                                           
 conversion of convertible debt                --             150,000    
                                                                         
Net income                                    8,419             8,419    
                                        -----------       -----------    
                                                                         
Balances at December 31, 1997           (13,722,771)        1,206,974    
Issuance of common stock of 106,500                                      
 shares at $1.08 - $1.98 per share             --             130,226    

Issuance of common stock of 1,065,483                                    
 shares, upon conversion of default                                      
 warrants                                      --             165,149    

Net loss                                 (1,618,476)       (1,618,476)   
                                        -----------       -----------    

Balances at December 31, 1998           (15,341,247)         (116,127)   
                                        ===========       ===========    
</TABLE>
                                                                         


          See accompanying notes to consolidated financial statements.
<PAGE>   35

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                         1998               1997    
-----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                 <C>
Operating activities:
     Net income (loss)                                                      $  (1,618,476)            8,419
     Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
              Depreciation and amortization                                       833,275           881,845
              Loss on disposal of property and equipment                                -             7,896
              Provision for bad debts                                             (60,495)         (108,298)
              Default warrants issued and exercised below
                market                                                            123,900                 -
              Gain on sale of practices/lab                                             -          (282,590)
              Changes in operating assets and liabilities:
                   Accounts receivable                                            161,688            95,802
                   Inventories                                                      7,903           (12,605)
                   Other current assets                                            16,140             6,334
                   Accounts payable                                                53,907          (443,661)
                   Accrued expenses                                               932,222          (180,944)
                                                                            -------------       -----------

                         Net cash provided (used) by
                            operating activities                                  450,064           (27,802)
                                                                            -------------       -----------

Investing activities:
     Purchase of property and equipment                                           (88,389)         (145,971)
     Proceeds from notes receivable                                               185,301           108,551
     Proceeds from sale of equipment                                                    -             2,528
     Other assets                                                                 (13,685)           12,093
     Proceeds from sale of practices/lab                                                -           668,461
                                                                            -------------       -----------

                         Net cash provided by investing activities                 83,227           645,662
                                                                            -------------       -----------

Financing activities:
     Proceeds from issuance of common stock                                       171,475                 -
     Proceeds from issuance of convertible secured debt                                 -            17,504
     Principal payments on notes payable                                                -          (118,409)
     Principal payments on long-term debt                                        (473,988)         (578,847)
     Principal payments on note payable to shareholders                                 -          (122,948)
     Principal payments on capital lease obligations                              (18,849)          (23,600)
                                                                            -------------       -----------

                         Net cash used in financing activities                   (321,362)         (826,300)
                                                                            -------------       -----------

Increase (decrease) in cash and bank debit balances                               211,929          (208,440)

Cash and bank debit balances at beginning of period                               (23,205)          185,235
                                                                            -------------       -----------

Cash and bank debit balances at end of period                               $     188,724           (23,205)
                                                                            =============       ===========
</TABLE>
                                                                     (continued)


<PAGE>   36

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

YEARS ENDED DECEMBER 31,                                 1998            1997 
--------------------------------------------------------------------------------


Supplemental schedule of non-cash financing and investing activities:

During 1997, the Company incurred $12,734 of capital lease obligations.

During 1997,  the Company  converted  $150,000 of outstanding  debt into 53,381 
shares of common stock,  previously held as treasury stock.

Interest  paid  was  approximately  $132,000  and  $179,000  for the  years  
ended  December  31,  1998  and  1997, respectively.

Taxes paid was approximately $15,000 for the year ended December 31, 1998.




















See accompanying notes to consolidated financial statements.


<PAGE>   37

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997



(1)        ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING 
           POLICIES

           On October 22, 1986, the Company was organized as Princeton Dental
           Management Corporation, a Delaware corporation. The Company had
           limited activity up through its first issuances of common stock in
           June 1987. The Company owns a lab in Michigan and provides management
           services to dental practices (DP) under long-term management service
           agreements (MSA). Corporate practices of dentistry laws in the states
           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. Licensed dentists at each practice
           supervise the professional dental staff and provide all of the
           clinical services to the patients.

           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 consolidated financial
           statements are prepared in conformity with the consensus reached in
           EITF 97-2.

           The consolidated financial statements include the accounts of the
           Company, its wholly owned subsidiaries and the affiliated DP. All
           material intercompany accounts and transactions have been eliminated
           in consolidation.

           (a)     Accounts Receivable

                   Accounts receivable are comprised primarily of receivables
                   from dental patients and insurance carriers. Credit is
                   extended based on an evaluation of the customer's financial
                   condition, and generally collateral is not required.

