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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K.--ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the fiscal year ended December 31, 2001

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from _________________ to _______________________

Commission file number: 000-25549

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

Delaware 95-4710504
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)

222 No. Sepulveda Blvd., Suite 740, El Segundo, CA 90245-4340
(Address of principal executive offices)
Registrant's telephone number, including area code (310) 765-2400

Securities registered pursuant Section 12(b) of the Act: None

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

Common stock (Par Value $.001 per share)
Title of class

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

At April 12, 2002, the aggregate market value of voting stock held by
non-affiliates was $710,064.

At April 12, 2002, 3,993,837 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into
Document which incorporated
-------- ----------------------

Proxy Statement for 2002 Annual Meeting of Shareholders Part III








TABLE OF CONTENTS

Page
PART I

Item 1. Business......................................................................................................1

Item 2. Properties....................................................................................................9

Item 3. Legal Proceedings.............................................................................................9

Item 4. Submission of Matters to a Vote of Security Holders..........................................................10

PART II ...............................................................................................................11

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................11

Item 6. Selected Financial Data......................................................................................12

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................12

Item 7A. Quantitative and Qualitative Disclosures About Market Risks .................................................23

Item 8. Financial Statements and Supplementory Data..................................................................25

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................55

PART III ...............................................................................................................56

Item 10. Directors and Executive Officers of the Registrant...........................................................56

Item 11. Executive Compensation.......................................................................................56

Item 12. Security Ownership of Certain Beneficial Owners and Management...............................................56

Item 13. Certain Relationships and Related Transactions...............................................................56

PART IV ................................................................................................................57

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K..............................................57








PART I

Item 1. Business.


Headquartered in El Segundo, California, InterDent, Inc. ("InterDent" or the
"Company") was incorporated on October 13, 1998 as a Delaware corporation to
facilitate the business combination of Gentle Dental Service Corporation
("GDSC") and Dental Care Alliance ("DCA") that occurred in March 1999. Prior to
the combination, GDSC and DCA were each publicly traded dental practice
management companies since 1997.


We are a leading provider of dental practice management services to
multi-specialty dental professional corporations and associations ("PAs") in the
United States. The dentists employed through our network of affiliated PAs
provide patients with affordable, comprehensive, convenient and high quality
dentistry services, which include general dentistry, endodontics, oral
pathology, oral surgery, orthodontics, pedodontics, periodontics and
prosthodontics.


We have historically affiliated with PAs by purchasing the operating assets of
those practices, including furniture and fixtures, equipment and instruments,
and entering into long-term (typically 40 years) management service agreements
with the PAs associated with the practice. Under the terms of these agreements,
we are the exclusive administrator of all non-clinical aspects of the dental
practices, whereas the affiliated PAs are exclusively in control of all aspects
of the practice and delivery of dental services. As compensation for services
provided under the management agreements, we receive a management fee typically
equal to the reimbursement of expenses incurred in operating the practice plus a
percentage of the net revenues of the affiliated dental practice.


Through May 31, 2001, we provided management services to dental practices in
Arizona, California, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Maryland,
Michigan, Nevada, Oklahoma, Oregon, Pennsylvania, Virginia and Washington.
Effective May 31, 2001, we completed the sale of all of the common stock of DCA,
a wholly-owned subsidiary, and certain other assets in Maryland, Virginia, and
Indiana. Total consideration was $36.0 million, less the assumption of related
debt and operating liabilities. The net sales proceeds were utilized to pay down
existing borrowings under our credit facility. We also have retained an option
to repurchase the division at a future date and entered into an ongoing
collaboration agreement and license agreement to provide our proprietary
software. As of December 31, 2001 we provided management services to 141 dental
offices that employ 536 dentists, including 105 specialists. We currently
operate in Arizona, California, Hawaii, Idaho, Kansas, Nevada, Oklahoma, Oregon,
and Washington.


Our long-term objective is to expand our market leadership position in the
dental practice management industry and continue to improve operational
profitability. To achieve these objectives we develop dense, locally prominent
multi-specialty dental delivery networks that provide high quality,
cost-effective dental care. The key elements of our strategy are as follows:

- - Establish dense regional dental care networks;
- - Provide convenient, comprehensive dental care;
- - Focus on quality of patient care;
- - Fully capitalize on regional critical mass to expand patient volume;
- - Achieve operational efficiencies and enhance revenue;
- - Integrate and leverage our propriety management information systems; and
- - Capitalize on managed care expertise.

The services we provide to our affiliated dental practices are part of our
clinically driven operating model designed to enhance our affiliated dental
practices, and includes:

- - Training and educating, enabling dentists to perform additional general and
specialty services;
- - Assistance in optimizing patient scheduling, staffing ratios and other
resource allocation;
- - Improving office administration, including billing and collecting
receivables;
- - Assistance in negotiating and monitoring managed care and other contracts;
and
- - Assistance in recruiting dental professionals.

We also provide a proprietary management information system that enables us to
analyze key performance statistics on a real-time basis and identify trends and
opportunities for improvement. We believe our clinically driven operating model
and proprietary management information system provide us with a unique advantage
and serve as the infrastructure to support continued growth.

Dental Services Industry

Centers for Medicare & Medicaid Services ("CMS"), formerly The Health Care
Financing Administration, estimates that the annual aggregate domestic market
for dental services was approximately $65.4 billion for 2001, representing 4.6%
of total health care expenditures in the United States, with a compound annual
growth rate of approximately 8% from 1980 to 2001. According to CMS, the dental
services industry is expected to reach nearly $109 billion by 2010. We believe
that the anticipated growth in the dental industry will be driven by several
factors, including:

- - Increase in the availability and types of dental insurance, including
managed care organizations;
- - Increasing demand for dental services from an aging population;
- - Evolution of technology which makes dental care less traumatic and,
therefore, more attractive to patients; and
- - Increased focus on preventive and cosmetic dentistry.

The market for dental services in the United States consists of both general and
specialty dentistry services. General dentistry services include preventive and
diagnostic procedures such as cleanings, examinations and x-rays and restorative
treatments such as fillings of cavities, gum therapy and crowns. Specialty
dentistry services include endodontics, oral pathology, oral surgery,
orthodontics, pedodontics, periodontics, and prosthodontics.

Dental care services in the United States are generally delivered through a
fragmented system of local providers, primarily individual or small group
practices. According to the most recent available survey by the American Dental
Association conducted in 1996, there were approximately 152,000 actively
practicing dental professionals in the United States, approximately 67% of whom
practiced alone.

According to the 2001 Dental Benefits Report prepared by the National
Association of Dental Plans, approximately 57% of the United States population
is covered under dental benefit plans, including preferred provider
organizations ("PPO") and Health Maintenance Organizations ("HMOs"). The market
share of these network-based dental plans is estimated to have grown from 32% of
total dental care expenditures in 1995 to an estimated 63% in 2000.

We believe that the trend toward consolidation in the dental services industry
will continue as dentists seek to affiliate with group practice managers, such
as us, due to the following:

- - Desire of dentists to focus on clinical aspects rather than on
administrative and regulatory aspects of their practices;
- - Increasing patient demands for more flexible evening and weekend hours;
- - Increasing demand for competitively-priced, high quality dental care at
multiple locations; and
- - Increasing desire of dental school graduates to pursue alternatives to the
traditional solo practice of dentistry.

Operating Strategy

Our long-term strategic objective is to expand our leadership position in the
dental practice management industry. To achieve this objective, we develop
selected geographic markets with locally prominent, multi-specialty dental
delivery networks that provide high quality, cost-effective dental care. The key
elements of our strategy are as follows:

Establish dense regional dental care networks. We seek to build geographically
dense networks of dental offices to achieve economies of scale and develop a
significant presence in selected markets. We develop these networks through de
nova offices or affiliations with dental groups and practices that have a
significant market position.

Provide Convenient, Comprehensive Dental Care. Our affiliated dental practices
provide patients with customer-friendly, comprehensive and cost-effective dental
care, which is made available at convenient times and locations. Because our
affiliated dental practices generally include both general practitioners and
on-staff specialists who can provide dental services (such as endodontics, oral
pathology, oral surgery, orthodontics, pedodontics, periodontics, and
prosthodontics), patients can rely on our affiliated dental practices to provide
comprehensive dental care needs. By offering extended office hours and
conveniently located offices, patients are offered a dental care environment
that makes it easier to schedule and keep appointments. We also provide flexible
payment options in an effort to reduce patient financial burden.

Focus on Quality of Patient Care. We continually refine procedures, training and
systems to ensure optimum patient care. We seek to improve clinical outcomes
through our network of dental directors, which works directly with our
affiliated dental practices to institute quality assurance and utilization
review programs, provide access to continuing education and training programs
for dental professionals, and evaluate new techniques and technologies.

Achieve Operational Efficiencies and Enhance Revenue. We achieve operating
efficiencies through the establishment of centralized management and
administrative functions (such as information technology, marketing, payroll,
accounts payable, general accounting and human resources services) for the
affiliated dental practices. At the same time, we maintain on-site functions
(such as patient scheduling and billing and collections) at each dental office
or on a regional basis. We also enhance dental practice revenues by providing
services and establishing procedures designed to optimize staff ratios and
patient scheduling, and utilizing our management information system to more
effectively support our affiliated dental practices. We believe that our network
configuration provides leverage in negotiating with third-party payors and
dental supply vendors to receive structured payments and contract terms that are
more advantageous than those typically available to individual and small group
practitioners. Also, the addition of specialists within our affiliated network
also allows us to capture incremental revenue from the higher fees commanded by
those specialty services.

Integrate and Leverage Our Proprietary Management Information Systems. Our
management information system utilizes commercially available software, which
has been enhanced by our proprietary software. The system is designed to assist
each affiliated dental practice in:

- - Optimizing staffing ratios and patient scheduling;
- - Identifying and reducing unfinished patient treatment programs;
- - Maximizing billing and collection efforts; and
- - Actively monitoring the performance of managed care and other third party
contracts.

We believe that our management information system provides a distinct
competitive advantage by allowing us to effectively service a diverse network of
dental practices from a centralized base.

Capitalize on Managed Care Expertise. We assist our affiliated dental practices
by supplementing their fee-for-service business with selected managed care
contracts. We believe that selected managed care contracts offer an attractive
and profitable source of incremental revenue for the affiliated dental
practices. We also believe that the financial and clinical data generated by our
management information system enables us to negotiate favorable managed care
contract terms. Additionally, we utilize our management information system to
actively monitor utilization of patient groups covered by the managed care
plans. We believe that our expertise in managed care represents a competitive
advantage.

Dental Practice Network

As of December 31, 2001, our dental practice network employed 536 dentists,
including 105 specialists, practicing out of 141 dental offices and operatories
located in the geographic markets set forth below.




Geographic Market Dentists Offices Operatories
----------------- -------- ------- -----------

Arizona 19 8 56
California - Northern 128 22 256
California - Southern 178 43 408
Hawaii 21 7 55
Idaho 16 2 53
Nevada 35 13 112
Oklahoma & Kansas 26 6 67
Oregon 80 30 228
Washington 33 10 88
---------------- ----------------- -----------------
Total 536 141 1,323
================ ================= =================


Services and Operations

We provide comprehensive management services with respect to all of the
operations of our network of affiliated dental practices, other than the
provision of dental treatment and employ all non-clinical personnel at the
affiliated dental practices. Our services can be grouped into three broad
categories: administrative and financial services, personnel services and
operational services.

Administrative and Financial Services

Administrative. We provide administrative services to the affiliated dental
practices, including staffing, education and training, billing and collections,
patient scheduling, patient treatment follow-up, financial reporting and
analysis, productivity reporting and analysis, cash management, group
purchasing, inventory management, advertising promotion and other marketing
support. We also assist in employee payroll and benefits administration,
professional recruiting and provide support for dental practice operations, new
site development and other capital requirements. These services substantially
reduce the amount of time the dentists at our affiliated dental practices are
required to devote to administrative matters, thus enabling network dentists to
dedicate more time to the growth of their professional practices. In addition,
because of our size and purchasing power, we have been able to negotiate
discounts on, among other things, dental and office supplies, health and
malpractice insurance, and equipment.

Third-party Payor Management. We examine various factors to determine which
third-party payors' assignments we will recommend at each affiliated dental
practice. Factors considered by us in making this recommendation include:

- - Types of procedures that are generally performed;
- - Geographic area served by the particular plan; and
- - Demographic characteristics of the typical plan participants.

Some element of managed care is present at most affiliated dental practices,
although generally not as the primary source of revenues. We assist our
affiliated dental practices in the negotiation of contracts with third-party
payors. Due to our network volume, we often negotiate better terms for our
affiliated dental practices with third-party payors than available to solo
practitioners or small group dental practices.

Accounting Services. We provide affiliated dental practices with a full range of
accounting services, including preparation of financial statements, management
of accounts payable, oversight of accounts receivable, payroll administration
and tax services. In addition, we assist each affiliated dental practice in the
preparation of operating and financial budgets.

Third-party Financing. We have contracts with third-party financing companies
that enable our affiliated dental practices to offer various third-party
financing options to their patients on a non-recourse basis.

Personnel Services

Staffing and Scheduling. We provide management services that are designed to
optimize staffing ratios and patient scheduling at our affiliated dental
practices. We are responsible for the hiring, retention, salary and bonus
determination, job performance-related training and other similar matters
affecting our employees, which include non-dental professionals providing
services to the affiliated dental practices. Staffing and scheduling services
include:

- - Payroll administration;
- - Risk management;
- - Administering benefit plans;
- - Analysis and advice with respect to the optimal number of general dentists,
specialist dentists, dental assistants and hygienists at each dental
practice;
- - Assist with scheduling; and
- - Assist each affiliated dental practice with respect to expanding office
hours, optimizing the flow of patients through the offices and assisting
dentists in the more efficient use of dental assistants and hygienists.

Training and Education. Staff and practice development programs are an integral
part of our operating strategy. Our programs are designed to motivate staff to
achieve optimum performance goals, increase the level of patient satisfaction,
and improve our ability to attract and retain qualified personnel. While we are
not engaged in the practice of dentistry, we facilitate the training and
educating of dental professional personnel.

Recruiting. We have a national recruiting program to assist our affiliated
dental practices in recruiting dentists to add to our network. Recruiting takes
place through our contacts at dental schools, presence at regional dental
seminars and conventions and through advertising in regional and national dental
publications.

Operational Services

Advertising and Marketing. We assist our affiliated dental practices in
developing and implementing advertising and marketing programs, including
patient educational and prevention programs at selected dental practices. We
also assist the practices in their external marketing programs such as direct
mail and yellow page advertising. Other marketing programs include the use of
local radio, television and print advertising, and other marketing promotions.

Quality Assurance. The clinical management procedures and treatment protocols
for our affiliated dental practices vary from region to region. Under the
guidance of our Dental Advisory Board, key dentists in each region review and
determine these procedures and treatment protocols and we work closely with
dentists and hygienists at the affiliated dental practices to assist them in
implementing such procedures and protocols. Areas included among the procedures
and protocols to be determined by the network of dental directors are treatment
planning, diagnostic screening, radiographic records, record keeping, specialty
referrals and dental hygiene protocols. As part of the affiliated dental
practices' clinical enhancement program, we assist in providing quality
assurance, peer review and utilization review programs. We also perform patient
surveys to monitor patient satisfaction, and periodically audit patient charts
and provide advice to the dentists employed by the affiliated dental practices.

Management Information Systems. Effective use of management information systems
and extensive management reporting are the key means by which we manage our
network of dental offices. Management information systems is critical to
successfully operating a large number of relatively small, widely dispersed
operating units and is also a major means where we add value to affiliated
practices. We utilize our management information systems experience in operating
dental offices to determine optimal information technology, and that such
technology is uniformly implemented. Uniformity ensures that each office is
operated as efficiently as possible, that data from each office is correctly
compiled and integrated into meaningful management information, and allows for
the staff to act as interchangeable parts between offices.

Our proprietary Compass Management System provides various management reports to
the dental offices and division, regional and corporate management. The system
receives data from the Office Management Systems by various processes and
programs and consolidates the data into central data warehouses. The Compass
Management System allows us to analyze and monitor our patient base. The
software will, pro-actively or on command, search out patients who have not
visited the office in a specified period of time. These patients can be targeted
for telephone calls or other marketing attempts to draw them back into the
office. The software also focuses on treatment planning, case acceptance and
case completion. The software allows us to identify treatment plans that are
either not started or incomplete and target those patients for completion. We
can use this data to develop action plans to maximize revenue and schedules. It
also benefits the patient, whose health is best served if the prescribed
treatment plan is completed.

A major benefit of the Compass Management Software is to help dentists improve
their productivity. The system provides the dentists with analyses such as
production levels, average diagnosis value and treatment acceptance rates. Using
this data, dentists can compare personal productivity to peer groups and then
set his or her own goals and track actual results relative to goals. The system
also helps maximize collections by exception based reporting which enables
management to look on line at any time and from anywhere and quickly determine
where additional collection effort may be needed. The system also captures and
facilitates the analysis of encounter data, so that individual insurance plans
can be stratified from low to high profitability and informed decisions can be
made when it is time to consider renewing individual plans.

Scheduling. We implement patient scheduling systems at each of our affiliated
dental practices that enable us to devise daily patient schedules that maximize
the efficiency of dental professionals. In addition, office hours of each
affiliated dental practice are tailored to meet the needs of its patient
population.

Management Agreements

Our affiliated dental practices are in exclusive control of all clinical aspects
of the practice of dentistry and the delivery of dental services. We have
entered into long-term management agreements with the affiliated dental
practices under which we are the exclusive administrator of all non-clinical
aspects of the dental practices. Under these agreements, we:

- - Provide facilities and equipment used by the affiliated dental practices;
- - Bill and collect receivables on behalf of the affiliated dental practices;
- - Purchase and provide supplies;
- - Provide clerical, accounting, payroll, human resources, computer and other
non-dental support personnel;
- - Provide management information systems and reports;
- - Negotiate contracts managed care payors or other third parties; and
- - Assist in the recruitment of dentists.

We establish guidelines for hiring and compensating dentist and clinical
personnel, although such responsibility remains with the affiliated dental
practices. Specifically, the affiliated dental practices are responsible for:

- - Hiring and compensating dentists and other dental professionals;
- - Purchasing and maintaining malpractice insurance;
- - Maintaining patient records; and
- - Ensuring that dentists have the required licenses and other certifications.