           (b)     Inventories

                   Inventories, consisting principally of dental prosthetics,
                   are stated at the lower of cost, determined by the first-in,
                   first-out method, or market.


                                                                     (continued)



<PAGE>   38

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



           (c)     Property and Equipment

                   Property and equipment are stated at cost less accumulated
                   depreciation and amortization. Depreciation is recorded using
                   the straight-line method over estimated useful lives of five
                   to nine years. Property and equipment held under capital
                   leases and leasehold improvements are amortized straight-line
                   over the shorter of the lease term or the estimated useful
                   life of the asset.

           (d)     Goodwill

                   Goodwill represents excess of purchase price over the fair
                   value of net assets acquired, net of any liabilities assumed,
                   from dental practices and other operations acquired by the
                   Company. Amortization of goodwill totaled approximately
                   $462,000 and $473,000 for the years ended December 31, 1998
                   and 1997, respectively.

           (e)     Revenue Recognition

                   The Company recognizes revenue in the month the related
                   service is provided. Operating revenues include amounts
                   estimated by management to be receivable from Medicaid and
                   other third-party programs under provisions of reimbursement
                   terms in effect. Differences between estimated payments and
                   final payments are reflected as charges or credits to
                   operating revenues when the payment is received.

           (f)     Income Taxes

                   The Company uses the liability method of accounting for
                   income taxes. Under this method, deferred tax assets and
                   liabilities are determined based on differences between
                   financial reporting and tax bases of assets and liabilities
                   and are measured using the enacted tax rates and laws that
                   will be in effect as the differences reverse.

           (g)     Estimates

                   In preparing financial statements in conformity with
                   generally accepted accounting principles, management makes
                   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, as
                   well as the reported amounts of revenues and expenses during
                   the reporting period. Actual results could differ from those
                   estimates.

           (h)     Concentrations of Credit Risk

                   Cash balances are maintained in financial institutions.
                   Occasionally, deposits exceed amounts insured by the Federal
                   Deposit Insurance Corporation.

                                                                     (continued)


<PAGE>   39

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



           (i)     Impairment of Long-Lived Assets and for Long-Lived Assets to
                   be Disposed Of

                   The Company has adopted Statement of Financial Accounting
                   Standards No. 121, Accounting for the Impairment of
                   Long-Lived Assets and for Long-Lived Assets to Be Disposed of
                   (SFAS 121).

                   SFAS 121 requires that long-lived assets and certain
                   identifiable intangibles held and used by an entity be
                   reviewed for impairment whenever events or changes in
                   circumstances indicate that the carrying amount of an asset
                   may not be recoverable. If the sum of the expected future
                   cash flows (undiscounted and without interest) is less than
                   the carrying amount of the asset, an impairment loss is
                   recognized. Measurement of that loss would be based on the
                   fair value of the asset. SFAS 121 also generally requires
                   long-lived assets and certain identifiable intangibles to be
                   disposed of to be reported at the lower of the carrying
                   amount or the fair value less cost to sell.

           (j)     Fair Value of Financial Instruments

                   At December 31, 1998 and 1997, the carrying value of all
                   financial instruments approximated their fair values.

           (k)     Reclassifications

                   The accompanying consolidated financial statements contain
                   certain reclassifications of previously reported information.
                   The reclassifications have been made to more appropriately
                   reflect the operating results of the Company.

           (l)     Reverse Stock Split

                   The Board of Directors authorized a one-for-five reverse
                   stock split effective August 18, 1997. All share and per
                   share data have been retroactively restated to give effect to
                   this reverse stock split.

           (m)     Net Income (Loss) Per Share of Common Stock

                   The Company has adopted Statement of Financial Accounting
                   Standards No. 128, Earnings per Share (SFAS 128). Under SFAS
                   128, basic net income (loss) per share of common stock is
                   computed by dividing income available to common stockholders
                   by the weighted average number of common shares actually
                   outstanding during the period. Diluted net income (loss) per
                   share of common stock presents income attributable to common
                   shares actually outstanding plus dilutive potential common
                   shares outstanding during the period. See Note 9 for the
                   computation of basic and diluted net income (loss) per common
                   stock as required by SFAS No. 128.

                                                                     (continued)


<PAGE>   40

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(2)        LOANS RECEIVABLE

           The majority of loans receivable have resulted from the sale of
           various practices/lab during 1997 (Note 11).

(3)        PROPERTY AND EQUIPMENT

           Property and equipment consisted of the following at December 31:

                                                          1998          1997 
                                                      -----------    ----------

                Dental equipment                      $   852,895       817,826
                Laboratory and delivery equipment         349,611       266,951
                Office furniture and equipment            208,465       247,142
                Computer equipment and software           313,371       306,361
                Leasehold improvements                    238,759       236,591
                                                      -----------    ----------
                                                        1,963,101     1,874,871
                Less accumulated depreciation
                    and amortization                   (1,412,125)   (1,118,292)
                                                      -----------    ----------

                                                      $   550,976       756,579
                                                      ===========    ==========

           Depreciation and amortization related to property and equipment
           totaled approximately $294,000 and $320,000, respectively for the
           years ended December 31, 1998 and 1997, including amounts classified
           within cost of laboratory revenue.

(4)        NOTES PAYABLE

           Unsecured notes payable, bearing interest from 1% over the prime rate
           (7.75% at December 31, 1998) to 12%, are due on demand.






                                                                     (continued)


<PAGE>   41

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
(5)        LONG-TERM DEBT

           Long-term debt as of December 31 consists of the following:
                                                                                                1998             1997    
                                                                                            -------------     ------------
           <S>                                                                              <C>               <C>
           Note payable to shareholders, issued in connection with the
           acquisition of Mason. Payments may be contractually restricted based
           on Mason's average monthly cash flow before intercompany transactions
           as defined in the purchase agreement. If restricted, principal and
           interest payments may be made in common stock of the Company.
           Beginning January, 1997, the Company began making monthly
           installments of $21,610 with interest at 8% through March 2006.
           Effective July, 1997, interest was waived through June, 1998. The
           monthly principal installments approximate $10,300 during this
           period. This waiver reduced the effective interest rate over the
           remaining life of the loan. During 1997, $150,000 of this note was
           converted to common stock, previously held in treasury.                           $ 1,290,223        1,416,572

           Note payable to shareholder in monthly installments of $12,133,
           including interest at 8% through January 1, 1998, with remaining
           principal due January 1, 1998, secured by stock of American Dental
           Health - Battle Creek, P.C. Effective August 1998, the note was
           renegotiated to include monthly installments of
           $15,000, including interest at 9% through October 2000.                               305,601          430,300

           Notes payable to individual investors, unsecured, bearing interest at
           rates ranging from 8% to 10%, requiring various quarterly
           installments ranging from $320 to $1,280, including interest, through
           October 1997. Balance of $20,000, payable in equal quarterly
           installments of $5,000, including interest at 12%
           through December 1998.  Repaid in 1998.                                                     -           20,000

           Notes payable to seller of laboratory assets of Mason in monthly
           installments of $5,000 including interest at 9% ($25,000 payable
           October, 1998) through September, 1999. Balloon payment
           of approximately $30,000 due October, 1999.                                            71,243          140,867

           Note payable to shareholders in monthly installments of $12,102
           including interest at 7.48% through June 30, 2002, secured by all
           assets transferred in connection with the acquisition of The Dental
           Team and the stock of The Florida Dental Team P.A.                                    419,659          539,703
</TABLE>

                                                                    (continued)


<PAGE>   42

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
(5)        LONG-TERM DEBT - CONTINUED

                                                                                                1998             1997    
                                                                                           -------------     ------------
           <S>                                                                             <C>               <C> 
           Notes payable to various sellers of dental laboratory assets bearing
           interest at rates ranging from 7% to 8%, payable in monthly
           installments totaling $269, including interest
           through April, 1998.  Repaid in 1998.                                            $          -            1,062

           Notes payable to financial institutions, secured by delivery
           equipment, bearing interest ranging from 7.9% to 11.75%, payable in
           monthly installments totaling $1,109, including interest through
           February, 1999; $706 through June, 1999
           and $304 through November, 1999.                                                        5,906           18,116
                                                                                            ------------      -----------
                                                                                               2,092,632        2,566,620

           Current portion of long-term debt                                                    (500,947)        (779,184)
                                                                                            ------------      -----------

           Long-term debt, excluding current portion                                        $  1,591,685        1,787,436
                                                                                            ============      ===========
</TABLE>

           Substantially all long-term debt is secured by the assets of the
           Company, its subsidiaries, life insurance policies or various other
           assets.

           Scheduled maturities of long-term debt for the years subsequent to
           December 31, 1998 are as follows: 1999 - $500,947; 2000 - $421,499;
           2001, $277,999; 2002 - $221,299; 2003 - $188,240 and thereafter -
           $482,648.