As compensation for services provided under these agreements, we receive service
fees typically equal to the expenses incurred in the performance of our
obligations, plus an additional fee equal to a percentage of the net revenues of
each affiliated dental practice. We collect ongoing service fees out of the cash
collections of the affiliated dental practice, including the receivables
assigned to us by the affiliated dental practices.

The management agreements each have an initial term of 40 years, and unless
either party gives notice before the end of the term, automatic extensions
ranging from five years to ten years thereafter. The management agreements are
not subject to early termination, except for certain termination events such as
bankruptcy proceedings, a material breach of the terms of the management
agreement without curing the breach following notice, and other additional
termination events such as a material change in applicable federal or state law,
etc.

During the terms of the agreements, all parties agree not to disclose certain
confidential and proprietary information regarding the other. The affiliated
dental practices are required under the management agreements to use their best
efforts to enter into and enforce written employment agreements with each of
their professional employees containing covenants not to compete with the
affiliated dental practice in a specified geographic area for a specified period
of time, generally from one to three years after termination of the employment
agreement. The employment agreements generally provide for injunctive relief in
the event of a breach of the covenant not to compete.

The Emerging Issues Task Force ("EITF") of the Financial Accounting Standards
Board reached a consensus on the accounting for transactions between physician
practice management companies and physician practices and the financial
reporting of such entities (EITF issue number 97-2). For financial reporting
purposes, EITF 97-2 mandates the consolidation of physician practice activities
with the practice management company when certain conditions have been met, even
though the practice management company does not have a direct equity investment
in the physician practice. Consequently, where appropriate under EITF 97-2, we
consolidate all the accounts of the affiliated dental practices in the
accompanying consolidated financial statements, including revenues and expenses.
Accordingly, the consolidated statements of operations include the net patient
revenues and related expenses of certain affiliated dental practices and all
significant intercompany transactions have been eliminated. For those
affiliations that do not meet the criteria of consolidation under 97-2, we
record net management fees on the services described above and the expenses
associated with providing those services under the management services
agreements. The accompanying financial statements are prepared in conformity
with the consensus reached in EITF 97-2.

Government Regulation

General. The practice of dentistry is regulated extensively at both the state
and federal level. Regulatory oversight includes, but is not limited to,
considerations of fee splitting, corporate practice of dentistry, anti-kickback
and anti-referral legislation, privacy and security requirements, and state
insurance regulation. In addition, federal and state laws regulate HMOs and
other managed care organizations for which dentists may be providers. Dental
practices must also meet federal, state and local regulatory standards in the
areas of safety and health. We believe that our affiliated dental practices and
us comply with all material respects with the laws and regulations to which we
are subject.

There can be no assurance that a review of our business relationships by courts
or other regulatory authorities would not result in determinations that could
prohibit or otherwise adversely affect operations. There can also be no
assurance that the regulatory environment will not change, requiring us to
reorganize, change our methods of reporting revenues and other financial results
or restrict existing or future operations. Also, our ability to operate
profitably will depend in part upon the ability of our affiliated dental
practices and us to continually obtain and maintain all necessary licenses,
certifications and other approvals and to operate in compliance with applicable
health care regulations.

Corporate Practice of Dentistry; Fee Splitting. The laws of many states
prohibit, by statute or under common law, dentists from splitting fees with
non-dentists and prohibit non-dental entities such as us from engaging in the
practice of dentistry or employing dentists to practice dentistry. The specific
restrictions against the corporate practice of dentistry as well as the
interpretation of those restrictions by state regulatory authorities vary from
state to state. The restrictions are generally designed to prohibit a non-dental
entity from:

- - Controlling the professional practice of a dentist;
- - Employing dentists to practice dentistry (or, in certain states, employing
dental hygienists or dental assistants); and
- - Controlling the content of a dentist's advertising or sharing professional
fees.

A number of states limit the ability of a person other than a licensed dentist
to own equipment or offices used in a dental practice. However, the states in
which we conduct our business do not currently impose such limitations. Some of
these states allow leasing of equipment and office space to a dental practice
under a bona fide lease. The laws of many states also prohibit dental
practitioners from paying any portion of fees received for dental services in
consideration for the referral of a patient. In addition, many states impose
limits on the tasks that may be delegated by dentists to dental assistants.

We provide management and administration services to dental practices and
believe that the fees we charge for those services are consistent with the laws
and regulations of the jurisdictions in which we operate. We do not control the
clinical aspects of the practice of dentistry or employ dentists to practice
dentistry, except as permitted by law. Moreover we do not employ dental
hygienists. We believe that our operations comply in all material respects with
the above-described laws. However, there can be no assurance that a review of
our business relationships by courts or other regulatory authorities would not
result in determinations that could prohibit or otherwise adversely affect our
operations. Furthermore, there can be no assurance that the regulatory
environment will not change, requiring us to reorganize or restrict our existing
or future operations.

The laws regarding fee splitting and the corporate practice of dentistry and
their interpretation vary from state to state and are enforced by regulatory
authorities with broad discretion. There can be no assurance that the legality
of our business or our relationships with dentists or affiliated dental
practices will not be successfully challenged or that the enforceability of the
provisions of any management service agreement will not be limited. The laws and
regulations of certain states in which we may seek to expand may require us to
change the form of our relationships with affiliated dental practices. Such a
change may restrict our operations or the way in which providers may be paid or
may prevent us from acquiring the non-dental assets of such practices or
managing dental practices in such states. Similarly, there can be no assurance
that the laws and regulations of the states in which we presently maintain
operations will not change or be interpreted in the future either to restrict or
adversely affect our existing or future relationships with our affiliated dental
practices. Any change in our relationships with our affiliated dental practices
resulting from the interpretation of corporate practice of dentistry and
fee-splitting statutes and regulations could have a material adverse effect on
our business and results of operations.

Anti-kickback and Anti-referral Legislation. Federal and many state laws
prohibit the offer, payment, solicitation or receipt of any form of remuneration
in return for, or in order to induce the referral of a person for services
reimbursable under Medicare, Medicaid or other federal and state health care
programs. Further restrictions include the reimbursement by such regulatory
agencies for the furnishing or arranging for the furnishing of items or
services, the purchase, lease, order, arranging or recommending purchasing,
leasing or ordering of any item. These provisions apply to dental services
covered under the Medicaid program in which we participate. The federal
government has increased scrutiny of joint ventures and other transactions among
health care providers in an effort to reduce potential fraud and abuse related
to Medicare and Medicaid costs. Many states have similar anti-kickback laws, and
in many cases these laws apply to all types of patients, not just Medicare and
Medicaid beneficiaries.

The applicability of these federal and state laws to transactions in the health
care industry such as those to which we are or may become a party has not been
the subject of judicial interpretation. There can be no assurance that judicial
or administrative authorities will not find these provisions applicable to our
operations, which could have a material adverse effect on our business. Under
current federal law, a physician or dentist or member of his or her immediate
family is prohibited from referring Medicare or Medicaid patients to any entity
providing "designated health services" in which the physician or dentist has an
ownership or investment interest, unless an applicable exception is available. A
number of states also have laws that prohibit referrals for certain services
such as x-rays by dentists if the dentist has certain enumerated financial
relationships with the entity receiving the referral, unless an exception
applies. Any future expansion of these prohibitions to other health services
could restrict our ability to integrate dental practices and carry out the
development of our network of affiliated dental practices.

Noncompliance with, or violation of, either the anti-kickback provisions or
restrictions on referrals can result in exclusion from the Medicare and Medicaid
programs as well as civil and criminal penalties. Similar penalties apply for
violations of state law. While we make every effort to comply with the
anti-kickback and anti-referral laws, a determination of violation of these laws
by us or our affiliated dental practices could have a material adverse effect on
our business, financial condition and results of operations.

Privacy and Security Requirements. The Administrative Simplification Provisions
of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
require the use of uniform electronic data transmission standards for healthcare
claims and payment transactions submitted or received electronically. These
provisions are intended to encourage electronic commerce in the healthcare
industry. On August 17, 2000, Centers for Medicare & Medicaid Services (formerly
the Health Care Financing Administration) published final regulations
establishing electronic data transmission standards that all healthcare
providers must use when submitting or receiving certain healthcare transactions
electronically. Compliance with these regulations is required by October 16,
2002. We cannot predict the impact that final regulations, when fully
implemented, will have on us.

The Administrative Simplification Provisions also require Centers for Medicare &
Medicaid Services to adopt standards to protect the security and privacy of
health-related information. Centers for Medicare & Medicaid Services proposed
regulations containing security standards on August 12, 1998. These proposed
security regulations have not been finalized, but as proposed, would require
healthcare providers to implement organizational and technical practices to
protect the security of electronically maintained or transmitted health-related
information. In addition, Centers for Medicare & Medicaid Services released
final regulations containing privacy standards in December 2000. These privacy
regulations are effective April 14, 2001, but compliance with these regulations
is not required until April 2003. Therefore, these privacy regulations could be
further amended prior to the compliance date. However, as currently drafted, the
privacy regulations will extensively regulate the use and disclosure of
individually identifiable health-related information. We cannot predict the
final form that these regulations will take or the impact that final
regulations, when fully implemented, will have on us. If we violate HIPAA, we
are subject to monetary fines and penalties, criminal sanctions and civil causes
of action.

State Insurance Laws and Regulations. There are also certain regulatory risks
associated with our role in negotiating and administering managed care and
capitation contracts. There are risks, particularly in instances where the
dental care provider typically is paid a pre-determined amount per-patient
per-month from the payor in exchange for providing all necessary covered dental
care services to patients covered under the contracts. The application of state
insurance laws to reimbursement arrangements other than various types of
fee-for-service arrangements is an unsettled area of law and is subject to
interpretation by regulators with broad discretion. As our affiliated dental
practices or we contract with third-party payors, including self-insured plans,
for certain non-fee-for-service arrangements, our affiliated dental practices or
we may become subject to state insurance laws. Revenues could be adversely
affected in the event our affiliated dental practices or we are determined to be
subject to licensure as an insurance company or required to change the form of
their relationships with third-party payors and become subject to regulatory
enforcement actions.

Health Care Reform Proposals. The United States Congress and state legislatures
have considered various types of health care reform, including comprehensive
revisions to the current health care system. It is uncertain what legislative
proposals will be adopted in the future, if any, or what actions federal or
state legislatures or third-party payors may take in anticipation of or in
response to any health care reform proposals or legislation. Health care reform
legislation adopted by Congress or the legislatures of states in which we do
business, as well as changes in federal and state regulations could have a
significant effect on the health care industry and, thus, potentially materially
adversely affect our operations and those of our network of affiliated dental
practices.

Regulatory Compliance. We regularly monitor developments in laws and regulations
relating to dentistry. We may be required to modify our agreements, operations
or marketing from time to time in response to changes in business, statutory and
regulatory environments. We plan to structure all of our agreements, operations
and marketing in accordance with applicable law, although there can be no
assurance that our arrangements will not be successfully challenged or that the
required changes may not have a material adverse effect on operations or
profitability.

Competition

We compete with other dental practice management companies seeking to affiliate
with dental practices. We believe that the industry will become more competitive
as it continues to develop. We believe that we have a competitive advantage to
effectively compete in each of the key areas of competition:

- - Reputations of the dental practices within dental care networks;
- - Scope of services provided by dental care networks;
- - Management experience and expertise;
- - Sophistication of management information, accounting, finance and other
systems;
- - Proprietary information system; and
- - Network operating methods.

We currently compete with other dental practice management companies in our
existing markets. There are also a number of dental practice management
companies currently operating in other parts of the country that may enter our
existing markets in the future. Many of such competitors and potential
competitors have substantially greater financial resources than us, or otherwise
enjoy competitive advantages that may make it difficult for us to compete
against them or enter into additional management agreements on terms acceptable
to us. In addition, we are likely to face competition from established dental
practice management companies with a strong presence in such markets.

The business of providing dental services is highly competitive in each of the
markets in which our affiliated dental practices operate or in which operations
are contemplated. The primary bases of such competition are quality of care and
reputation, marketing exposure, convenience and traffic flow of location,
relationships with managed care entities, appearance and usefulness of
facilities and equipment, price of services and hours of operation. The
affiliated dental practices compete with other dentists who maintain single or
satellite offices, as well as with dentists who maintain group practices,
operate in multiple offices or are members of competing dental practice
management networks. Many of those dentists have established practices and
reputations in their markets. In addition to competing against established
practices for patients, the affiliated dental practices compete with such
practices in the retention and recruitment of general dentists, specialists and
hygienists. If the availability of dentists begins to decline in our existing or
targeted markets, it may become increasingly difficult to attract and retain the
dental professionals to staff the affiliated dental practices. There can be no
assurance that our affiliated dental practices will be able to compete
effectively with such other practices.

Insurance

We carry comprehensive liability and extended coverage insurance. Our affiliated
dental practices carry professional liability and general liability insurance.
Such insurance coverage is expanded to include all additional practices that we
develop or affiliate, with policy specifications, insured limits, and
deductibles customarily carried for similar dental practices.

Service Mark

Certain of our affiliated dental practices in Oregon and Washington are operated
and marketed under the name "Gentle Dental." Gentle Dental is a federally
registered service mark owned by us. On April 19, 1989, the Company's
predecessor acquired title to the federal registration of this service mark as
originally issued on October 26, 1982. We recognize that there are numerous
other practices across the country using the name Gentle Dental. Any entity that
commenced use of our mark before October 26, 1982 may have rights to the mark in
its geographic market superior to our rights. Given the costs and inherent
uncertainties of service mark litigation, there can be no assurance that we can
successfully enforce our service mark rights in any particular market.

Employees

We have entered into an agreement with a third party co-employer where a
significant portion of our administrative and support staff located in our
affiliated dental practices as well as certain corporate office management and
staff is co-employed. As of December 31, 2001, we employed or co-employed 2,226
full and part-time persons, consisting of 1,180 dental assistants, 980 dental
office and regional staff, and 66 executive and administrative staff.

In addition, a significant number of our affiliated dental practices have
entered into an agreement with the co-employer pursuant to which an affiliated
dental practice and the co-employer co-employ all professional staff. As of
December 31, 2001, such affiliated dental practices, in the aggregate, employed
or co-employed 830 dental professionals, consisting of 536 dentists and 294
dental hygienists. We, or our affiliated dental practices, as the case may be,
are responsible for the hiring, retention, salary and bonus determination, job
performance-related training and other similar matters affecting co-employees
while the co-employer is responsible for:

- - Payroll administration, including recordkeeping, payroll processing, making
payroll tax deposits, reporting payroll, taxes and related matters;
- - Risk management, including on-site safety inspections, monitoring, training
and workers' compensation claim management and administration;
- - Administering benefit plans; and
- - Human resource consulting and expertise on other human resource issues.

Either party without cause may terminate the agreement with the co-employer on
30 days written notice, or for cause on 24 hours written notice. Also, as of
December 31, 2001, 123 clerical personnel and dental assistants employed by
certain affiliated dental practices with us were subject to collective
bargaining agreements.

Item 2. Properties.

The dental practice and business offices in our network are generally leased
from various parties pursuant to leases with remaining terms ranging through
2016. Several of the leases have options to renew, and we expect to renew or
replace leases as they expire. Our corporate headquarters is located in leased
office space in El Segundo, California. Our ownership in facilities is limited
to only one office building and land located in Hazel Dell, Washington that is
occupied by one of our clinical office locations. The Company's annual lease or
rent payments were approximately $13 million for the year ended December 31,
2001.

Item 3. Legal Proceedings.


On November 12, 1999, Robert D. Rutner, D.D.S. filed a lawsuit seeking to
rescind his May 14, 1999 sale of Serra Park Dental Services, Incorporated, and
seeking damages. The complaint named InterDent, as well as Gentle Dental Service
Corporation and Serra Park Services, Inc. as defendants. InterDent, along with
others, filed an answer on January 21, 2000 along with a cross-complaint
alleging causes of action for breach of employment agreement, breach of stock
purchase agreement, fraud, negligent misrepresentation, breach of the dentist
employment agreement, interference with contractual relations and indemnity. The
cases were settled on November 30, 2001. As part of the settlement, the assets
associated with three affiliated dental practices were transferred back to
Robert D. Rutner, D.D.S. Interdent recorded a charge of $3.5 million as a result
of the settlement, which is included in the loss on dental locations
dispositions and impairment of long-lived assets as discussed in note 5 to the
accompanying Consolidated Financial Statements. No additional contingencies or
obligations relating to these cases exist at December 31, 2001.


On November 28, 2000, the Court entered its Order of Related Cases with regard
to an action previously filed by InterDent on September 28, 2000 in Los Angeles
Superior Court Case No. BC237600, wherein InterDent alleged causes of action
against Amerident for breach of contract, breach of the implied covenant of good
faith and fair dealing, intentional misrepresentation and negligent
misrepresentation. On October 18, 2000, Amerident Dental Corp. ("Amerident")
filed a lawsuit against InterDent and Gentle Dental Management, Inc. seeking
damages related to the July 21, 1999 sale of substantially all of the assets of
ten dental practices in California and Nevada. On January 19, 2001, Amerident
filed another action against InterDent and Gentle Dental Management, Inc. for
Breach of a Promissory Note and related common counts, that action was similarly
deemed related and consolidated with the earlier filed InterDent action.
Discovery is ongoing. The trial has been set for May 20, 2002. InterDent
believes that this case is without merit and intends to vigorously defend all
allegations. Accordingly, no liability for this suit has been recorded at this
time.

On January 19, 2001, JB Dental Supply Company filed a complaint against
InterDent and Gentle Dental Service Corporation in Los Angeles Superior Court
Case No. BC245573 for breach of contract and related common counts alleging the
failure of certain offices to pay for dental supplies. The case was settled on
January 10, 2002 for $0.2 million.

The Company has been named as a defendant in various other lawsuits in the
normal course of business, primarily for malpractice claims. The Company and
affiliated dental practices, and associated dentists are insured with respect to
dentistry malpractice risks on a claims-made basis. Management believes all of
these pending lawsuits, claims, and proceedings against the Company are without
merit or will not have a material adverse effect on the Company's consolidated
operating results, liquidity or financial position.

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

Not applicable.







PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Our Common Stock is listed on the Nasdaq National Market under the symbol
"DENT." The following table sets forth, for the periods indicated, the highest
and lowest per share sales price for our Common Stock as reported on the Nasdaq
National Market. Stockholders are encouraged to obtain current market
quotations. All amounts in the table have been adjusted to reflect the 1-for-6
reverse split of our common stock effective August 7, 2001.

High Low

2000

First Quarter $ 51.00 $ 30.75
Second Quarter 37.87 18.38
Third Quarter 29.63 18.38
Fourth Quarter 27.38 4.50

2001

First Quarter $ 9.38 $ 2.25
Second Quarter 3.66 1.92
Third Quarter 3.00 0.73
Fourth Quarter 1.99 0.32


As of April 12, 2002 there were approximately 171 holders of record of
InterDent, Inc. common stock.

The payment of dividends is within the discretion of the Board of Directors;
however, we intend to retain earnings from operations for use in the operation
and expansion of our business and do not expect to pay cash dividends in the
foreseeable future. In addition, our senior credit lender currently prohibits
the payment of cash dividends. Any future decision with respect to dividends
will depend on future earnings, operations, capital requirements and
availability, restrictions in future financing agreements and other business and
financial considerations.

On February 15, 2002 we received notification from Nasdaq that we have failed to
maintain a minimum market value of publicly held shares of $15,000,000 and a
minimum bid price per share of $3.00 for 30 consecutive days as required under
Marketplace Rule 4450(b) (the "Rule"). Under Nasdaq rules, we will be provided
until May 15, 2002 to regain compliance with the Rule. If at anytime before May
15, 2002 the minimum market value of publicly held shares is $15,000,000 and bid
price of our stock is at least $3.00 for a minimum of 10 trading days, the
Nasdaq staff will determine if we are in compliance with the Rule. However, if
we are unable to demonstrate compliance with the Rule on or before May 15, 2002,
the staff will provide us with written notification that our securities will be
delisted. At that time we may appeal the staff's decision to a Nasdaq Listing
Qualification Panel.

If the Company's Common Stock is delisted from the Nasdaq National Market, and
if trading of the Company's Common Stock is to continue, such trading could be
conducted on the Nasdaq Small Cap Market if the Company meets the requirements
for listing on that market, in the over-the-counter market on the so called
"pink sheets" or, if available, on the NASD's Electronic Bulletin Board. In such
event, investors could find it more difficult to dispose of, or to obtain
accurate quotations as to the value of, the Company's Common Stock. The trading
price per share of the Company's Common Stock could be reduced as a result.

First Union National Bank is the Transfer Agent and Registrar for the stock of
InterDent, Inc. Shareholder matters, such as a transfer of shares, stock
transfer requirements, missing stock certificates and changes of address, should
be directed to First Union at the following address and telephone number:

First Union National Bank
Shareholder Services Group
1525 W. WT Harris Blvd., 3C3
Charlotte, North Carolina 28288-1153
Telephone Numbers: 704/590-0394, or toll-free 800/829-8432


Item 6. Selected Financial Data.

The following tables set forth selected historical financial data and other
operating information for each of the fiscal years in the five-year period ended
December 31, 2001. The selected financial information for each of the years in
the five-year period ended December 31, 2001 has been derived from the audited
Consolidated Financial Statements of InterDent. The Company's historical results
are not necessarily indicative of future results. This selected financial
information should be read in conjunction with the Consolidated Financial
Statements of InterDent and the related notes thereto and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations".




Years Ended December 31,
--------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- ---------------
(in thousands, except per share amounts)

OPERATING RESULTS:
Total Revenues $ 282,631 $ 293,166 $ 231,610 $ 134,658 $ 51,282
Operating income (loss) (4,476) (37,101) 13,973 5,993 (2,110)
Extraordinary loss on debt
extinguishments, net of taxes (5,601) -- -- -- --
Net income (loss) attributable to
common stock (35,080) (48,712) 5,222 1,248 (3,827)
Net income (loss) per share
attributable to common stock -
Basic (9.09) (13.19) 1.53 0.38 (1.87)
Net income (loss) per share
attributable to common stock -
Diluted (9.09) (13.19) 1.39 0.35 (1.87)

BALANCE SHEET DATA:
Total assets $ 207,024 $ 244,229 $ 241,213 $ 165,134 $ 72,972
Long-term debt and capital lease
obligations 156,047 160,211 120,763 67,097 15,240
Total redeemable common and
preferred stock 1,047 1,484 1,796 2,102 2,130
Total shareholders' equity 6,188 30,452 75,895 68,990 43,949




Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Forward-looking and Cautionary Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. Certain information included in this
Form 10-K and other materials filed with the Securities and Exchange Commission
(as well as information included in oral statements or other written statements
made or to be made by the Company) contain statements that are forward looking,
such as statements relating to business strategies, plans for future development
and upgrading, capital spending, financing sources, changes in interest rates,
and the effects of regulations. Such forward-looking statements involve
important known and unknown risks and uncertainties that could cause actual
results and liquidity to differ materially from those expressed or anticipated
in any forward-looking statements. Such risks and uncertainties include, but are
not limited to: those related to the effects of competition; leverage and debt
service; financing needs or efforts; actions taken or omitted to be taken by
third parties, including the Company's customers, suppliers, competitors, and
stockholders, as well as legislative, regulatory, judicial, and other
governmental authorities; changes in business strategy; general economic
conditions; changes in health care laws, regulations or taxes; risks related to
development and upgrading systems; and other factors described from time to time
in the Company's reports filed with the Securities and Exchange Commission.
Accordingly, actual results may differ materially from those expressed in any
forward-looking statement made by or on behalf of the Company. Any
forward-looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995, and, as such, speak only as of the date made. The
Company undertakes no obligation to revise publicly these forward-looking
statements to reflect subsequent events or circumstances.

Overview

We are a leading provider of dental practice management services to
multi-specialty dental professional corporations and associations ("PAs") in the
United States. The dentists employed through our network of affiliated PAs
provide patients with affordable, comprehensive, convenient and high quality
dentistry services, which include general dentistry, endodontics, oral
pathology, oral surgery, orthodontics, pedodontics, periodontics and
prosthodontics.

Through May 31, 2001, we provided management services to dental practices in
Arizona, California, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Maryland,
Michigan, Nevada, Oklahoma, Oregon, Pennsylvania, Virginia and Washington.
Effective May 31, 2001, we completed the sale of all of the common stock of
Dental Care Alliance, Inc. ("DCA"), a wholly-owned subsidiary, and certain other
assets in Maryland, Virginia, and Indiana. Total consideration was $36.0
million, less the assumption of related debt and operating liabilities. The net
sales proceeds were utilized to pay down existing borrowings under our credit
facility. We also have retained an option to repurchase the division at a future
date and entered into an ongoing collaboration agreement and license agreement
to provide our proprietary software. As of December 31, 2001 we provided
management services to 141 dental offices that employ 536 dentists, including
105 specialists. We currently operate in Arizona, California, Hawaii, Idaho,
Kansas, Nevada, Oklahoma, Oregon, and Washington.

We have historically affiliated with PAs by purchasing the operating assets of
those practices, including furniture and fixtures, equipment and instruments,
and entering into long-term (typically 40 years) management service agreements
("MSAs") with the PAs associated with the practice. Under the terms of these
agreements, we are the exclusive administrator of all non-clinical aspects of
the dental practices, whereas the affiliated PAs are exclusively in control of
all aspects of the practice and delivery of dental services. As compensation for
services provided under the MSAs, we receive a management fee typically equal to
the reimbursement of expenses incurred in operating the practice plus a
percentage of the net revenues of the affiliated dental practice.

As compensation for services provided under the MSAs, we receive management fees
from our affiliated dental practices. Depending upon the individual MSA
provisions, the management fee is calculated based upon one of two methods.
Under one method, the management fee is equal to reimbursement of expenses
incurred in the performance of our obligations under the management service
agreements, plus an additional fee equal to a percentage of the net revenues of
the affiliated dental practices. Under the other method, the management fee is a
set percentage of the net revenues of the affiliated dental practices.

The Emerging Issues Task Force ("EITF") of the Financial Accounting Standards
Board reached a consensus on the accounting for transactions between physician
practice management companies and physician practices and the financial
reporting of such entities (EITF issue number 97-2). For financial reporting
purposes, EITF 97-2 mandates the consolidation of physician practice activities
with the practice management company when certain conditions have been met, even
though the practice management company does not have a direct equity investment
in the physician practice. The accompanying financial statements are prepared in
conformity with the consensus reached in EITF 97-2.

Simultaneous to the execution of an MSA with each PA, we also entered into a
shares acquisition agreement ("SAA"). Subsequent to the sale of DCA, under all
of the SAAs entered into except for one, we have the right to designate the
purchaser (successor dentist) to purchase from the PA shareholders all the
shares of the PA for a nominal price of $1,000 or less. Under these SAAs, we
have the unilateral right to establish or effect a change in the PA shareholder,
at will, and without consent of the PA shareholder, on an unlimited basis. Under
the provisions of EITF 97-2, the agreements with the PA shareholders qualify as
a friendly doctor arrangement. Consequently, under EITF 97-2, we consolidate all
the accounts of those PAs in the accompanying consolidated financial statements.
Accordingly, the consolidated statements of operations include the net patient
revenues and related expenses of these PAs and all significant intercompany
transactions have been eliminated.

Each of the DCA SAAs entered into with the PAs did not have the nominal price
provision. Also, subsequent to the DCA sale one remaining SAA entered into with
a PA does not have the nominal price provision. Rather, the SAA purchase price
is based upon a multiple of earnings, as defined. As a result, the agreements do
not meet the criteria of consolidation under EITF 97-2 and the consolidated
statements of operations exclude the net patient revenues and expenses of these
PAs. The consolidated statements of operations include only our net management
fee revenues generated and expenses associated with providing services under the
MSAs.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities and revenues and expenses. On an on-going basis we evaluate these
estimates, including those related to carrying value of accounts receivables,
intangible and long-lived assets, income taxes and any potential future
impairment. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

We have identified the policies below as critical to our business operations and
the understanding of our results of operations.

Valuation of accounts receivables. The carrying amount of accounts receivables
requires management to assess the future collectibility of our accounts
receivables and establish an allowance for patients covered by third-party payor
contracts, anticipated discounts and doubtful accounts. Our established
allowance is determined based upon historical realization rates, the current
economic environment and the age of accounts. Changes in our estimated
collection rates are recorded as a change in estimate in the period the change
is made.

Intangibles and long-lived Assets. Our business acquisitions typically result in
intangible and long-lived assets, which affect the amount of future period
amortization expense and possible impairment expense that we may incur. The
determination of the value of such intangible and long-lived assets requires
management to make estimates and assumptions that affect our consolidated
financial statements. Management performs an impairment test on intangible and
long-lived assets when facts and circumstances exist such as loss of key
personnel, change in legal factors, operating results, etc., which would suggest
that such assets may be impaired. In connection with the impairment test we
estimate future projected cash flows and revenue streams, and if impairment is
determined, make the appropriate adjustment to the intangible or long-lived
assets to reduce the asset's carrying value.

Income Taxes. We record a valuation allowance to reduce our deferred income tax
assets to the amount that is more likely than not to be realized. Our assessment
of the realization of deferred income tax assets requires that estimates and
assumptions be made as to taxable income of future periods. Projection of future
period earnings is inherently difficult as it involves consideration of numerous
factors such as our overall strategies, market growth rates, responses by
competitors, assumptions as to operating expenses and other industry specific
factors.

Results of Operations

The following discussion highlights changes in historical revenues and expense
levels for the three-year period ended December 31, 2001, as reported in our
Consolidated Financial Statements and the related notes thereto appearing
elsewhere herein.

Year Ended December 31, 2001 Statement of Operations Compared to Year Ended
December 31, 2000

Dental Practice Net Patient Revenue. Dental practice net patient revenue
represents the clinical patient revenues at affiliated dental practices where
the consolidation requirements of EIFT 97-2 have been met. There were 166 such
clinical locations through May 31, 2001 and 146 such locations immediately
subsequent to the DCA sale transaction, and 139 such locations at December 31,
2001. Dental practice net patient revenue was $262.1 million for 2001 compared
to $249.3 million for 2000, representing a 5.1% increase.

This revenue growth is partially due to the addition of 4 affiliated dental
practices at the end of August 2000, representing 21 locations, although 15 of
these offices were subsequently sold as part of the DCA sale on May 31, 2001.
Included in dental practice net patient revenue for 2001 and 2000 was $11.4
million and $9.0 million, respectively, of revenues of clinical locations
included in the DCA sale transaction. Also, $3.7 million of the increase is
associated with an acquisition of six clinical locations effective September
2000 that were not sold as part of the DCA transaction. These increases in
revenues were offset by the disposition of six clinical locations during 2001,
representing $4.4 million.

We were also able to effectively increase total dental practice net patient
revenue at existing facilities. For those locations affiliated as of January 1,
2000, where the management service agreements meet the EITF criteria for
consolidation, same-store dental practice net patient revenue for 2001 increased
by approximately 7.4% when compared to revenue for 2000.

Net Management Fees. Net management fees consist of revenue earned in the
performance of our obligations under management service agreements at affiliated
dental practices where the consolidation requirements of EITF 97-2 are not met.
There were 78 such clinical locations through May 31, 2001 and 2 such locations
subsequent to the DCA sale transaction. Net management fees were $19.8 million
for 2001, of which $19.2 million related to DCA related practices through May
31, 2001. Net management fees were $43.0 million for 2000. The decrease in these
revenues is entirely related to the DCA sale transaction as essentially all of
our management fees revenues were earned by our DCA subsidiary.

Licensing and Other Fees. Prior to the DCA sale transaction, we earned fees from
certain unconsolidated affiliated dental practices for various licensing and
consulting services performed by our DCA subsidiary. This revenue was $0.70
million for 2001 and $0.90 million for 2000.

Simultaneous to the sale of DCA, we entered into a $2.6 million five-year
license agreement with DCA for use of our proprietary practice management
system, subject to negotiations for additional term extensions. Such amount has
been recorded as deferred license revenues and is being amortized to revenue
over the life of the agreement, with $0.30 million earned in 2001.

Practice Operating Expenses. Practice operating expenses represent the direct
costs associated with operating and managing the practice facility locations,
including regional support departments. These costs are comprised of the
following expenses:

Clinical Salaries, Benefits and Provider Costs include all patient service
provider staff compensation and related payroll costs at the consolidated
affiliated dental practices, including dentists, hygienists and dental
assistants, and dental assistants for the unconsolidated affiliated dental
practices;

Practice Non-clinical Salaries and Benefits include all staff compensation
and related payroll costs at all dental and regional facilities other than
dentists, hygienists, and dental assistants;

Dental Supplies and Lab Expenses include all direct supply costs in the
performance of patient treatment programs;

Practice Occupancy Expenses include facility leases, property taxes,
utilities, janitorial services, repairs and maintenance; and

Practice Selling, General, and Administrative Expenses include general
office, advertising, professional services (excluding dentistry), office
supplies, bank processing fees, local taxes, insurance, bad debt expense,
and other miscellaneous costs at the dental facilities and regional
centers.

Practice operating expenses were $244.5 million for 2001 compared to $249.3
million for 2000, representing a 1.9% decrease. The decrease in practice
operating expenses is due to the sale of the DCA subsidiary on May 31, 2001 and
six clinical locations disposed of throughout 2001.

Excluding all revenues and expenses of the offices disposed of during 2001,
practice operating expenses at the remaining offices (the "Remaining Offices")
for 2001 were 86.8% of total revenue compared to 86.0% for 2000. The practice
operating margin at the Remaining Offices for 2001 was 13.2% compared to 14.0%
for 2000. The decrease in operating margin resulted from increased clinical
salaries, benefits and provider costs at the Remaining Offices, partially offset
by decreased nonclinical salaries and benefits, dental and lab supplies,
occupancy, and SG&A costs as a percent of revenues. Clinical salaries, benefits,
and provider costs at the Remaining Offices as a percentage of revenues was
approximately 2.7 percentage points higher for 2001 than 2000. We are seeking to
reduce clinical costs as a percentage of revenue by a combination of revenue
enhancement and cost cutting initiatives. Such costs are expected to decline as
a percent of revenue and reflect costs in line with our better practices once
our initiatives are completed.

Corporate Selling, General and Administrative Expenses. Corporate selling,
general and administrative expenses include: corporate salaries, general office
costs, investor relations expenses, legal and audit fees, general insurance,
director and officer liability insurance, corporate office supplies and other
miscellaneous costs at our corporate facilities. Corporate selling, general and
administrative expenses decreased to $13.2 million for 2001 from $14.3 million
for 2000. This decrease is primarily attributed to the elimination of our
Florida corporate facility upon the sale of DCA. As a percentage of revenues,
such costs decreased to 4.7% for 2001 compared from 4.9% for 2000.

Stock Compensation Expense. During the second and third quarter of 2000, we
advanced $11.5 million under notes which became non-recourse after two years to
certain officers in order to retain and provide incentives to such officers,
where shares of our stock owned by each officer serve as collateral for the
advances. The entire balance was recorded as deferred compensation in
shareholders' equity in the Consolidated Balance Sheets. The deferred
compensations is being amortized over the life of the advances as stock
compensation expense, representing the difference in the amount of the advances
and the value of the collateral at the date of the loans. The total original
advance included advances of $5.9 million to DCA officers. These advances were
sold in connection with the sale of DCA. The remaining non-amortized outstanding
balance of deferred compensation associated with the advances to DCA officers at
the time of the sale transaction of $4.6 million was included in the
determination of impairment of long-lived assets recorded in the fourth quarter
of 2000. During the third quarter of 2001, the entire remaining unamortized
balance of deferred compensation was written off as a result of the acceleration
of the non-recourse provision of the advance due from the former CEO and the
significant decline in the underlying value of the pledged collateral, which is
considered to be other than temporary.

In connection with the execution of an officer's amended employment agreement, a
note receivable and related accrued interest of $0.2 million were to be
forgiven, subject to provisions of the agreement. The note and accrued interest
were being expensed over the twenty-four month service period ending May 2002.
During the third quarter of 2001, the remaining balance on the note was written
off as compensation expense based on the note being converted to non-recourse
pursuant to the severance agreement with the officer. In 2000, we also provided
a stock based incentive program to certain employees.