                                                                     (continued)


<PAGE>   43

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6)        CAPITAL LEASE OBLIGATIONS

           The Company is obligated under various lease agreements for certain
           office equipment. These leases are noncancelable and require monthly
           payments through April 2000. Following is a schedule of future
           minimum lease payments under capital leases:


            Year Ended December 31,
            ----------------------
                1999                                                   $ 19,033
                2000                                                      1,343
                                                                       --------

                Total minimum lease payments                             20,376

                Less amount representing interest                        (1,788)

                Present value of net minimum lease payments              18,588

                Less current portion of capital lease obligations       (17,345)

                Capital lease obligations, excluding current portion   $  1,243
                                                                       ========

           The amortization of assets recorded under capital leases is included
with depreciation expense.

(7)        SHAREHOLDERS' EQUITY

           (a)     Preferred Stock 

                   The Company has authorized 1,000,000 shares of $1.00 par
                   value Series A 11.75% Cumulative Preferred Stock and 100
                   shares of $1.00 par value Series B Preferred Stock. Series of
                   the Preferred Stock may be created and issued from time to
                   time, with such designations, preferences, conversion rights
                   (including voting rights), qualifications, limitations or
                   restrictions thereof as shall be stated and expressed in the
                   resolution or resolutions providing for the creation and
                   issuance of such series of Preferred Stock.

           (b)     Common Stock

                   During 1998, the Company issued 106,500 unregistered shares
                   of restricted common stock of the Company at prices ranging
                   from $1.98 to $1.08 per share in a private placement exempt
                   from registration pursuant to Section 4(2) of the Securities
                   Act of 1933.

                   During 1998, the Company issued 1,065,483 shares of
                   unregistered restricted common stock of the Company for an
                   aggregate price of $41,250 upon conversion of certain default
                   warrants (Note 13). Based on the fair market value at the
                   date of exercise exceeding the exercise price, the Company
                   recognized a charge of $123,900, included in the accompanying
                   consolidated statement of operations. The issuance of common
                   stock is exempt from registration requirements pursuant to
                   Section 4(2) of the Securities Act of 1933.

                                                                     (continued)


<PAGE>   44

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7)        SHAREHOLDERS' EQUITY - CONTINUED

           (c)     Stock Options and Warrants

                   During 1993, the Company's Board of Directors adopted an
                   Incentive and Non-Statutory Stock Option Plan (the 1993
                   Option Plan). Options under the 1993 Option Plan are either
                   "incentive stock options" (ISOs), which are intended to
                   qualify under Section 422A of the Internal Revenue Code of
                   1986, as amended, or "nonstatutory stock options" (NSOs),
                   which are not intended to qualify. The exercise price of ISOs
                   granted must be at least 100% of the fair market value of the
                   common stock on the grant date, except that the exercise
                   price of options granted to shareholders possessing more than
                   10% of the voting power of the Company's voting stock must be
                   at least 110% of such fair market value.

                   The price of NSOs shall be specified by the Board at the time
                   the option is granted, and may be less than the fair market
                   value of the underlying shares of common stock on the date
                   such NSO is granted, but may not be less than the par value
                   of the underlying shares of common stock. Each stock option
                   granted under the 1993 Option Plan expires on the date
                   specified in the option agreement, which date shall not be
                   later than the tenth anniversary of the date on which the
                   option was granted (fifth anniversary in the case of a
                   greater-than-10% shareholder). The Board of Directors
                   approved 67,900 shares to be reserved for issuance pursuant
                   to the 1993 Option Plan. The 1993 Option Plan will terminate
                   in June 2003, or on such earlier date as the Board of
                   Directors may determine.

                   During 1996, the Company issued ISO's to two directors to
                   purchase an aggregate of 50,000 shares of the Company's
                   common stock at $5.95 per share, vesting in equal
                   installments over three years commencing one year from the
                   date of grant and expiring in March 1999. Subsequent to the
                   initial grant and pursuant to an agreement with the
                   directors, the ISO grant was reduced to 32,400 shares of the
                   Company's common stock.

                   During September 1996, the Company and certain investors
                   reached a settlement after a lawsuit was filed against two
                   former officers and shareholders of the Company. As a result,
                   the former officers and shareholders surrendered 3,555 shares
                   of common stock to the Company. These surrendered shares 
                   are being held in treasury.

                   During 1996, the Company issued a warrant to Stratum
                   Management, Inc. and certain consultants to purchase 120,000
                   shares of the Company's common stock at $5.00 per share. The
                   warrant expired December 31, 1998 without being exercised.
                   Subsequent to issuance and pursuant to an agreement with
                   Stratum Management, Inc. and certain consultants, the warrant
                   was reduced to 77,600 shares of the Company's common stock
                   (Note 13).

                   During 1996, the Company issued ISO's to an employee to
                   purchase 20,000 shares of the Company's common stock at $4.35
                   per share vesting in varying installments over three and
                   one-half years and expiring in January 2003.