For 2001, we recorded total stock compensation expense of $6.2 million as
compared to $1.4 million for 2000.

Corporate Merger and Restructure Costs. We recorded corporate restructure and
merger costs associated with the business combinations between Gentle Dental
Service Corporation and Dental Care Alliance, each of which became a
wholly-owned subsidiary of InterDent in March 1999. The business combination has
been accounted for as pooling-of-interests. As a result of the business
combination, we recorded a restructuring charge of $1.2 million during 2000, all
of which was recorded during the first quarter of 2000, relating to our
restructuring plan, including charges for system conversions, redirection of
certain duplicative operations and programs, and other costs. We also recorded
direct merger expenses of $0.5 million during the first quarter of 2000 for the
proposed merger with Leonard Green & Partners, L.P. that was terminated in the
second quarter of 2000. These expenses consisted primarily of investment
banking, accounting, legal and other advisory fees.

During the fourth quarter of 2001, we reevaluated our level of accrued corporate
merger and restructure cost, and as a result of our analysis, a reduction in the
reserve was recorded, resulting in a reduction to expenses of $1.2 million.

Dental Location Dispositions and Impairment of Long-lived Assets. The completion
of the stock sale of DCA, a wholly-owned subsidiary, and certain other assets in
Maryland, Virginia, and Indiana represented total consideration of $36 million,
including cash of $26.5 million and the assumption of related debt and operating
liabilities, and a license fee of $2.6 million, payable in future installments.
The loss of $5.8 million recorded in 2001 includes a provision for transaction
related closing costs. Additionally, during 2001 we disposed or identified
several under performing dental locations for disposition and recorded a charge
of $6.5 million, representing the excess of the carrying value of the underlying
assets to be disposed of, including intangibles, property and equipment, and
other assets over the sale price. Total net proceeds of $21.4 million from the
disposition of subsidiary and dental locations were primarily utilized to pay
down the outstanding balance under our credit facility, as required by the
credit facility agreement.

Depreciation and Amortization. Depreciation and amortization was $12.0 million
for 2001 compared to $12.6 million for 2000. This decrease is primarily due to a
reduction of $2.0 million resulting from the sale of the DCA subsidiary on May
31, 2001, offset by additional property and equipment and intangible costs
assigned to management services agreements associated with dental practice
affiliations completed and earn-out payments made or converted to notes in 2001
and 2000. It is anticipated that future earn-out payments on completed
acquisitions and additional capital expenditure needs will result in additional
depreciation and amortization in future periods.

Interest Expense. Interest expense, net of interest income, was $19.7 million
for 2001 compared to $15.3 million for 2000. This increase in interest expense
was due to additional debt incurred under our credit facility (the "Credit
Facility") to complete additional dental practice affiliations and make earn-out
payments associated with past affiliations. For the years ended December 31,
2001 and 2000, combined we paid total cash consideration for practice
affiliations of $30.3 million. In addition, we experienced an overall increase
in market rates of interest during 2000. Recent easing of interest rates by the
Federal Reserve, along with our pay down on the Credit Facility resulting from
the sale of DCA, mitigated our increased borrowing costs associated with our
Credit Facility.

During 2001, we paid interest of $7.4 million as interest payment-in-kind
("PIK"), represented in additional notes. Because of our ability to PIK a
significant level of our current interest due under the terms of various debt
arrangements, we had sufficient cash flows to meet both our interest and
operating expense requirements. In April 2002, we have entered into additional
amendments to our outstanding Credit Facility and Levine Notes, as further
described in note 9 to the consolidated financial statements.

In June 2000, we also issued a $25.5 million senior subordinated note. The
proceeds from the transaction were primarily utilized to pay down a portion of
the outstanding balance on the Credit Facility, as required under the terms of
the Credit Facility. The interest rate on the senior subordinated note is 12.5%,
subject to incremental charges as outlined in the agreement. In April and May
2001, the notes were amended to waive the non-compliance as of December 31,
2000, reset all covenants for 2001 and subsequent years, and increased the PIK
note interest rate to 16.5%, as discussed in the notes to the Consolidated
Financial Statements.

Debt and equity financing costs. In April and May 2001, we entered into various
amendments to our existing Credit Facility and convertible senior subordinated
debt as described in the notes to the Consolidated Financial Statements. As a
result, we recorded a charge of $3.9 million for the write-off of certain
prepaid debt costs related to previously entered credit facility agreements,
loan amendment fees, warrant issuance and associated professional fees incurred
in connection with the execution of the various loan amendments.

Provision for Income Taxes. Our statutory tax rate for federal and state
purposes is approximately 40%. Income tax expense of $0.12 million recorded for
2001 represents our state tax payable. We did not recognize a tax benefit for
the losses incurred in 2001 as our tax loss carryforwards are fully reserved by
a valuation allowance. We recorded a net tax benefit of $4.0 million for 2000 on
a loss before income taxes of $52.7 million. Our effective tax rate benefit was
substantially lower primarily due to the valuation allowance on certain deferred
tax assets of $17.0 million.

Extraordinary loss on debt extinguishments. We entered into an agreement to
amend our senior subordinated debt ("Levine Note") in April 2001. The amendment
to the Levine Note has met the criteria of substantial modification as outlined
in EITF 96-19. As such, the Levine Note is considered extinguished, with a new
note issued in its place. Accordingly, we recorded an extraordinary charge of
$5.6 million for 2001. No tax benefit was recorded as a result of the charge as
the realization of available deferred tax assets is not assured. The
extraordinary loss represents the amendment fee of $2.2 million incurred to
extinguish the original note and $3.4 million for the write-off of the
non-amortized portions of the warrant discount and deferred financing costs
associated with the original note agreement.

Year Ended December 31, 2000 Statement of Operations Compared to Year Ended
December 31, 1999

Dental Practice Net Patient Revenue. Dental practice net patient revenue
represents the clinical patient revenues at 166 clinical locations through
December 31, 2000 where the consolidation requirements of EITF 97-2 have been
met. Dental practice net patient revenue was $249.3 million for 2000 compared to
$188.1 million for 1999, representing a 32.5% increase.

The majority of this revenue growth is due to the addition of 4 affiliated
dental practices in 2000, representing 21 locations and 16 affiliated dental
practices during 1999, representing 51 clinical locations. These affiliated
dental practices have management service agreements that meet consolidation
requirements outlined in EITF 97-2. In addition, during 2000, we entered into a
new management service agreement with one existing affiliated practice. Whereas
the former management service agreement did not meet the criteria for
consolidation as outlined in EITF 97-2, the new agreement meets the criteria for
consolidation.

We were also effectively able to increase total dental practice net patient
revenue at existing facilities. We worked with affiliated dental practices to
recruit new dentists to meet increased demand, negotiated additional contracts
with managed care organizations and third party-payors, leveraged additional
specialty dental services, and increased the number of patients successfully
completing their treatment programs with the use of internally developed
proprietary software. For those locations affiliated as of January 1, 1999,
where the management service agreements meet the EITF criteria for
consolidation, same-store dental practice net patient revenue for 2000 increased
by approximately 5.6% when compared to revenue for 1999.

Net Management Fees. Net management fees consist of revenue earned in the
performance of our obligations under management service agreements at 78
unconsolidated affiliated dental practice clinical locations through December
31, 2000. At January 1, 1999 we were affiliated with 70 unconsolidated clinical
locations. Net management fees were $43.0 million for 2000 and $42.6 million for
1999. Although total dental practice net patient revenue increased at these
locations, management fee revenues remained relatively flat, as we reduced
management fees with certain affiliations as specialty provider revenues were
added. Substantially all of our management fees revenues were earned by our DCA
subsidiary which was sold in May 2001 as described in notes to the Consolidated
Financial Statements.

Licensing and Other Fees. We earn certain fees from unconsolidated affiliated
dental practices for various licensing and consulting services. These revenues
were $0.9 million for 2000 and $1.0 million for 1999.

Practice Operating Expenses. Practice operating expenses represent the direct
costs associated with operating and managing the practice facility locations,
including regional support departments. These costs are comprised of the
following expenses:

Clinical Salaries, Benefits and Provider Costs include all patient service
provider staff compensation and related payroll costs at the consolidated
affiliated dental practices, including dentists, hygienists and dental
assistants, and dental assistants for the unconsolidated affiliated dental
practices;

Practice Non-clinical Salaries and Benefits include all staff compensation
and related payroll costs at all dental and regional facilities other than
dentists, hygienists, and dental assistants;

Dental Supplies and Lab Expenses include all direct supply costs in the
performance of patient treatment programs;

Practice Occupancy Expenses include facility leases, property taxes,
utilities, janitorial services, repairs and maintenance; and

Practice Selling, General, and Administrative Expenses include general
office, advertising, professional services (excluding dentistry), office
supplies, bank processing fees, local taxes, insurance, bad debt expense,
and other miscellaneous costs at the dental facilities and regional
centers.

Practice operating expenses were $249.3 million for 2000 compared to $186.9
million for 1999, representing a 33.4% increase. The majority of this increase
in practice operating expenses is due to the addition of 20 affiliated dental
practices (representing 72 clinical locations) during 2000 and 1999. Practice
operating expenses for 2000 were 85.0% of total revenue compared to 80.7% for
1999. The practice operating margin for 2000 was 15.0% compared to 19.3% for
1999.

The overall decrease in operating margin is primarily related to a higher cost
structure at certain dental practices affiliated during 1999 and 2000. In
particular, salary costs are approximately 2.9 percentage points higher for 2000
as compared to 1999.

Corporate Selling, General and Administrative Expenses. Corporate selling,
general and administrative expenses include: corporate salaries, general office
costs, investor relations expense, legal and audit fees, general insurance,
director and officer liability insurance, corporate office supplies, and other
miscellaneous costs at our corporate facilities. Corporate selling, general and
administrative expenses were $14.3 million for 2000 compared to $11.9 million
for 1999, representing a 20.2% increase. The rise in total corporate selling,
general and administrative expenses is the result of increasing corporate
staffing levels in our marketing, human resource, finance, and operations
departments to accommodate the addition of affiliated dental practices.
Additionally, resources were been added to respond to the increasing needs of
our affiliated dental practices for information systems implementation, clinical
management and mentoring programs, and to appropriately develop our support
infrastructure. At the same time, we seek to maximize the effectiveness of
corporate infrastructure costs. As such, these corporate costs as a percentage
of revenues decreased to 4.9% for 2000 compared to 5.1% for 1999.

Management Merger and Retention Bonus. On October 22, 1999, we announced the
signing of a definitive merger agreement between Interdent, Inc. and a group
consisting of an affiliate of Leonard Green & Partners, L.P., and certain
members of our management. The board of directors approved a bonus plan in the
first quarter of 2000 to help motivate and retain management to implement our
plan for a changed strategic direction. We recorded a charge for 2000 of $1.2
million relating to our management merger and retention bonus plan. In May 2000,
we mutually agreed with Leonard Green & Partners, L.P. to terminate the merger
agreement and the related recapitalization transaction.

Stock Compensation Expense. During 2000, we advanced $11.5 million to certain
officers as note receivables in order to retain and provide incentives to such
officers, where shares of our stock owned by each officer serve as collateral.
The entire balance of the notes was recorded as deferred compensation in the
Consolidated Statements of Shareholders' Equity. Approximately $6 million of the
notes were being amortized over the life of the notes as stock compensation
expense, representing the difference in the amount of the notes and the value of
the collateral at the date of the loans. The amortization reflected the deficit
of the underlying pledged collateral on the individual note dates. During 2000,
we recorded an expense of $0.8 million. We also adjusted the amortization to
reflect changes in the quoted fair market value of the underlying shares of
stock. The decline, if any, was amortized as stock compensation expense over the
life of the notes. The amortization expense was adjusted cumulatively for
changes in fair market value of the collateral. Increases in the stock price, if
any, would result in a credit to expense, up to the amount of prior expense
recognized for this portion of the notes. We recorded an additional expense of
$0.5 million during 2000 and as of December 31, 2000, a decline in the value of
stock of $3.0 million remained to be amortized over the lives of the notes if
the stock price remained at current levels.

Also, in connection with the execution of an officer's amended employment
agreement, a note receivable and related accrued interest of $0.2 million was to
be forgiven in 2002, subject to provisions of the agreement. The note and
accrued interest were being expensed over the twenty-four month service period
ended May 2002. We recorded an expense of $0.05 million in 2000. In addition, we
waived our right to repurchase 33,382 common shares held by the officer at $.45
per share and recorded a charge of $0.03 million in 2000.

Corporate Merger and Restructure Costs. We recorded corporate restructure and
merger costs associated with the business combinations between Gentle Dental
Service Corporation and Dental Care Alliance, each of which became a
wholly-owned subsidiary of InterDent in March 1999. The business combination has
been accounted for as a pooling-of-interests. As a result of the business
combination we recorded a restructuring charge of $1.2 million for 2000 relating
to our restructuring plan, including charges for system conversions, redirection
of certain duplicative operations and programs, and other costs. In 1999 we
recorded direct merger expenses of $3.3 million, consisting of investment banker
fees, advisors fees, investor relations expense, legal fees, accounting fees,
printing expense, and other costs. We also recorded a restructure charge for
1999 of $3.9 million relating to our restructuring plan. As of December 31,
2000, our restructuring plan is substantially complete and we do not anticipate
additional restructuring charges as a result of the business combination.

We also recorded direct merger expenses of $0.5 million for 2000 as compared to
$1.6 million for 1999 associated with the proposed merger with Leonard Green &
Partners, L.P. that was terminated in the second quarter of 2000. These expenses
consist primarily of investment banking, accounting, legal, and other advisory
fees.

Dental Location Dispositions and Impairment of Long-lived Assets. In April 2001,
we entered into a definitive agreement to sell the stock of DCA, a wholly owned
subsidiary and certain other assets in Maryland, Virginia, and Indiana that were
acquired in the DentalCo transaction that was consummated in August 2000. The
transaction was completed in May of 2001. Accordingly, pursuant to FASB issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
impairment of Long-lived Assets and for Long-lived Assets to be Disposed of", we
evaluated the recoverability of the long-lived assets associated with the
proposed sell of DCA stock, including notes and advances to PAs and intangibles.
In the fourth quarter of 2000, we determined that the estimated future
undiscounted cashflow from these assets was below the carrying value of these
long-lived assets and advances to PAs. Accordingly, we adjusted the carrying
value of these assets to their estimated fair value, resulting in a non-cash
impairment charge of $49.8 million for a write-down of notes and advances to PAs
of $18.1 million and intangibles of $31.7 million. In addition, interest income
from notes and advances from PAs previously recorded in 2000 of $1.8 million was
written off to interest expense.

Depreciation and Amortization. Depreciation and amortization was $12.6 million
for 2000 compared to $10.0 million for 1999. This increase of 26% is primarily
due to additional property and equipment and intangible costs assigned to
management services agreements associated with dental practice affiliations
completed in 2000 and 1999.

Interest Expense. Interest expense, net of interest income, was $15.3 million
for 2000 compared to $6.9 million for 1999. This increase in interest expense
was due to additional debt incurred under our credit facility (the "Credit
Facility") to complete additional dental practice affiliations and earnout
payments associated with past affiliations throughout 2000 and 1999. In 2000 and
1999, we paid total cash consideration for practice affiliations of $26.1
million and $40.3 million, respectively. In addition, we experienced an overall
increase in market rates of interest during 2000. In addition, interest income
from notes and advances from PAs previously recorded in 2000 of $1.8 million was
written off to net interest expense in the fourth quarter of 2000, as discussed
above.

In June 2000, we also issued a $25.5 million senior subordinated note. The
proceeds from the transaction were primarily utilized to pay down a portion of
the outstanding balance on the Credit Facility, as required under the terms of
the Credit Facility. The interest rate on the senior subordinated note is 12.5%,
which is approximately 2-3 percentage points higher than the interest rate on
the Credit Facility, depending upon the market rate of interest. This resulted
in an incremental interest charge of approximately of $0.4 million for 2000.

Provision for Income Taxes. Our statutory tax rate for federal and state
purposes is approximately 39%. We recorded a net tax benefit of $4.0 million for
2000 on a loss before income taxes of $52.7 million. Our effective tax rate
benefit was substantially lower primarily due to the valuation allowance on
certain deferred tax assets of $17.0 million, offset by the reversal of $0.7
million for certain nondeductible merger costs expensed in 1999 for the proposed
merger transaction with Leonard Green & Partners, L.P. Upon termination of the
transaction during 2000, such expenses are considered deductible for income tax
purposes. This benefit was reduced by state alternative minimum tax of $0.2
million.

Liquidity and Capital Resources

Liquidity

We have experienced losses attributed to common stock of $35.1 million and $48.7
million for 2001 and 2000, respectively. Contributing to these significant
losses are certain charges for asset impairments, disposition of DCA and certain
other dental locations, and debt restructuring and debt extinguishments, which
we believe are unusual in nature. Although we have experienced losses over the
two-years ended December 31, 2001 due to these unusual charges, our dental
facilities continue to generate significant positive cash, as reflected in cash
flows from operations of $19.4 million and $9.5 million for 2001 and 2000,
respectively.

During 2001, we hired an advisor to review our operations to determine whether
improvements could be made, which could be implemented in the near and long
term. The advisor, along with our personnel reviewed such strategies as revenue
enhancements, modifications to managed care contracts, reduction of headcount at
dental office and corporate locations, and savings from procurement
efficiencies. As a result of this review, a number of initiatives to improve
operations were implemented in late 2001 and early 2002. These initiatives are
projected to increase cash flow in 2002 and in future periods through our
emphasis on increasing same store revenues and curtailing direct operating
costs. Through March 31, 2002, we have met these projections.

These initiatives and the projected improvements in operations and cash flows
played a vital role in our ability to negotiate modifications to our credit
agreement that was consummated on April 15, 2002, as more fully described in
Note 9 to the notes to the Consolidated Financial Statements. These
modifications resulted in a permanent waiver of our past covenant violations,
and reset the covenants to levels, which our projections indicate will be met
throughout all of 2002. We also incurred certain fees and expenses, and the
interest rate was increased by 1%. In addition, the principal amortization
schedule was significantly modified such that approximately $13.8 million of
payments due in 2002 were deferred until 2003, and only $0.60 million of
principal payments are due in the second half of 2002. We paid our $2.4 million
scheduled installment due April 1, 2002.