                                                                   (continued)


<PAGE>   45

                    PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


           (c)     Stock Options and Warrants - Continued

                   During 1998, the Company issued options to BullsEye
                   Marketing, Inc. to purchase 250,000 shares of the Company's
                   common stock at $2.00 per share and terms similar to the
                   current publicly held warrants. Subsequent to December 31,
                   1998, these options expired.

                   On September 3, 1998, the Board of Directors declared an
                   extension period of twelve months for the expiration date of
                   the warrants issued pursuant to the Company's initial public
                   offering on April 15, 1992. Further extensions beyond October
                   11, 1999 of the expiration date of these warrants may
                   hereafter be determined by the Board of Directors up to a
                   total of an additional twelve months or such additional time
                   in such increments as the Board of Directors may determine in
                   accordance with the terms of the related Warrant Agreement.

                   The Company has adopted the disclosure - only provisions of
                   Statement of Financial Accounting Standards No. 123,
                   Accounting for Stock Based Compensation (SFAS 123).
                   Accordingly, no compensation cost has been recognized for the
                   stock option plans. Had compensation and other cost for the
                   Company's stock option plan for employees or directors or
                   issued warrants been determined based on the fair value at
                   the grant date or issuance for awards in 1996, consistent
                   with the provisions of SFAS 123, the impact on net loss would
                   have been immaterial.

                   Information regarding the employee option plan for 1998 and
                   1997 is as follows:

                   Summary of the Status of the Company's Stock Options and
                   Warrants


<TABLE>
<CAPTION>
                                          1998                             1997
                                 -------------------------     ----------------------------
                                          Weighted Average                 Weighted Average
                                  Shares   Exercise Price       Shares       Exercise Price 
                                 -------  ----------------     --------    -----------------
<S>                              <C>       <C>                 <C>         <C>   
Outstanding at the beginning                                             
   of the year                   140,000   $      5.90          140,000       $  5.90     
Granted (exercise price equals                                                            
  market)                        250,000          2.00             --            --       
Exercised                           --            --               --            --       
Forfeited                         77,600          5.00             --            --       
                                 -------   -----------          -------       -------     
                                                                                          
Outstanding at year end          312,400   $      3.00          140,000       $  5.90     
                                 =======   ===========          =======       =======     
                                                                             
Options and warrants
  exercisable at year end        291,600                        103,400
                                 =======                        =======

Weighted average fair value of
  options granted and warrants
  issued during the year         $ 2.00                             N/A

           
</TABLE>

                                                                    (continued)


<PAGE>   46


                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   Summary of Company Stock Options and Warrants Prices


<TABLE>
<CAPTION>
                                                                                                      OPTIONS AND
                                  OPTIONS AND WARRANTS OUTSTANDING                                WARRANTS EXERCISABLE    
                    ----------------------------------------------------------------------    -----------------------------
                                                 Weighted average
                    Range of       Number            remaining                                   Number
                    exercise    Outstanding         contractual          Weighted average      exercisable        Exercise
                      price       12/31/98          life (years)          exercise price        12/31/98            price   
                    --------    -----------     ----------------         -----------------     -----------        --------- 
                    <C>          <C>             <C>                      <C>                   <C>                <C>    
                     $ 20.00          4,000                4.07                $ 20.00            4,000           $ 20.00
                       13.15          6,000                 .32                  13.15            6,000             13.15
                        5.95         32,400                 .32                   5.95           21,600              5.95
                        4.35         20,000                4.07                   4.35           10,000              4.35
                        2.00        250,000                 .11                   2.00          250,000              2.00
                      ------        -------              ------                 ------          -------            ------

                    $   2.00-
                       20.00        312,400                 .44                $  3.00          291,600            $ 2.85
                       =====        =======              ======                  =====          =======             =====
</TABLE>


                   Additionally, certain default warrants are outstanding under
                   the terms of the Financing Agreement (Note 13) which can be
                   exercised only upon certain events of default, as defined.

(8)        INCOME TAXES

           The Company had no income tax expense in 1998 and 1997. The Company
           utilized tax net operating loss (NOL) carryforwards to offset taxable
           income in 1998.

           As of December 31, 1998, the Company has approximately $7,200,000 in
           tax net operating loss (NOL) carryforwards available to offset future
           taxable income through 2013.

           For financial statement reporting purposes, a valuation allowance of
           approximately $2,880,000 and $2,627,000 has been recognized to offset
           net deferred tax assets in 1998 and 1997, respectively. This
           valuation allowance increased (decreased) approximately $253,000 and
           $(85,000) during 1998 and 1997, respectively. The utilization of NOL
           carryforwards may be delayed because of ownership changes resulting
           from the Company's initial public offering and other issuances of
           stock. The maximum amount of loss carryforwards allowed to be
           utilized each year is determined by multiplying the value of the
           Company at the time of the change in ownership by the federal
           long-term tax-exempt rate.



                                                                     (continued)
<PAGE>   47


                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(8)        INCOME TAXES - CONTINUED

           Deferred income taxes reflect the net tax effects of temporary
           differences between the carrying amounts of assets and liabilities
           for financial reporting purposes and the amounts used for income tax
           purposes. Significant components of the Company's deferred tax assets
           and liabilities as of December 31 are as follows:


<TABLE>
<CAPTION>
                                                      1998           1997 
                                                  -----------    -----------
<S>                                               <C>            <C>      
Deferred tax assets:
    Net operating loss carryforwards              $ 2,800,000      2,533,000
    Allowance for doubtful accounts                    50,000         74,000
    Other                                              30,000         20,000
                                                  -----------    -----------

       Total deferred tax assets                    2,880,000      2,627,000

    Valuation allowance for deferred tax assets    (2,880,000)    (2,627,000)
                                                  -----------    -----------

       Net deferred tax assets                    $      --             --   
                                                  ===========    ===========
</TABLE>



(9)        NET INCOME (LOSS) PER SHARE OF COMMON STOCK

           The following table represents the computation of basic and diluted
           net income (loss) per share of common stock as required by SFAS No.
           128.


<TABLE>
<CAPTION>
                                              December 31,   December 31,
                                                  1998           1997 
                                               -----------   ------------
<S>                                            <C>           <C> 
    Net income (loss)                          $(1,618,476)         8,419
    Preferred dividends                               --             --
                                               -----------    -----------
    Net income applicable to common
      share owners                             $(1,618,476)         8,419
                                               ===========    ===========

    Basic weighted common shares outstanding     2,258,046      2,024,465
                                               -----------    -----------

        Net income (loss) per common share            (.72)          --
                                               ===========    ===========

Effect of dilutive securities:
    Warrants                                   $      --          995,018
    Dilutive weighted common shares
      outstanding                                2,258,046      3,019,483
                                               -----------    -----------
    Dilutive net income (loss) per common
      share                                    $      (.72)          --
                                               ===========    ===========

</TABLE>

<PAGE>   48

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9)        NET INCOME (LOSS) PER SHARE OF COMMON STOCK - CONTINUED

           The outstanding default warrants were not included in computing the
           1998 dilutive net loss per share of common stock because their
           effects were anti-dilutive.

           Certain options, convertible debt and convertible preferred stock
           were not included in computing dilutive net income (loss) per share
           of common stock because their effects were also anti-dilutive.

(10)       COMMITMENTS AND CONTINGENCIES

           (a) Operating Leases

                   The Company leases office facilities and equipment under
                   various operating leases. Rent expense under operating leases
                   was approximately $635,000 and $690,000 for the years ended
                   December 31, 1998 and 1997, respectively.

                   The Company has an operating lease for its dental lab in
                   Michigan, which expires in 2002, with an affiliated company
                   whereby the Company's President and Chief Operating Officer
                   is part owner. Rent expense under this lease is approximately
                   $160,000 for the years ended December 31, 1998 and 1997.

                   The Company entered into operating leases for its corporate
                   office and its telephone system, on a month to month basis,
                   from its Chairman and Chief Executive Officer in September
                   1996. Rent expense under these leases are approximately
                   $25,000 for the years ended December 31, 1998 and 1997.

                   The future minimum lease payments under these operating
                   leases for the years subsequent to December 31, 1998 are as
                   follows: 1999; $598,000, 2000; $445,000, 2001; $446,000,
                   2002; $262,000; 2003 - $154,000 and thereafter $343,000.

           (b)     Consulting and Employment Agreements

                   During 1996, the Company amended two employment agreements to
                   increase annual compensation to approximately $107,000 per
                   employee. In addition, one employee receives an additional
                   $12,000 for assuming the position of President and Chief
                   Operating Officer and was granted incentive stock options
                   (Note 7). The agreements provide for annual compensation
                   increases and expire in May 2001 although either the employee
                   or the Company may terminate the agreement upon ninety days
                   written notice.

                   During 1998, the Company entered into an agreement with
                   BullsEye Marketing, Inc. (Consultant) for consulting services
                   at $1,000 per month effective July 1998 and continuing on a
                   month to month basis terminable by either party at any time.
                   Effective August 1998, the Consultant received 250,000
                   options to purchase the Company's common stock (Note 7).
                   (continued)
<PAGE>   49

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           (c) Medical Malpractice Claims

                   The Company is insured with respect to medical malpractice
                   risks up to $1,000,000 per claim with a $3,000,000 annual
                   aggregate claims limit.