We believe that we will be able to make all scheduled 2002 debt payments, and
those due under earn-out agreements, along with meeting our other obligations in
2002. Further, we have significant debt due in 2003, which must be refinanced,
modified, or otherwise retired with the proceeds of other financing or capital
transactions. There can be no assurance that we will meet these obligations in
2002, and that any such financing will be available or available on terms
acceptable to Interdent in 2003.

Current Financial Condition and Cashflows

At December 31, 2001, cash and cash equivalents were $7.2 million, representing
a $1.9 million increase in cash and cash equivalents from $5.3 million at
December 31, 2000. The increase in cash at year-end was due to the timing of
certain accounts payable expenditures as approximately $2.5 million in payments
were made in early January 2002. Our working capital deficit at December 31,
2001 of $6.3 million represents an increase from a working capital deficit at
December 31, 2000 of $4.1 million.

Net cash provided by operations amounted to $19.4 million for 2001 compared to
$9.5 million for 2000. The increase in net cash provided by operations of $9.9
million is primarily attributed to $4.0 million in increased accounts receivable
collections. Additionally, during 2001 we received an income tax refund of $1.5
million while for 2000 we paid income taxes of $3.4 million.

Net cash provided by investing activities was $9.4 million for 2001 as compared
to cash used of $53.6 million for 2000. Included in the investing activities for
2001 is cash paid of $4.2 million for earnout payments and $1.0 million of
trailing closing costs on affiliated dental practice acquisitions which closed
in prior years. Cash paid for earnouts and acquisition closing costs were $26.1
million for 2000. We also paid $3.7 million for property and equipment for 2001
compared to $7.9 million for 2000. This decrease in property and equipment
spending is due to the completion of our hardware conversions during 2000 to our
revenue and receivable software system. Advances to unconsolidated affiliated
practices of $3.2 million for 2001 and $8.4 million for 2000 were also made.
Advances consist primarily of receivables from PAs due in connection with cash
advances for working capital and operating purposes to certain unconsolidated
PAs. We advanced funds to these certain PAs during the initial years of
operations, until the PA owner could repay the seller debt, and the operations
improve. Such advances entirely related to our DCA division facilities, which
were eliminated upon consummation of the DCA stock sale transaction in May 2001.
Net proceeds from the DCA sale and other dental location dispositions of $21.4
million for 2001 were utilized to pay down the outstanding credit facility
balance. During 2000, we funded $11.5 million in advances to certain officers in
order to retain and incentivize management. During the third quarter of 2001,
the entire remaining unamortized balance of the advances was written off as a
result of the acceleration of the non-recourse provision of the advances due
from the former CEO and the significant decline in the underlying value of the
pledged collateral, which is considered to be other than temporary.

Net cash used in financing activities was $26.8 million for 2001, of which $18.7
million represents the pay down of the credit facility from the DCA sale
proceeds partially offset by subsequent borrowings. The remainder of cash used
in financing activities primarily represents payments on long-term debt and
capital leases. Cash provided by financing activities for 2000 was $48.8 million
and included gross proceeds of $21.2 million from our Credit Facility and
issuance of subordinated debt and common stock of $36.5 million, offset by $8.1
million in long-term debt and capital leases payments.

In connection with certain completed affiliation transactions, we have agreed to
pay to the sellers' future consideration in the form of cash. The amount of
future consideration payable under earn-outs is generally computed based upon
financial performance of the affiliated dental practices during certain
specified periods. We accrue for earn-out payments with respect to these
acquisitions when such amounts are probable and reasonably estimable. During
2001, we paid $4.2 million in cash and converted $8.1 million of amounts due
under earn-out agreements into long-term notes payable. In addition, as of
December 31, 2001, future anticipated earn-out payments of $4.4 million are
accrued and included in other current liabilities. For those acquisitions with
earn-out provisions, the Company estimates the total maximum earn-out that could
be paid, including amounts already accrued, is between $8.0 and $11.0 million
from January 2002 to December 2004, which is expected to be paid in cash and
notes.

Outstanding Debt and Other Financing Arrangements

Credit Facility Term Note

In 2001, we entered into amendments to our existing senior revolving credit
facility (the "Credit Facility") to amend certain covenants. In connection with
the execution of the amendments, the banks waived the defaults under the Credit
Facility that existed at December 31, 2000 due to failure to meet certain
financial ratio covenants and reset all covenants for 2001 and subsequent years.
Additionally, the banks agreed to certain other changes including a revised term
and provisions regarding asset sales and new financing.

As consideration for these modifications, we agreed to an amendment fee of $1.0
million, which was paid during the three months ended June 30, 2001, and an
additional fee of $1.0 million payable at maturity of the term loan if certain
conditions are not met. The additional fee was paid in connection with an
additional amendment to the Credit Facility consummated in April 2002, as
discussed below. We also issued warrants to the banks to purchase an aggregate
of 166,667 shares of the Company's common stock at a strike price of $3.66 per
share. During the year ended December 31, 2001, we recorded a charge of $3.9
million for the write-off of certain prepaid debt costs related to previously
entered into credit facility agreements, loan amendment fees, warrant issuance
and associated professional fees incurred in connection with the execution of
the amended credit facility agreement.

On October 1, 2001, the Credit Facility converted into a term loan, with
required quarterly payments. On April 15, 2002, we entered into an amendment to
our Credit Facility, which has an outstanding balance of $79.4 million. In
connection with the execution of the amendment, the bank agreed, among other
things, to reset certain covenants and reduce the required future quarterly
principal payments of $7.2 million, which began on October 1, 2001. In
connection with these modifications, we accrued as note principal the remaining
$1.0 million due as a result of the amendment in 2001 as discussed above, which
is payable upon maturity. We also agreed an additional amendment fee of $1.0
million, with cash of $0.50 million payable at closing and $0.25 million to
accrue as additional principal on July 1, 2002 and October 1, 2002, payable upon
final maturity of the Credit Facility on September 30, 2003. The July 1 and
October 1, 2002 accrual dates are subject to change, as outlined in the
amendment.

Principal amounts owed under the Credit Facility bear interest at LIBOR plus
7.50% or the prime rate plus 5.75%, at the Company's option. In addition to the
cash interest charges outlined above, we are to pay an incremental PIK interest
on the outstanding principal balance of 1.0% from April 15, 2002 though March
31, 2003, increasing to 2.0% from April 1, 2003 through maturity. The
incremental PIK interest is payable upon maturity. We are also to pay a PIK fee
equal to 1.0% of the outstanding principal balance on April 15, 2002, 2.0% on
October 1, 2002, and 3.0% on April 1, 2003. PIK fees are payable upon maturity.

Required principal installments are $0.30 million on July 1, 2002, October 1,
2002, and January 1, 2003, and payments of $7.2 million on April 1, 2003 and
July 1, 2003, with the remaining balance due at maturity on September 30, 2003.
The schedule of maturities for 2002 include the remaining $2.4 million that was
paid under the Credit Facility on April 1, 2002, and the minimum principal
installments discussed above. The Credit Facility also has mandatory prepayment
provisions for certain asset sale transactions and excess cash flows, as
defined. These prepayment provisions are applied to future required quarterly
installments.

The Credit Facility contains several covenants, including but not limited to,
restrictions on our ability to incur indebtedness or repurchase shares, a
prohibition on dividends without prior approval, prohibition on acquisitions,
and fees for excess earnout and debt payments, as defined. There are also
financial covenant requirements relating to compliance with specified cash flow,
liquidity, and leverage ratios. Our obligations, including all subsidiaries in
the guarantees, under the Credit Facility are secured by a security interest in
the equipment, fixtures, inventory, receivables, subsidiary stock, certain debt
instruments, accounts and general intangibles of each of such entities.

The amendment to the Credit Facility met the criteria of substantial
modification as outlined under the provisions of EITF 96-19. As such, the
amendment met the requirements of an extinguishment of debt. Accordingly, in the
second quarter of 2002 we will record an extraordinary loss of approximately
$2.6 million. The extraordinary loss represents amendment fees of $2.0 million
incurred to extinguish the original note and $0.60 million for the write-off of
the non-amortized portion of deferred financing costs associated with the
original Credit Facility agreement. Professional fees incurred for the execution
of the amended Credit Facility have been capitalized and are being amortized
over the remaining life of the Credit Facility.

Senior Subordinated Notes

In June 2000, we raised $36.5 million from the sale of debt and equity to Levine
Leichtman Capital Partners II, L.P. ("Levine") under a securities purchase
agreement (the "Securities Purchase Agreement"). The equity portion of the
transaction comprised 458,333 shares of common stock valued at $11 million. The
debt portion of the transaction comprised a senior subordinated note with a face
value of $25.5 million (the "Levine Note"). As part of the transaction with
Levine, we also issued a warrant to purchase 354,166 shares of the Company's
common stock at an initial price of $41.04 per share. The warrant was valued at
$2.7 million and has been written off as discussed below.

In April 2001, we entered into an amendment to the Levine Note. In connection
with the amendment, the lender waived the defaults under the Levine Note that
existed at December 31, 2000 due to failure to meet certain financial ratio
covenants and reset all covenants for 2001 and subsequent years, in addition to
certain other modifications. As consideration for the amendment, we paid an
amendment fee of $2.2 million, payable in additional notes, increased the
payment-in kind ("PIK") interest rate to 16.5% and reduced the price of the
warrants from an initial strike price of $41.04 per share to $20.88 per share.

The amendment to the Levine Note met the criteria of substantial modification as
outlined in EITF 96-19. As such, the amendment met the requirements of an
extinguishment of debt. Accordingly, we recorded an extraordinary charge of $5.6
million. No tax benefit was recorded as a result of the charge as the
realization of available deferred tax assets is not assured. The extraordinary
loss represents the amendment fee of $2.2 million incurred to extinguish the
original note and $3.4 million for the write-off of the non-amortized portion of
the warrant discount and deferred financing costs associated with the original
note agreement. Professional fees incurred for the execution of the amended note
agreement have been capitalized and are being amortized over the remaining life
of the note.

In April 2002, we entered into an additional amendment to the Levine Note. In
connection with the amendment, the lender reset all covenants for 2002 and
subsequent years, in addition to certain other modifications. As consideration
for the amendment, we agreed to pay an amendment fee of $2.0 million, payable in
additional notes and increase the PIK interest rate by one-half percentage
point.

The entire principal of the Levine Note is due September 2005 but may be paid
earlier at our election, subject to a prepayment penalty. Additionally, the
Levine Note has mandatory principal prepayments based upon a change in
ownership, certain asset sales, or excess cash flows. The Levine Note bears
interest at 12.5%, payable monthly, with an option to pay the interest in a PIK
note. We are currently issuing PIK notes at 17.0% for payment of current
interest amounts due. The Securities Purchase Agreement contains covenants,
including but not limited to, restricting our ability to incur certain
indebtedness, liens or investments, restrictions relating to agreements
affecting capital stock, maintenance of a specified net worth, and compliance
with specified financial ratios.

Subordinated Convertible Notes

In 1998, we issued $30 million of subordinated convertible notes ("Convertible
Notes"). The Convertible Notes mature June 2006 and bear interest at 7.0%,
payable semi-annually with an option to pay the interest in a PIK note also
bearing interest at 7.0%, which we are currently exercising for payment of
current interest amounts due. In April 2001, we entered into an amendment to the
Convertible Notes and the lender waived the cross-default provision under the
Convertible Notes that existed at December 31, 2000 due to the covenant
violations under the Credit Facility and agreed to reset all covenants for 2001
and subsequent years, in addition to certain other modifications. As
consideration for the amendment, we agreed to reduce the conversion price of the
notes. The Convertible Notes are convertible into shares of the common stock at
$39.00 for each share of common stock issuable upon conversion of outstanding
principal and accrued but unpaid interest on such subordinated notes.

Preferred and Common Stock

We are authorized to issue 30,000,000 shares of Preferred Stock. Presently
authorized series of our Preferred Stock include the following series:

o Series A--100 shares authorized, issued and outstanding;

o Series B--70,000 shares authorized, zero issued or outstanding;

o Series C--100 shares authorized, zero shares issued or outstanding; and

o Series D--2,000,000 shares authorized, 1,628,663 shares are issued and
outstanding.

The Company's presently authorized Preferred Stock rank senior to outstanding
Common Stock. The shares of Series B Preferred Stock were authorized in
connection with issuance of the Convertible Notes as discussed in note 9. The
Series B Preferred Stock conversion provision of the Convertible Notes has
expired. Accordingly, although the Series B Preferred Stock is authorized, the
Company does not expect any such shares to ever be issued. Similarly, 100 shares
of Series C Preferred Stock were authorized and issued in connection with the
Convertible Note issuance, but then converted into 10 shares of common stock in
the March 1999 merger transaction. The Company does not expect any shares of
Series C Preferred Stock to be issued. The shares of Series D Preferred Stock
are convertible into shares of our Common Stock at the rate of one-sixth of a
share of Common Stock for each share of Series D Preferred Stock (assuming there
are no declared but unpaid dividends on the Series D Preferred Stock), in each
case subject to adjustment for stock splits, reverse splits, stock dividends,
reorganizations and similar anti-dilutive provisions. The Series D Preferred
Stock holders are entitled to vote on all matters as to which the Common Stock
shareholders are entitled to vote, based upon the number of shares Common Stock
the Series D Preferred Stock is convertible into. The Series A Preferred Stock
is not convertible, is entitled to elect a director, and is otherwise
non-voting.

A total of 36,920 and 56,541 outstanding shares of Common Stock issued at a
price of $2.70 and $1.35 per share, respectively, are subject to repurchase by
us at the original issue price at our election.

Dental Location Dispositions

Effective May 31, 2001, we completed the stock sale of DCA, a wholly-owned
subsidiary, and certain other assets in Maryland, Virginia and Indiana. The
transaction also includes the assets associated with the notes receivable made
to officers of DCA as discussed in the notes to the Consolidated Financial
Statements. Total consideration was $36.0 million, less the assumption of
related debt and operating liabilities. Upon the two-year anniversary of the
transaction close, we shall have the right to repurchase the assets of DCA,
based upon a multiple of EBITDA subject to a minimum price, as defined in the
agreement. In connection with the sale of assets, we entered into a five-year
license agreement for $2.6 million in cash, payable in installments, for use of
our proprietary practice management system, subject to negotiations for
additional term extensions. Such amount is recorded as deferred revenues and
amortized over the life of the agreement. The parties also entered into the
transition services agreement and a business collaboration agreement delineating
the use of the practice management system, the joint purchase of supplies, the
joint negotiation for managed care contracts, training systems, and other
similar operational matters.

During 2001, we also disposed or identified under performing dental locations
for disposition ("Disposed Locations"). In connection with the sale of DCA and
Disposed Locations the Company wrote off $40.2 million in total assets, yielded
proceeds of $21.4 million, net of closing costs and recorded a total loss of
$12.3 million for the year ended December 31, 2001. The total recorded loss
includes $1.7 million for the provision of direct transaction closing costs.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We do not utilize financial instruments for trading purposes and hold no
derivative financial instruments, which could expose us to significant market
risk. Our interest expense is sensitive to changes in the general level of
interest rates as our credit facility has interest rates based upon market LIBOR
or prime rates, as discussed in the notes to Consolidated Financial Statements.
To mitigate the impact of fluctuations in market rates, we purchase fixed
interest rates for periods of up to 180 days on portions of the outstanding
credit facility balance.

At December 31, 2001, we had $81.8 million in floating rate debt under the
credit facility. The detrimental effect on our pre-tax earnings of a
hypothetical 100 basis point increase in the average interest rate under the
credit facility would have an impact of approximately $0.82 million for the year
ended December 31, 2001. This sensitivity analysis does not consider any actions
we might take to mitigate our exposure to such a change in the credit facility
rate. The hypothetical change used in this analysis may be different from what
actually occurs in the future. Our remaining subordinated notes and long-term
debt obligations of $87.9 million are at fixed rates of interest.




Item 8. Financial Statements and Supplementary Data

(I) INDEX TO FINANCIAL STATEMENTS PAGE

Independent Auditors' Reports........................................ 26-27
Consolidated Balance Sheets at December 31, 2001 and 2000............ 28-29
Consolidated Statements of Operations for the
years ended December 31, 2001, 2000 and
1999.............................................................. 30
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 2001, 2000 and 1999.................. 31
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999........................... 32-33
Notes to Consolidated Financial Statements........................... 34-54


(II) FINANCIAL STATEMENT SCHEDULE
---------------------------------

Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000, and 1999......................... 55


(all other schedules are omitted because they are not applicable or the required
information is included on the financial statements or notes thereto).





Independent Auditors' Report

The Board of Directors
InterDent, Inc.:


We have audited the accompanying consolidated balance sheet of InterDent, Inc.
and subsidiaries as of December 31, 2001 and the related consolidated statements
of operations, shareholders' equity and cash flows for the year ended December
31, 2001. Our audit also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides 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
InterDent, Inc. and subsidiaries as of December 31, 2001, and the consolidated
results of their operations and their cash flows for the year ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.



/s/ ERNST & YOUNG LLP

Los Angeles, California
March 18, 2002, except Notes
2, 9, and 16 which date is April 15, 2002






Independent Auditors' Report

The Board of Directors
InterDent, Inc.:



We have audited the accompanying consolidated balance sheets of InterDent, Inc.
and subsidiaries as of December 31, 2000 and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the years in the
two-year period ended December 31, 2000. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule of valuation and qualifying accounts for each of the years in the
two-year period ended December 31, 2000. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InterDent, Inc., and
subsidiaries as of December 31, 2000, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein for each of the years in the two-year period ended
December 31, 2000.



/s/ KPMG LLP


Orange County, California
April 6, 2001, except as to
Notes 15 and 16, which are
as of April 17, 2001


















INTERDENT, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and 2000
(in thousands, except share amounts)




Assets (note 9) 2001 2000
------------------- --------------------

Current assets:
Cash and cash equivalents $ 7,189 $ 5,293
Accounts receivable, net of allowances of $4,627 in 2001 and $9,755 in
2000, respectively 20,092 24,403
Management fee receivable 581 4,998
Current portion of notes and advances receivable from professional
associations, net (note 5) -- 923
Supplies inventory 3,613 5,016
Prepaid expenses and other current assets 4,051 7,253
------------------- --------------------
Total current assets 35,526 47,886

Property and equipment, net (note 7) 20,945 33,859
Intangible assets, net (notes 5 and 7) 147,532 150,621
Notes and advances receivable from professional associations, net of
current portion and allowances (note 5) -- 4,551
Other assets 3,021 7,312
------------------- --------------------
Total assets $ 207,024 $ 244,229
=================== ====================

Liabilities, Redeemable Common Stock
and Shareholders' Equity

Current liabilities:
Accounts payable $ 7,996 $ 7,597
Accrued payroll and payroll related costs 9,022 10,007
Other current liabilities (note 8) 11,187 19,688
Current portion of long-term debt and capital lease obligations
(notes 9, 15 and 16) 13,666 14,673
------------------- --------------------
Total current liabilities 41,871 51,965

Long-term liabilities:
Capital lease obligations, net of current portion (note 15) 1,251 2,846
Long-term debt, net of current portion (notes 9 and 16) 119,738 124,634
Convertible subordinated debt (notes 9 and 16) 35,058 32,731
Deferred income taxes (note 14) -- --
Other long-term liabilities 1,871 117
------------------- --------------------
Total long-term liabilities 157,918 160,328
------------------- --------------------
Total liabilities $ 199,789 $ 212,293
------------------- --------------------


(Continued)







INTERDENT, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 2001 and 2000
(in thousands, except share amounts)




2001 2000
------------------- --------------------

Redeemable common stock, $0.001 par value, 17,905 and 22,852 shares
issued and outstanding in 2001 and 2000, respectively (note 11) $ 1,047 $ 1,484
------------------- --------------------

Shareholders' equity (notes 10 and 12):
Preferred stock, $0.001 par value, 30,000,000 shares authorized:
Preferred stock - Series A, 100 shares authorized; 100 shares issued
and outstanding in 2001 and 2000 1 1
Convertible preferred stock - Series B, 70,000 shares authorized,
zero shares issued and outstanding in 2001 and 2000 -- --
Preferred stock - Series C, 100 shares authorized; zero shares issued
and outstanding in 2001 and 2000 -- --
Convertible preferred stock - Series D, 2,000,000 shares authorized;
1,628,663 shares issued and outstanding in 2001 and 2000 12,089 12,089
Common stock, $0.001 par value, 50,000,000 shares authorized;
3,976,551 shares issued and outstanding in 2001 and 2000 4 4
Additional paid-in capital 76,502 76,296
Notes receivable:
Shareholder (184) (576)
Deferred compensation -- (10,218)
Accumulated deficit (82,224) (47,144)
------------------- --------------------
Total shareholders' equity 6,188 30,452

Commitments and contingencies (notes 4 and 15) -- --

------------------- --------------------
Total liabilities, redeemable common stock and shareholders'
equity $ 207,024 $ 244,229
=================== ====================


See accompanying notes to consolidated financial statements.






INTERDENT, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2001, 2000 and 1999
(in thousands, except per share amounts)





2001 2000 1999
------------------ ----------------- -----------------

Revenues:
Dental practice net patient service revenue $ 262,097 $ 249,281 $ 188,078
Net management fees 19,838 42,998 42,551
Licensing and other fees 696 887 981
------------------ ----------------- -----------------
Total revenues (note 3) 282,631 293,166 231,610
------------------ ----------------- -----------------
Operating expenses:
Clinical salaries, benefits and provider costs 129,711 119,952 89,925
Practice non-clinical salaries and benefits 39,107 42,539 31,729
Dental supplies and lab expenses 34,023 37,201 27,822
Practice occupancy expenses 16,450 17,921 14,078
Practice selling, general and administrative expenses 25,222 31,692 23,390
Corporate selling, general and administrative expenses 13,245 14,335 11,921
Management merger and retention bonus -- 1,159 --
Stock compensation expense (note 10) 6,232 1,362 --
Corporate restructure and merger costs (note 4) (1,154) 1,730 8,816
Loss on dental location dispositions and impairment
of long-lived assets (note 5) 12,288 49,802 --
Depreciation and amortization 11,983 12,574 9,956
----------------- ------------------ -----------------
Total operating expenses 287,107 330,267 217,637
----------------- ------------------ -----------------
Operating income (loss) (4,476) (37,101) 13,973
------------------ ------------------ -----------------
Nonoperating income (expense):
Interest expense, net (19,706) (15,329) (6,874)
Debt fees and financing costs (note 9) (3,886) -- --
Investment impairment write down (1,087) -- --
Other expense, net (208) (276) 150
------------------ ------------------ -----------------
Nonoperating expense, net (24,887) (15,605) (6,724)
------------------ ------------------ -----------------
Income (loss) before income taxes and extraordinary item (29,363) (52,706) 7,249
Provision (benefit) for income taxes (note 14) 115 (4,002) 2,015
------------------ ------------------ -----------------
Net income (loss) before extraordinary item (29,478) (48,704) 5,234
Extraordinary loss on debt extinguishments, net of taxes
(note 9) (5,601) -- --
------------------ ------------------ -----------------
Net income (loss) (35,079) (48,704) 5,234
Accretion of redeemable common stock (1) (8) (12)
------------------ ------------------ -----------------

Net income (loss) attributable to common stock $ (35,080) $ (48,712) $ 5,222
================== ================== =================

Net income (loss) per share attributable to common stock:
Basic $ (9.09) $ (13.19) $ 1.53
================== ================== =================
Diluted $ (9.09) $ (13.19) $ 1.39
================== ================== =================


See accompanying notes to consolidated financial statements.






INTERDENT, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 2001, 2000 and 1999
(in thousands)



Retained
Additional earnings
Preferred paid-in Notes (accumulated
stock Common stock capital receivable deficit) Total
-------------- -------------- -------------- -------------- --------------- --------------

Balance, January 1, 1999 $ 12,090 $ 4 $ 61,146 $ (596) $ (3,654) $ 68,990
Common stock issued in
connection with:
Employee purchase plan -- -- 266 -- -- 266
Exercise of stock options -- -- 64 -- -- 64
Repurchase of warrants -- -- (55) -- -- (55)
Stock options granted to
non-employees -- -- 55 -- -- 55
Accretion of redeemable
common stock -- -- -- -- (12) (12)
Interest accrued on
shareholder notes
receivable -- -- -- (19) -- (19)
Warrants issued under
earn-out agreements -- -- 58 -- -- 58
Common stock issued and
shares to be issued under
earn-out agreements, net -- -- 1,314 -- -- 1,314
Net income -- -- -- -- 5,234 5,234
-------------- -------------- -------------- -------------- --------------- --------------
Balance, December 31, 1999 12,090 4 62,848 (615) 1,568 75,895
-------------- -------------- -------------- -------------- --------------- --------------
Common stock issued in
connection with:
Financing -- -- 10,294 -- -- 10,294
Purchase of dental assets
from new PA affiliations -- -- 85 -- -- 85
Employee purchase plan -- -- 69 -- -- 69
Exercise of options and
warrants -- -- 96 -- -- 96
Stock options granted to
non-employees -- -- 25 -- -- 25
Non-redemption and accretion
of redeemable common stock -- -- 199 -- (8) 191
Notes receivable, net -- -- -- (10,179) -- (10,179)
Waiver of common stock
repurchase rights -- -- 27 -- -- 27
Issuance of common stock
warrants for financing,
net of issuance costs -- -- 2,603 -- -- 2,603
Common stock issued and
shares to be issued under
earn-out agreements, net -- -- 50 -- -- 50
Net loss -- -- -- -- (48,704) (48,704)
-------------- -------------- -------------- -------------- --------------- --------------
Balance, December 31, 2000 12,090 4 76,296 (10,794) (47,144) 30,452
-------------- -------------- -------------- -------------- --------------- --------------
Issuance of common stock -- -- 204 -- -- 204
warrants for financing,
net of issuance costs
Stock options granted to
non-employees -- -- 2 -- -- 2
Non-redemption and accretion
of redeemable common stock -- -- -- -- (1) (1)
Notes receivable, net -- -- -- 10,610 -- 10,610
Net loss -- -- -- -- (35,079) (35,079)
-------------- -------------- -------------- -------------- --------------- --------------
Balance, December 31, 2001 $ 12,090 $ 4 $ 76,502 $ (184) $ (82,224) $ 6,188
============== ============== ============== ============== =============== ==============



See accompanying notes to consolidated financial statements.







INTERDENT, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2001, 2000 and 1999
(in thousands)



2001 2000 1999
------------------- ----------------- -------------------

Cash flows from operating activities:
Net income (loss) $ (35,079) $ (48,704) $ 5,234
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 11,983 12,574 9,956
Loss on dental location dispositions and
impairment of long-lived assets 12,288 49,802 --
Loss on disposal of assets 497 108 --
Investment impairment write down 1,087 -- --
Notes issued as interest payment-in-kind and
other accrued interest 7,560 2,228 --
Interest amortization on deferred financing
costs and discounted debt 7,775 960 304
Notes and warrants issued for debt amendment
fees 2,454 -- --
Amortization of stock compensation expense 5,742 1,362 --
Non-employee stock options granted and stock
issued for fees and compensation 2 25 55
Interest income on shareholder notes (10) (15) (19)
Deferred income taxes -- (3,361) (504)
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable, net 1,563 (2,797) (5,846)
Management fee receivable (530) 1,422 (1,641)
Supplies inventory 52 (73) (610)
Prepaid expenses and other current assets 4,584 (2,644) (506)
Other assets (547) (856) (492)
Accounts payable 1,607 (157) 757
Accrued payroll and payroll related costs 286 1,244 1,198
Accrued merger and restructure (1,566) (873) 288
Other liabilities (369) (700) 155
------------------- ----------------- -------------------
Net cash provided by operating
activities 19,379 9,545 8,329
------------------- ----------------- -------------------
Cash flows from investing activities:
Purchase of property and equipment (3,709) (7,851) (7,936)
Net payments received (advances) on notes
receivable from professional associations 103 246 260
Cash paid for investment in joint venture -- -- (1,020)
Net advances to professional associations (3,163) (8,403) (9,685)
Shareholder notes receivable -- (11,500) --
Cash paid for acquisitions and earnouts,
including direct costs, net of cash acquired (5,237) (26,087) (40,285)
Net proceeds from disposition of subsidiary and
dental locations 21,371 -- --
------------------- ----------------- -------------------
Net cash provided by (used in)
investing activities $ 9,365 $ (53,595) $ (58,666)
------------------- ----------------- -------------------

(Continued)







INTERDENT, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2001, 2000 and 1999
(in thousands)




2001 2000 1999
------------------- ------------------ --------------------

Cash flows from financing activities:
Net borrowings (payment) on credit facilities $ (18,665) $ 21,165 $ 49,348
Proceeds from issuance of long-term debt, net -- 22,761 --
Payments of long-term debt and obligations under
capital leases (5,391) (5,313) (6,084)
Payments of deferred financing costs (2,441) (2,751) (589)
Proceeds from issuance of common and preferred
stock -- 11,145 266
Common and preferred stock issuance costs -- (842) --
Proceeds from issuance of common stock warrants -- 2,739 --
Net payments related to warrants, options, and
put rights (351) (100) (309)
------------------- ------------------ --------------------
Net cash provided by (used in)
financing activities (26,848) 48,804 42,632
------------------- ------------------ --------------------
Increase (decrease) in cash and cash 1,896 4,754 (7,705)
equivalents

Cash and cash equivalents, beginning of year 5,293 539 8,244
------------------- ------------------ --------------------
Cash and cash equivalents, end of year $ 7,189 $ 5,293 $ 539
=================== ================== ====================
Supplemental disclosures of cash flow information:
Cash paid (received) during period, net:
Interest paid $ 13,236 $ 9,591 $ 6,996
Income taxes (2,233) 3,418 (5)
Non-cash financing and investing activities:
Accretion of redeemable common stock 1 8 12
Non-redemption of redeemable common stock -- 199 --
Notes issued upon redeemable common stock 86 25 --
Warrants issued in connection with public and
private offerings 204 -- --
Notes issued as interest payment-in-kind 7,367 2,731 --
Notes issued as amendment fees 2,250 -- --
Effect of acquisitions:
Liabilities assumed or issued -- 23,729 23,830
Issuance of long-term debt in connection with
earnout obligations 8,068 4,970 --
Common stock and warrants issued and shares to be
issued under earn-out agreements, net -- 135 1,372





See accompanying notes to consolidated financial statements.






INTERDENT, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements For the years ended December 31,
2001, 2000 and 1999 (in thousands, except share and per share amounts)

(1) ORGANIZATION

Headquartered in El Segundo, California, InterDent, Inc. ("InterDent" or the
"Company") was incorporated on October 13, 1998 as a Delaware corporation to
facilitate the business combination of Gentle Dental Service Corporation
("GDSC") and Dental Care Alliance ("DCA") that occurred in March 1999. Prior to
the combination, GDSC and DCA were each publicly traded dental practice
management companies since 1997.

We are a leading provider of dental practice management services to
multi-specialty dental professional corporations and associations ("PAs") in the
United States. The dentists employed through our network of affiliated PAs
provide patients with affordable, comprehensive, convenient and high quality
dentistry services, which include general dentistry, endodontics, oral
pathology, oral surgery, orthodontics, pedodontics, periodontics and
prosthodontics.

The Company is a provider of dental practice management services to
multi-specialty dental professional corporations and associations ("PAs") in the
United States. The Company provides management services to affiliated PAs under
long-term management service agreements ("MSAs"). Under the MSAs, the Company
bills and collects patient receivables and provides administrative and
management support services. Each PA is responsible for employing and directing
the professional dental staff and providing all clinical services to the
patients. The dentists employed through the Company's network of affiliated
dental associations provide patients with affordable, comprehensive general
dentistry services, in addition to specialty dental services, which include
endodontics, oral pathology, oral surgery, orthodontics, pedodontics,
periodontics and prosthodontics.

Through May 31, 2001, the Company provided management services to dental
practices in selected markets in Arizona, California, Florida, Georgia, Hawaii,
Idaho, Indiana, Kansas, Maryland, Michigan, Nevada, Oklahoma, Oregon,
Pennsylvania, Virginia and Washington. Effective May 31, 2001, the Company
completed the stock sale of Dental Care Alliance, Inc. ("DCA"), a wholly-owned
subsidiary, and certain other assets in Maryland, Virginia, and Indiana, for
$36.0 million less the assumption of certain debt and operating liabilities. The
net sales proceeds were utilized to pay down existing borrowings under the
credit facility. Also, the Company has retained an option to repurchase the
division at a future date and entered into an ongoing collaboration agreement
and license agreement to provide the Company's proprietary software. See note 5
for a summary of the DCA sale transaction.

On August 6, 2001 the Company completed a one-for-six reverse split of its
common stock. All share and per share information in these financial statements
retroactively reflects the reverse split as if it had been in effect from the
beginning of the periods covered.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

On March 12, 1999, GDSC and DCA completed mergers in which each entity became a
wholly-owned subsidiary of InterDent, Inc. a newly formed company. These
consolidated financial statements have been prepared following the
pooling-of-interest method of accounting and reflect the combined financial
position and operating results of GDSC and DCA (and certain PAs as discussed
below) for all periods presented.

The Company provides management services to the PAs under long-term MSAs that
generally have an initial term of 40 years. Under the provisions of the MSAs,
the Company owns the non-professional assets at the affiliated practice
locations, including equipment and instruments, bills and collects patient
receivables, and provides all administrative and management support services to
the PAs. These administrative and management support services include:
financial, accounting, training, efficiency and productivity enhancement,
recruiting, marketing, advertising, purchasing, and related support personnel.
The PAs employ the dentists and the hygienists while the Company employs or
co-employs all administrative personnel.

The Emerging Issues Task Force ("EITF") of the Financial Accounting Standards
Board reached a consensus on the accounting for transactions between physician
practice management companies and physician practices and the financial
reporting of such entities (EITF issue number 97-2). For financial reporting
purposes, EITF 97-2 mandates the consolidation of physician practice activities
with the practice management company when certain conditions have been met, even
though the practice management company does not have a direct equity investment
in the physician practice. The accompanying financial statements are prepared in
conformity with the consensus reached in EITF 97-2.

Simultaneous to the execution of an MSA with each PA, the Company also entered
into a shares acquisition agreement ("SAA"). Subsequent to the sale of DCA,
under all of the SAAs entered into except for one, the Company has the right to
designate the purchaser (successor dentist) to purchase from the PA shareholders
all the shares of the PA for a nominal price of a thousand dollars or less.
Under these SAAs, the Company has the unilateral right to establish or effect a
change in the PA shareholder, at will, and without consent of the PA
shareholder, on an unlimited basis. Under ETIF 97-2, the agreements with the PA
shareholders qualify as a friendly doctor arrangement. Consequently, under EITF
97-2, the Company consolidates all the accounts of those PAs in the accompanying
consolidated financial statements. Accordingly, the consolidated statements of
operations include the net patient revenues and related expenses of these PAs
and all significant intercompany transactions have been eliminated.

Each of the DCA SAAs entered into with the PAs did not have the nominal price
provision. Also, subsequent to the DCA sale one remaining SAA entered into with
a PA does not have the nominal price provision. Rather, the SAA purchase price
is based upon a multiple of earnings, as defined. As a result, the agreements do
not meet the criteria of consolidation under EITF 97-2 and the consolidated
statements of operations exclude the net patient revenues and expenses of these
PAs. Rather, the consolidated statements of operations include only the
Company's net management fee revenues generated and expenses associated with
providing services under the MSAs.

Liquidity

The Company experienced losses attributed to common stock of $35,080 and $48,712
for 2001 and 2000, respectively. Contributing to these significant losses are
certain charges for asset impairments, disposition of DCA and certain other
dental locations, and debt restructuring and debt extinguishments, which the
Company believes are unusual in nature. Although the Company has experienced
losses over the two-years ended December 31, 2001 due to these unusual charges,
the Company's dental facilities continue to generate significant positive cash,
as reflected in cash flows from operations of $19,379 and $9,545 for 2001 and
2000, respectively.