(11)       BUSINESS ACQUISITIONS/SALES

           During 1997, the Company sold three dental practices and a laboratory
           for approximately $668,000 in cash, $436,000 in loans receivable
           (Note 2) and the buyers= assumption of certain debt and other
           liabilities of $674,000. The Company recognized a gain on sale of
           these practices/lab of approximately $283,000. Combined sales of
           these entities for their last complete fiscal year (1996) was
           approximately $4,000,000.

(12)       LITIGATION

           The Company is involved in a number of legal proceedings related to
           malpractice, workers= compensation, general employment and contract
           disputes all in various stages of proceedings. In the opinion of
           management, the amount of the ultimate liability with respect to
           those actions will not materially affect the Company's financial
           position or results of operations.

(13)       FINANCING AGREEMENT

           On April 22, 1996, the Company entered into a financing agreement
           pursuant to which the Company issued Convertible Secured Debt
           (Convertible Debt) of $2,483,620 and 3,599.77 shares of Series A
           11.75% Cumulative Convertible Preferred Stock (Preferred Stock) to
           Amsterdam Equities Limited, Frank Leonard Laport and St. Paul Trust,
           as custodian for the Frank Leonard Laport Rollover Individual
           Retirement Account No. 75-49990 (Investor Group). The Convertible
           Debt and Preferred Stock replaced indebtedness of the Company at
           April 22, 1996, in the amount of $1,976,700 incurred under a letter
           agreement dated December 7, 1994 (Letter Agreement) and that certain
           Secured Revolving Demand Note dated January 27, 1995 (the Secured
           Note). Under the terms of the Convertible Debt and Preferred Stock
           Agreements (also referred to herein collectively as the Financing
           Arrangements) the Investor Group may lend additional funds, in
           increments to be determined solely by the Investor Group. The funds
           may be used by the Company subject to the approval of the Investor
           Group, to fund certain acquisitions. The Convertible Debt and
           Preferred Stock were initially to bear interest and have a coupon
           rate, respectively of 11.75%, plus the payment of any withholding
           taxes which may be due and owing with respect to any person which is
           a foreign entity. Payments on the Convertible Debt/Preferred Stock
           were interest only due in quarterly installments which were to begin
           in September 1996. Interest accrued of $57,136 under the Financing
           Arrangements at June 30, 1996 was added to the principal balance at
           that date. The Convertible Debt/Preferred Stock originally had a
           maturity of seven years from the date of closing, subject to
           acceleration in the event of a default. Subsequent to September 30,
           1996, the Company was unable to pay the interest only requirements of
           the Financing Arrangements, therefore effective October 1, 1996 until
           the accrued interest is paid, interest began to accrue at the default
           rate of 21.75%. The accrued interest on the Convertible Debt totaled
           approximately $790,000 and $190,000 at December 31, 1998 and 1997,
           respectively.

                                                                    (continued)

<PAGE>   50

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           In addition to the amount owed under the Letter Agreement and the
           Secured Note, the terms of the Financing Arrangements called for the
           conversion of 58,333 shares of Regulation D stock held by the
           Investor Group into $350,000 of Convertible Debt and Preferred Stock.
           The shares of common stock redeemed are being held in treasury.

(13)       FINANCING AGREEMENT - CONTINUED

           An additional provision of the Financing Arrangements included the
           payment of $300,000 as a closing fee and required the Company to
           reimburse the legal fees and out-of-pocket costs and expenses of the
           Investor Group in connection with the negotiation and the closing of
           the transaction totaling $216,897. The closing fees and reimbursement
           of the costs and expenses were paid in the form of Convertible Debt
           and Preferred Stock.

           The terms of the Financing Arrangements provided the Investor Group
           with certain rights pertaining to the registration of any common
           stock to which the Investor Group may convert from Convertible Debt
           or Preferred Stock, certain anti-dilution rights, and a right of
           first refusal on any future offering of the Company's securities.

           Under the terms of the transaction, the Company issued a warrant to
           purchase 100 shares of Series B Preferred Stock. The Series B
           Preferred Stock entitles Amsterdam Equities Limited (Amsterdam),
           after the occurrence of an event of default, to elect a Class B
           director who would have super-majority voting powers on the Company=s
           Board of Directors.