During 2001 the Company hired an advisor to review the Company's operations to
determine whether improvements could be made, which could be implemented in the
near and long term. The advisor, along with Company personnel reviewed such
strategies as revenue enhancements, modifications to managed care contracts,
reduction of headcount at dental office and corporate locations, and savings
from procurement efficiencies. As a result of this review, a number of
initiatives to improve operations were implemented in late 2001 and early 2002.
These initiatives are projected to increase cash flow in 2002 and in future
periods through the Company's emphasis on increasing same store revenues and
curtailing direct operating costs. Through March 31, 2002, the Company has met
these projections.

These initiatives and the projected improvements in operations and cash flows
played a vital role in the Company's ability to negotiate modifications to its
credit agreement that was consummated on April 15, 2002, as more fully described
in Note 9. These modifications resulted in a permanent waiver of its past
covenant violations, and reset the covenants to levels, which the Company's
projections indicate will be met throughout all of 2002. The Company also
incurred certain fees and expenses, and the interest rate was increased by 1%.
In addition, the principal amortization schedule was significantly modified such
that approximately $13,800 of payments due in 2002 were deferred until 2003, and
only $600 of principal payments are due in the second half of 2002. The Company
paid the $2,397 scheduled installment due April 1, 2002.

The Company believes that it will be able to make all scheduled 2002 debt
payments, and those due under its earn-out agreements, along with meeting its
other obligations in 2002. Further, the Company has significant debt due in
2003, which must be refinanced, modified, or otherwise retired with the proceeds
of other financing or capital transactions. There can be no assurance that the
Company will meet its obligations in 2002, and that any such financing will be
available or available on terms acceptable to Interdent in 2003.

Net revenues

Revenues consist primarily of PA net patient service revenue ("net patient
revenue") and Company net management fees. Net patient revenue represents the
consolidated revenue of the PAs reported at the estimated net realizable amounts
from patients, third party payors and others for services rendered, net of
contractual adjustments. Net management fees represent amounts charged to the
unconsolidated PAs in accordance with the MSA as a percentage of the PAs net
patient service revenue under MSAs, net of provisions for contractual
adjustments and doubtful accounts. Such revenues are recognized as services are
performed based upon usual and customary rates or contractual rates agreed to
with managed care payors.

Net patient revenues include amounts received under capitated managed care
contracts from certain wholly-owned subsidiaries that are subject to regulatory
review and oversight by various state agencies. The subsidiaries are required to
file statutory financial statements with the state agencies and maintain minimum
tangible net equity balances and restricted deposits. The Company is in
compliance with such requirements as of December 31, 2001. Total revenues
subject to regulatory review and oversight by various state agencies were
$46,603 in 2001, $42,820 in 2000, and 40,231 in 1999.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity or
remaining maturity upon purchase of three months or less to be cash equivalents.

Accounts receivable

Accounts receivable principally represent receivables from patients and
insurance carriers for dental services provided by the related PAs at
established billing rates, less allowances and discounts for patients covered by
third party payors contracts. Payments under these programs are primarily based
on predetermined rates. In addition, a provision for doubtful accounts is
provided based upon expected collections and is included in practice selling,
general and administrative expenses. These contractual allowances, discounts and
allowance for doubtful accounts are deducted from accounts receivable in the
accompanying consolidated balance sheets. The discounts and allowances are
determined based upon historical realization rates, the current economic
environment and the age of accounts. Changes in estimated collection rates are
recorded as a change in estimate in the period the change is made.

Management fee receivable and notes and advances receivable from professional
associations

Prior to May 31, 2001, substantially all of the management fee receivables
represented amounts owed to the Company for revenue recorded in accordance with
MSAs from unconsolidated PAs affiliated with the DCA division. All advances
consisted of receivables from certain affiliated PAs of DCA in connection with
cash advances for working capital and operating purposes. Notes receivable from
PAs related to DCA financing of certain medical and non-medical capital
additions made by certain unconsolidated PAs. During the year ended December 31,
2000, the Company recorded an impairment of receivables from PAs as a result of
the value indicated by the agreement to sell DCA stock that was anticipated to
close in the second quarter of 2001. Advances made in 2001, through the sale
date, were written off upon the DCA sale consummation effective May 31, 2001, as
discussed in note 5.

At December 31, 2001, management fee receivables represent amounts owed to the
Company from one unconsolidated PA related to revenue recorded in accordance
with the MSA, and is recorded based upon the net realizable value of patient
accounts receivable of the PA. The Company reviews the collectibility of the
patient accounts receivable of the PA and adjusts its management fee receivables
accordingly.

Supplies inventory

Supplies consist primarily of disposable dental supplies and instruments stored
at the dental practices. Supplies are stated at the lower of cost (first-in,
first-out basis) or market (net realizable value).

Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Expenditures for maintenance and repairs are charged to expense as
incurred and expenditures for additions and improvements are capitalized.
Equipment held under capital leases is stated at the present value of minimum
lease payments at the inception of the lease. Leasehold improvements are
amortized over their estimated useful life or the remaining lease period,
whichever is less. Depreciation of property and equipment is recorded using the
straight-line method over the shorter of the related lease term or the estimated
useful lives, which are as follows:

Range of lives
in years)
--------------------

Dental equipment 3-15
Computer equipment 3
Furniture, fixtures, & equipment 3-15
Leasehold improvements 3-20
Vehicles 5
Buildings 25

Intangible assets

Intangible assets result primarily from the excess of cost over the fair value
of net tangible assets purchased. Such intangibles relate primarily to MSAs and
goodwill associated with dental practice acquisitions. Intangibles relating to
MSAs consist of the costs of purchasing the rights to provide management support
services to PAs over the initial noncancelable terms of the related agreements,
usually 40 years. Under these agreements, the PAs have agreed to provide dental
services on an exclusive basis only through facilities provided by the Company,
which is the exclusive administrator of all non-dental aspects of the acquired
PAs, providing facilities, equipment, support staffing, management and other
ancillary services. The agreements are noncancelable except for performance
defaults. Intangible assets are amortized on the straight-line method, ranging
from 5 years for other intangibles to 25 years for MSAs and goodwill.

Intangible assets included in the consolidated balance sheets primarily
represent the value assigned to MSAs and goodwill in connection with certain
completed dental practice affiliations. Periodically, the Company reviews the
recoverability of these intangible assets for possible impairment on an
individual practice level basis, which is the lowest level of identifiable cash
flows. This measurement evaluates the ability to recover the balance of the
intangible asset from expected future operating cash flows on an undiscounted
basis through the remaining amortization period. In determining expected future
cash flows, the Company considers current operating results in connection with
anticipated future cash flows, which includes assumptions relating to revenue
growth, capital improvements, operational initiatives, and other circumstances
to make such estimates and evaluations. If impairment exists, the amount of such
impairment is calculated based upon the estimated fair value of the asset.
During the years ended December 31, 2001 and 2000, the Company recorded
impairments of certain intangibles in connection with the anticipated sale of
DCA stock and disposition of seven other dental locations, as discussed in note
5. No impairment of intangible assets was recorded during the year ended
December 31, 1999.

Investment

On September 3, 1999, the Company entered into a seven-year collaborative
Internet strategy agreement with Dental X Change, Inc. ("DXC"). DXC is a
commercial Internet company servicing the professional dental market. Services
provided by DXC include: web development, hosting, content, education,
e-commerce, practice management services in an application service provider
model and dental oriented web services to dental practices and both the
professional and consumer dental markets through its various web sites,
intranets and other online technologies. In exchange for a cash contribution of
$1,020, the Company received 1,000,000 shares of DXC Series A Convertible
Preferred Stock, 1,949,990 shares of DXC common stock and a warrant to purchase
4,054,010 additional shares of DXC common stock at $0.10 per share. During the
year ended December 31, 2001, the Company recorded an impairment charge of
$1,087 to write-off the original investment in DXC and related capitalized
closing costs. The impairment was based upon the uncertainty of recovery of the
investment given the current economic environment and other factors.

Long-lived assets

The Company reviews its long-lived assets for impairment when events or changes
in circumstances indicate that the carrying amount of assets may not be
recoverable. To perform that review, the Company estimates the sum of expected
future undiscounted net cash flows from assets. If the estimated net cash flows
are less than the carrying amount of the asset, the Company recognizes an
impairment loss in an amount necessary to write-down the assets to its fair
value as determined from expected future discounted cash flows. During the years
ended December 31, 2001 and 2000, the Company recorded an impairment of certain
long-lived assets in connection with the anticipated sale of DCA stock and
disposition of seven other dental locations, as discussed in note 5. No
impairment of long-lived assets was recorded during the year ended December 31,
1999.

Deferred compensation

The Company made advances of $11,500 to certain officers of the Company and
provided certain other officers with a minimum guarantee of the value of their
stock options in order to retain and provide incentives to such officers. In
connection with the advances, such officers issued interest-bearing notes
payable to the Company. Shares of the Company's common stock and options owned
by such officers have been pledged to secure the notes. The notes were included
in shareholders' equity as a reduction to equity. Interest on the notes accrues
at rates ranging from 6.4% to 10.2%. The notes and accrued interest are due June
2004, payable in cash or Company common stock and options with varying minimum
values. The notes and accrued interest are with recourse to the officers until
May or June of 2002, depending upon the individual note agreement, after which
the notes and accumulated interest are non-recourse, subject only to the
underlying pledged collateral. The minimum guarantee of the value of certain
officers' stock options can be exercised for a two-year period beginning June
30, 2002.

The difference in the amount of the notes and the value of the collateral at the
date of the loans was being amortized over the life of the notes, representing
stock compensation expense. The amortization reflected the deficit of the
underlying pledged collateral on the individual note dates. The Company also
adjusted the amortization to reflect changes in the quoted fair market value.
The decline, if any, was amortized as stock compensation expense over the life
of the notes. The amortization expense was adjusted cumulatively for changes in
fair value of the collateral. Increases in the stock price, if any, resulted in
a credit to expense, up to the amount of prior expense recognized for this
portion of the notes. In addition, the minimum guarantee of the value of the
stock options was being amortized as stock compensation expense.

The total original advance included advances of $5,900 to DCA officers. These
advances were sold in connection with the sale of DCA as discussed in note 5.
The remaining non-amortized outstanding balance of the advances to DCA officers
at the time of the sale transaction of $4,600 was included in the determination
of impairment of long-lived assets and advances recorded in the fourth quarter
of 2000. During the third quarter of 2001, the entire unamortized balance of the
remaining notes was written off as a result of the acceleration of the
non-recourse provision of the note due from the former CEO and the significant
decline in the underlying value of the pledged collateral, which is considered
to be other than temporary.

Also, in connection with the execution of an officer's amended employment
agreement, a note receivable and related accrued interest of $182 were to be
forgiven, subject to provisions of the agreement. The note and accrued interest
were being expensed over the twenty-four month service period ending May 2002.
During the third quarter of 2001, the remaining balance on the note was written
off as compensation expense based on the note being converted to non-recourse
pursuant to the severance agreement with the officer.

Fair value of financial assets, liabilities, and redeemable common stock

The Company estimates the fair value of its monetary assets, liabilities, and
redeemable common stock based upon the existing interest rates related to such
assets, liabilities, and redeemable common stock compared to current market
rates of interest for instruments with a similar nature and degree of risk. The
Company estimates that the carrying value of all of its monetary assets,
liabilities, and redeemable common stock approximates fair value as of December
31, 2001 and 2000.

Use of estimates

In preparing the financial statements, we have made estimates and assumptions
that affect the following:

- - Reported amounts of assets and liabilities at the date of the financial
statements;
- - Disclosure of contingent assets and liabilities at the date of the
financial statements; and
- - Reported amounts of revenues and expenses during the period.

Actual results could differ from those estimates.

Net income (loss) per share

The Company has adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"). In accordance with SFAS 128, the Company
presents "basic" earnings per share, which is net income divided by the average
weighted common shares outstanding during the period, and "diluted" earnings per
share, which considers the impact of common share equivalents. Dilutive
potential common shares represent shares issuable using the treasury stock
method.

For each of the three years ended December 31, 2001, certain dilutive potential
common shares have been excluded from the computation of diluted income (loss)
per share, as their effect is anti-dilutive. For the three years ended December
31, 2001 such anti-dilutive potential common shares consisting of convertible
subordinated debt, convertible preferred stock, contingent shares, and the
exercise of certain options, and warrants were approximately 1,900,000 for 2001,
1,700,000 for 2000, and 800,000 for 1999.

The following table summarizes the computation of net income (loss) per share:





2001 2000 1999
------------------- ------------------- -------------------

Net income (loss) before extraordinary item $ (29,478) $ (48,704) $ 5,234
Extraordinary loss on debt extinguishments,
net of income tax (5,601) -- --
Accretion of redeemable common stock (1) (8) (12)
------------------- ------------------- -------------------
Net income (loss) attributable to common stock $ (35,080) $ (48,712) $ 5,222
=================== =================== ===================
Basic shares reconciliation:
Weighted average common shares outstanding 3,888,128 3,785,317 3,500,950
Contingently repurchaseable common shares (27,949) (91,889) (94,713)
------------------- ------------------- -------------------

Basic shares 3,860,179 3,693,428 3,406,237

Convertible preferred stock -- -- 271,444
Warrants -- -- 16,789
Put rights -- -- 11,444
Contingent shares -- -- 1,099
Assumed conversion of options -- -- 51,051
------------------- ------------------- -------------------
Diluted shares 3,860,179 3,693,428 3,758,064
=================== =================== ===================
Income (loss) per share - basic
Before extraordinary item $ (7.64) $ (13.19) $ 1.53
Extraordinary item, net of income taxes (1.45) -- --
------------------- ------------------- -------------------
Attributed to common stock $ (9.09) $ (13.19) $ 1.53
=================== =================== ===================

Income (loss) per share - diluted
Before extraordinary item $ (7.64) $ (13.19) $ 1.39
Extraordinary item, net of income taxes (1.45) -- --
------------------- ------------------- -------------------
Attributed to common stock $ (9.09) $ (13.19) $ 1.39
=================== =================== ===================




Comprehensive income

The Company has adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses). The adoption of SFAS 130 did not have an effect on
the Company's financial position or results of operations as the Company does
not have components of other comprehensive income.

Income taxes

Income taxes are accounted for under the asset and liability method in
accordance with Statement of Financial and Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS 109"). Under the asset and liability approach
of SFAS 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.

Stock-based compensation

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"). Under SFAS 123, the Company may elect to recognize stock-based
compensation expense based on the fair value of the awards or continue to
account for stock-based compensation under Accounting Principles Board Opinion
No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and disclose in the
notes to the financial statements the effects of SFAS 123 as if the recognition
provisions were adopted. The Company has elected to account for stock-based
compensation under APB 25.

Segment reporting

The Company has adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS"
131"). SFAS 131 supersedes SFAS 14, Financial Reporting for Segments of a
Business Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal reporting
that is used by management for making operating decisions and assessing the
performance as the source of the Company's reportable segments. The adoption of
SFAS 131 did not have an impact for the reporting and display of segment
information as each of the affiliated dental practices is evaluated individually
by the chief operating decision maker and considered to have similar economic
characteristics, as defined in the pronouncement, and therefore are aggregated.

New accounting pronouncements

The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), was adopted effective January 1, 2001. The Statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value is immediately recognized in earnings. The implementation of SFAS 133 in
2001 did not have any impact on the Company's financial position or results of
operations as the Company has no derivative instruments.

In July 2001, the FASB issued Statement of Financial Accounting Standard No.
141, "Business Combinations" ("SFAS 141"). SFAS 141 eliminates the
pooling-of-interest method of accounting for business combinations and clarifies
the criteria to recognize intangible assets separately from goodwill. SFAS 141
is effective for any business combination accounted for by the purchase method
that is completed after June 30, 2001. The adoption of SFAS 141 is not expected
to have any impact on the Company's financial position or results of operations.

In July 2001, the FASB issued Statement of Financial Accounting Standard No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142,
goodwill and indefinite lived assets are no longer amortized but are reviewed
annually for impairment. Separate intangible assets that are not deemed to have
an indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to June 30, 2001, the provisions of SFAS 142 are effective upon
its adoption effective beginning fiscal year 2002. During 2002, the Company will
perform the first of the required tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not yet determined what
the effect of these tests will be on the earnings and financial position of the
Company. These tests could result in a charge for impairment that although
non-cash, may have a material adverse effect on our results of operations.

In June 2001, the FASB issued Statement of Financial Accounting Standard No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. This Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The adoption of SFAS 143
is not expected to have a significant impact on the Company's financial position
or results of operations.

In August 2001, the FASB issued Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. This Statement supersedes FASB SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for the Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The provisions of this
Statement generally are to be applied prospectively. The adoption of SFAS 144 is
not expected to have a significant impact on the Company's financial position or
results of operations.

(3) REVENUES

The following represents amounts included in the determination of dental
practice net patient service revenue and net management fees:




2001 2000 1999
----------------- ------------------ -----------------

Dental practice net patient service revenues -
all PAs $ 293,318 $ 315,603 $ 251,310
Less: Dental practice net patient service
revenues - unconsolidated PAs (31,221) (66,322) (63,232)
----------------- ------------------ -----------------
Reported practice net patient service revenue $ 262,097 $ 249,281 $ 188,078
================= ================== =================

Dental practice net patient service revenues -
unconsolidated PAs $ 31,221 $ 66,322 $ 63,232
Less: Amounts retained by dentists (11,383) (23,324) (20,681)
----------------- ------------------ -----------------
Reported management fees $ 19,838 $ 42,998 $ 42,551
================= ================== =================



(4) BUSINESS COMBINATIONS, DENTAL PRACTICE AFFILIATIONS AND ACQUISITIONS

Business Combinations

On March 12, 1999, GDSC and DCA completed mergers in which each entity became a
wholly-owned subsidiary of InterDent, Inc. In the mergers, GDSC common shares
automatically converted into 1,529,767 shares of common stock of InterDent. Each
10 shares of GDSC's 100 outstanding shares of Preferred Stock - Series C
automatically converted into one share of common stock of InterDent. Also, each
share of GDSC's 100 outstanding shares of Preferred Stock - Series A and
1,628,663 outstanding shares of Convertible Preferred Stock - Series D converted
into one share of preferred stock of InterDent with the same rights,
preferences, and privileges as to InterDent as the share of preferred stock had
with respect to GDSC. DCA common shares automatically converted into 1,957,013
shares of common stock of InterDent. Upon consummation of the mergers, GDSC and
DCA stockholders represented a 43.5% and 56.5%, respective ownership of
InterDent, excluding common share equivalents. Including the impact of potential
dilutive common shares outstanding, upon consummation of the mergers, GDSC and
DCA stockholder ownership was approximately 53.5% and 46.5%, respectively.