           The Convertible Debt and Preferred Stock may be converted into common
           stock of the Company, at the sole option of the Investor Group, at
           various conversion rates as set forth in the conversion formula
           contained in the Financing Arrangements. Conversion pursuant to such
           conversion formula would result in a conversion price per share of
           the Company's common stock significantly below present market levels.

           In addition, pursuant to the terms of the Financing Arrangements, the
           Company issued to the holders of the Convertible Debt and the
           Preferred Stock warrants to purchase shares of common stock. The
           Investor Group may exercise the warrants only upon the occurrence of
           an event of default under the terms of certain minimum financial
           goals, as defined in the Financing Arrangements.

           During 1998, Amsterdam Equities Limited transferred any and all
           interest which they had in certain default warrants to Frank Leonard
           Laport. Mr. Laport exercised such warrants, which resulted in the
           issuance of 1,065,483 shares of common stock (Note 7). The cumulative
           effect of the issuance of shares pursuant to the remaining default
           warrants and conversion of all Convertible Debt and Preferred Stock
           could result in ownership by the Investor Group of approximately 65%
           of the Company's total issued and outstanding common stock. The
           remaining default warrants are held by St. Paul Trust, as custodian
           for the Frank Leonard Laport Rollover Individual Retirement Account
           No. 75-49990, and are exercisable at $.01 per share and approximate
           130,000 common shares.

                                                                     (continued)


<PAGE>   51

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(13)       FINANCING AGREEMENT - CONTINUED

           In August 1996, the Company entered into a Letter Agreement by and
           among the Company, Dr. Charles R. Mitchell, a former President of the
           Company; the former Consultants to the Company, certain directors of
           the Company and the Investor Group. Under the Letter Agreement, the
           Series B Preferred Stock was amended to be immediately effective and
           Class B Preferred Stock was issued to Amsterdam. The Class B
           Preferred Stock entitled Amsterdam to elect a Director to the Board
           of Directors of the Company who would have super majority voting
           powers. In effect, the Class B director appointed by Amsterdam shall
           have the number of votes on the Board of Directors as the current
           Board currently holds, plus one vote. The amendment and activation of
           the Class B Preferred Stock occurred upon the satisfaction of the
           following two conditions: (i) delivery to the Company of a notice,
           pursuant to which the Investor Group would convert an aggregate
           amount of $700,000 of currently outstanding Convertible Debt and
           Preferred Stock into the Company's Common Stock in accordance with
           the contractual terms of the Financing Arrangements and (ii) upon the
           advance to the Company of an additional $200,000 pursuant to the
           Financing Arrangements.

           In connection with the issuance of the Class B Preferred Stock, the
           provision of additional funding and conversion of debt, the
           Consultants and certain directors of the Company agreed to forfeit,
           on a pro rata basis, an aggregate amount of 60,000 options and
           warrants to purchase the Company's Common Stock.

           Pursuant to a Modification Agreement (Modified Agreement) entered
           into between the Investor Group and the Company dated July 1, 1997,
           the Investor Group agreed, conditioned upon continued listing by the
           Company on the Nasdaq SmallCap Market and similar concessions by
           another significant Company creditor, to waive all accumulated and
           ongoing interest and/or dividends on the Convertible Debt/Preferred
           Stock for the period from January 1, 1997 through December 31, 1997.

           The Convertible Debt is secured by substantially all assets of the
           Company and requires the Company to comply with certain financial and
           non-financial debt covenants.

           At December 31, 1998, the Company was in violation of certain debt
           covenants. As such, the Company has classified the Convertible Debt
           as a current liability. To date, the Investor Group has not made
           formal claim under the debt covenant violation.

(14)       YEAR 2000 ISSUE

           Management has developed a plan to modify its information technology
           to be ready for year 2000 and has begun converting critical data
           processing systems. Management expects the project to be
           substantially complete by November, 1999 and incur total expenditures
           of approximately $190,000 related to the project. At the discretion
           of the Investor Group, the Financing Agreement (Note 13) could
           potentially provide funding for these capital expenditures, however,
           no assurances can be made.
                                                                     (continued)


<PAGE>   52

                     PRINCETON DENTAL MANAGEMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




(15)       GOING CONCERN

           As shown in the accompanying consolidated financial statements, the
           Company has incurred recurring losses from operations resulting in
           cash flow problems. Additionally, the Company is in default with
           regards to the Convertible Debt. To date, the Investor Group has not
           demanded payment. These factors raise doubt about the Company's
           ability to continue as a going concern.

           Management has instituted a cost reduction program, has sold
           economically inefficient practices and is emphasizing operational
           efficiencies. Management believes if implementation of these actions
           is unsuccessful, relief under Chapter 11 of the United States
           Bankruptcy Code will be considered as a possibility.