The mergers have been accounted for using the pooling-of-interests method of
accounting. Accordingly, the historical financial statements for the periods
prior to the completion of the combination have been restated as though the
companies had been combined. The restated financial statements have been
adjusted to conform the lives used in computing depreciation of equipment.

The results of operations of GDSC and DCA from January 1, 1999 and through the
date of the merger are as follows:

1999
------------------

Dental practice net patient revenue:
GDSC $ 26,048
DCA --
------------------
Total $ 26,048
==================
Net management fees:
GDSC $ 532
DCA 6,441
------------------
Total $ 6,973
==================
Net income attributed to common stock:
GDSC $ 1,129
DCA 595
------------------
Total $ 1,724
==================

In connection with the GDSC and DCA mergers, the Company recorded direct merger
expenses and restructuring charges of $3,260 and $3,932, respectively during the
year ended December 31, 1999, and additional direct merger expense and
restructuring charge of $1,183 during 2000. During the year ended December 31,
2001, the Company finalized its corporate merger and restructure cost relating
to its restructuring plan, including charges for system conversions, redirection
of certain duplicative operations and programs, and other costs associated with
the business combinations between Gentle Dental Service Corporation and Dental
Care Alliance. Such merger and restructure activities are essentially complete
and as a result, the reserve was reduced by $1,154.

Terminated merger

On October 22, 1999, the Company announced the signing of a definitive merger
agreement between the Company and a group consisting of an affiliate of Leonard
Green & Partners, L.P. ("Leonard Green"), and certain members of Company
management. In May 2000, InterDent and Leonard Green mutually agreed to
terminate the merger agreement and the related recapitalization transaction. The
Company has recorded direct merger expenses of $547 and $1,624 associated with
this agreement during the years ended December 31, 2000 and 1999, respectively,
consisting of investment banker fees, advisors fees, legal fees, accounting
fees, printing expense, and other costs. All costs incurred as a result of the
terminated merger have been paid as of December 31, 2000.

The following summarizes the merger and restructure activities and accrued
merger and restructure liability for the GDSC and DCA business combinations, and
InterDent and terminated Leonard Green merger through December 31, 2001:





Corporate restructure and merger costs: 2001 2000 1999
------------- ------------- -------------

GDSC and DCA Combination:
Direct investment banking, accounting, legal and
other advisory fees $ (1,070)$ 47 $ 3,260
Employee retention, severance and training costs -- 39 1,019
Systems integration and conversion -- 1,097 2,069
Costs to acquire InterDent name -- -- 264
Redirection of duplicative operations, programs and
other costs (84) -- 580
------------- ------------- -------------
Total (1,154) 1,183 7,192

InterDent and Leonard Green Terminated Merger:
Direct investment banking, accounting, legal and
other advisory fees -- 547 1,624
------------- ------------- -------------
Total corporate restructure and merger costs $ (1,154)$ 1,730 $ 8,816
============= ============= =============









Beginning Ending
Balance Expense Payments Balance
------------- ------------- ------------- -------------

Accrued restructure and merger liability:
Restructure and merger activity for the
year ended December 31, 1999 $ 2,387 $ 8,816 $ (8,278) $ 2,925
============= ============= ============= =============
Restructure and merger activity for the
year ended December 31, 2000 $ 2,925 $ 1,730 $ (2,603) $ 2,052
============= ============= ============= =============
Restructure and merger activity for the
year ended December 31, 2001 $ 2,052 $ (1,154) $ (412) $ 486
============= ============= ============= =============




The merger and restructure liability is included in other current liabilities in
the accompanying financial statements.

Dental practice affiliations and acquisitions

The Company and an existing affiliated PA entered into a new management service
agreement ("MSA") effective January 1, 2000. Whereas the former MSA did not meet
the criteria for consolidation as outlined in EITF 97-2, the new MSA meets the
criteria for consolidation of the PA accounts with the Company for financial
reporting purposes. As consideration for entering into the new MSA, the Company
paid $309 in cash of which $271 was offset by amounts due from the PA, and
assumed net liabilities of $110.

During the year ended December 31, 2000, the Company acquired substantially all
of the assets of 21 dental facilities, including, accounts receivable, supplies
and fixed assets. The aggregate dental practice acquisition purchase price
recorded during the year ended December 31, 2000, representing the fair value of
the assets acquired in the above transactions and for transactions completed in
prior periods included $14,504 in cash and assumed liabilities of $4,833. The
Company also incurred an additional earn-out obligation of $18,896, of which
$11,583 was paid in cash and $4,970 was converted to notes payable.
Approximately $36,333 of the total consideration has been allocated to
intangible assets. There were no dental practice acquisitions during the year
ended December 31, 2001. During 2001, the Company paid $4,193 in earnout
payments and $1,044 of trailing closing costs on affiliated dental practice
acquisitions performed in prior years.

In connection with certain completed affiliation transactions, the Company has
agreed to pay to the sellers' future consideration in the form of cash. The
amount of future consideration payable under earn-outs is generally computed
based upon financial performance of the affiliated dental practices during
certain specified periods. The Company accrues for earn-out payments with
respect to these acquisitions when such amounts are probable and reasonably
estimable. In addition to cash paid of $4,193 during the year ended December 31,
2001, the Company also converted $8,068 of amounts due under earn-out agreements
into long-term notes payable. As of December 31, 2001, future anticipated
earn-out payments of $4,382 are accrued and included in other current
liabilities. For those acquisitions with earn-out provisions, the Company
estimates the total maximum earn-out that could be paid, including amounts
already accrued, is between $8,000 and $11,000 from January 2002 to December
2004, which is expected to be paid in a combination of cash and notes.

The above transactions have been accounted for using the purchase method of
accounting and the results of operations of the acquired practices have been
included in the consolidated financial statements of the Company since the dates
of affiliation. The following unaudited pro forma information presents the
condensed consolidated results of operations as if the acquisitions and related
financing activities for the three-years ended December 31, 2001 had occurred as
of January 1, 1999. The pro forma information has been prepared for comparative
purposes only, and includes only those MSAs that meet the criteria for
consolidation in the Company's consolidated statements of operations. The pro
forma information is not necessarily indicative of what the actual results of
operations would have been had the practices been affiliated as of that date,
nor does it purport to represent future operations of the Company.

2000 1999
------------ ---------

As Reported:
DP net patient service revenue $ 249,281 $ 188,078
Net management and licensing fees 43,885 43,532
Net income (loss) attributable to common stock (48,712) 5,222
Net income (loss) per share attributed to common
stock - Diluted (13.19) 1.39

Pro forma:
DP net patient service revenue $ 269,339 $ 254,912
Net management and licensing fees 43,885 43,854
Net income (loss) attributable to common stock (48,413) 6,897
Net income (loss) per share attributed to common
stock - Diluted (13.11) 1.83

(5) DENTAL LOCATION DISPOSITIONS AND IMPAIRMENT OF LONG-LIVED ASSETS

Effective May 31, 2001, the Company completed the sale of its east coast
division to Mon Acquisition Corp., a group led by Steven Matzkin, DDS, former
president of the Company. The assets in the sale (the "East Coast Assets")
included the stock of Dental Care Alliance, Inc. ("DCA"), a wholly-owned
subsidiary, and assets used in the operation and management of certain dental
practices in Maryland, Virginia and Indiana. The transaction also included the
assets associated with the notes receivable made by officers of DCA as discussed
in note 10. The total consideration was $36,000 less the assumption of related
debt and operating liabilities.

Upon the two-year anniversary of the transaction close, InterDent shall have the
right to repurchase the East Coast Assets, based upon a multiple of earnings and
subject to a minimum price, as defined in the agreement. In connection with the
sale of assets, InterDent entered into a five-year license agreement dated May
16, 2001 and amended on May 31, 2001 effective June 1, 2001 for $2,554, payable
in installments, for its proprietary practice management system, subject to
negotiations for additional term extensions. Such amount has been recorded as
deferred revenues and is being amortized over the life of the agreement. The
parties also entered into the transition services agreement dated as of May 16,
2001 and a business collaboration agreement dated as of April 17, 2001 effective
June 1, 2001 delineating the use of the practice management system, the joint
purchase of supplies, the joint negotiation for managed care contracts, training
systems and other similar operational matters.

In the fourth quarter of 2000, the Company evaluated the recoverability of the
long-lived assets as a result of the anticipated sale of the East Coast Assets
as required by FASB 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"). The Company estimated that the future undiscounted
cash flow from certain long-lived assets was below their carrying values, and in
the fourth quarter of 2000, the carrying value of these assets was adjusted to
their estimated fair value, resulting in a non-cash impairment charge of $49,802
for a write-down of notes and advances to PAs of $18,124 and intangibles of
$31,678. In addition, interest income from the notes and advances from PAs
previously recorded in 2000 of $1,789 was written off to net interest expense.
The Company recorded an additional loss of $5,837 upon completion of the
transaction during 2001 on the sale of East Coast Assets, including a provision
for anticipated closing costs. This additional loss was a result of additional
investments made in the business subsequent to December 31, 2000, and additional
expenses related to the sale.

During 2001, the Company also disposed or identified under performing dental
locations for disposition ("Disposed Locations"). In connection with the sale of
East Coast Assets and Disposed Locations the Company wrote off $40,246 in total
assets, yielded proceeds of $21,375, net of closing costs and recorded a total
loss on dental locations dispositions and impairment of long-lived assets of
$12,288 for the year ended December 31, 2001. The total recorded loss includes
$1,653 for the provision of direct transaction closing costs.

The results of operations of the East Coast Assets and Disposed Locations have
been reported in the Consolidated Statements of Operations through the effective
date of the sale transactions. The results of operations of the East Coast
Assets and Disposed Locations included in the Consolidated Statements of
Operations for the three years ended December 31, 2001 are as follows and
exclude certain Company allocated costs such as provision for income taxes,
credit facility interest costs, stock compensation expense, management and
retention bonus, and certain corporate general and administrative costs:




2001 2000 1999
------------- ------------- -----------

Dental practice net patient revenue $ 16,074 $ 18,020 $ 5,882
Net management fees 19,226 42,114 40,309
Licensing and other fees 363 887 981
------------- ------------- -----------
Net revenues $ 35,663 $ 61,021 $ 47,172
============= ============= ===========

Operating income $ 3,083 $ 5,086 $ 4,299
============= ============= ===========
Income before provision for income taxes $ 2,974 $ 6,602 $ 4,775
============= ============= ===========



(6) PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:



2001 2000
------------------ -----------------

Dental equipment $ 14,650 $ 22,660
Computer equipment 6,320 8,585
Furniture, fixtures and equipment 3,181 4,135
Leasehold improvements 8,299 12,134
Vehicles 13 70
Land and buildings 1,200 1,200
------------------ -----------------

Total property and equipment 33,663 48,784
Less accumulated depreciation and amortization (12,718) (14,925)
------------------ -----------------

$ 20,945 $ 33,859
================== =================


Depreciation expense was $5,065 for 2001, $5,489 for 2000, and $4,411 for 1999.

(7) INTANGIBLE ASSETS

Intangible assets consists of the following:



2001 2000
------------------ -----------------

Management Services Agreements $ 120,188 $ 121,088
Goodwill 47,103 45,749
Other 50 55
------------------ -----------------

Total intangible assets 167,341 166,892
Less accumulated amortization (19,809) (16,271)
------------------ -----------------

$ 147,532 $ 150,621
================== =================


(8) OTHER CURRENT LIABILITIES

Other current liabilities consists of the following:

2001 2000
------------------ -------------

Accrued earn-outs $ 4,382 $ 9,897
Other operating liabilities 6,805 9,791
------------------ -------------

$ 11,187 $ 19,688
================== =============

(9) DEBT

In 2001, the Company entered into amendments to its existing senior revolving
credit facility (the "Credit Facility") to amend certain covenants. In
connection with the execution of the amendments, the banks waived the defaults
under the Credit Facility that existed at December 31, 2000 due to failure to
meet certain financial ratio covenants and reset all covenants for 2001 and
subsequent years. Additionally, the banks agreed to certain other changes
including a revised term and provisions regarding asset sales and new financing.

As consideration for these modifications, the Company agreed to an amendment fee
of $1,000, which was paid during the three months ended June 30, 2001, and an
additional fee of $1,000 payable at maturity of the term loan if certain
conditions are not met. The additional fee was paid in connection with an
additional amendment to the Credit Facility consummated in April 2002, as
discussed below. The Company also issued warrants to the banks to purchase an
aggregate of 166,667 shares of the Company's common stock at a strike price of
$3.66 per share. During the year ended December 31, 2001, the Company recorded a
charge of $3,886 for the write-off of certain prepaid debt costs related to
previously entered into credit facility agreements, loan amendment fees, warrant
issuance and associated professional fees incurred in connection with the
execution of the amended credit facility agreement.

On October 1, 2001, the Credit Facility converted into a term loan, with
required quarterly payments. On April 15, 2002, the Company entered into an
amendment to the existing Credit Facility. In connection with the execution of
the amendment, the bank agreed, among other things, to reset certain covenants
and reduce the required future quarterly principal payments of $7,214, which
began on October 1, 2001. In connection with these modifications, the Company
accrued as note principal the remaining $1,000 due as a result of the amendment
in 2001 as discussed above, which is payable upon maturity. The Company also
agreed an additional amendment fee of $1,000, with cash of $500 payable at
closing and $250 to accrue as additional principal on July 1, 2002 and October
1, 2002, payable upon final maturity of the Credit Facility on September 30,
2003. The July 1 and October 1, 2002 accrual dates are subject to change, as
outlined in the amendment.

Principal amounts owed under the Credit Facility bear interest at LIBOR plus
7.50% or the prime rate plus 5.75%, at the Company's option. In addition to the
cash interest charges outlined above, the Company is to pay an incremental PIK
interest on the outstanding principal balance of 1.0% from April 15, 2002 though
March 31, 2003, increasing to 2.0% from April 1, 2003 through maturity. The
incremental PIK interest is payable upon maturity. The Company is also to pay a
PIK fee equal to 1.0% of the outstanding principal balance on April 15, 2002,
2.0% on October 1, 2002, and 3.0% on April 1, 2003. PIK fees are payable upon
maturity.

Required principal installments are $300 on July 1, 2002, October 1, 2002, and
January 1, 2003, and payments of $7,214 on April 1, 2003 and July 1, 2003, with
the remaining balance due at maturity on September 30, 2003. The schedule of
maturities outlined below includes the remaining $2,397 that was paid under the
Credit Facility on April 1, 2002, and the minimum principal installments
discussed above. The Credit Facility also has mandatory prepayment provisions
for certain asset sale transactions and excess cash flows, as defined. These
prepayment provisions are applied to future required quarterly installments.

The Credit Facility contains several covenants, including but not limited to,
restrictions on the Company's ability to incur indebtedness or repurchase
shares, a prohibition on dividends without prior approval, prohibition on
acquisitions, and fees for excess earnout and debt payments, as defined. There
are also financial covenant requirements relating to compliance with specified
cash flow, liquidity, and leverage ratios. The Company's obligations, including
all subsidiaries in the guarantees, under the Credit Facility are secured by a
security interest in the equipment, fixtures, inventory, receivables, subsidiary
stock, certain debt instruments, accounts and general intangibles of each of
such entities.

The amendment to the Credit Facility met the criteria of substantial
modification as outlined under the provisions of EITF 96-19. As such, the
amendment met the requirements of an extinguishment of debt. Accordingly, in the
second quarter of 2002 the Company will record an extraordinary loss of
approximately $2,600. The extraordinary loss represents amendment fees of $2,000
incurred to extinguish the original Credit Facility and $600 for the write-off
of the non-amortized portion of deferred financing costs associated with the
original note agreement. Professional fees incurred for the execution of the
amended Credit Facility have been capitalized and are being amortized over the
remaining life of the Credit Facility.

In June 2000, the Company raised $36,500 from the sale of debt and equity to
Levine Leichtman Capital Partners II, L.P. ("Levine") under a securities
purchase agreement (the "Securities Purchase Agreement"). The equity portion of
the transaction comprised 458,333 shares of common stock valued at $11,000. The
debt portion of the transaction comprised a senior subordinated note with a face
value of $25,500 (the "Levine Note"). As part of the transaction with Levine,
the Company also issued a warrant to purchase 354,167 shares of the Company's
common stock at an initial price of $41.04 per share, which as described below,
was subsequently reduced to $20.88 per share. The warrant was valued at $2,739.
The warrant value was reflected as a discount to the face value of the Levine
note and has been subsequently written off as discussed below.

In April 2001, the Company entered into an amendment to the Levine Note. In
connection with the amendment, the lender waived the defaults under the Levine
Note that existed at December 31, 2000 due to failure to meet certain financial
ratio covenants and reset all covenants for 2001 and subsequent years, in
addition to certain other modifications. As consideration for the amendment, the
Company paid an amendment fee of $2,250, payable in additional notes, increased
the payment-in-kind ("PIK") interest rate to 16.5% and reduced the price of the
warrants from an initial strike price of $41.04 per share to $20.88 per share.

The amendment to the Levine Note met the criteria of substantial modification as
outlined in EITF 96-19. As such, the Levine Note is considered extinguished,
with a new note issued in its place. Accordingly, the Company recorded an
extraordinary charge of $5,601. No tax benefit was recorded as a result of the
charge as the realization of available deferred tax assets is not assured. The
extraordinary loss represents the amendment fee of $2,250 incurred to extinguish
the original note and $3,351 for the write-off of the non-amortized portion of
the warrant discount and deferred financing costs associated with the original
note agreement. Professional fees incurred for the execution of the amended note
agreement have been capitalized and are being amortized over the remaining life
of the note as new issuance costs.

In April 2002, the Company entered into an additional amendment to the Levine
Note. In connection with the amendment, the lender reset all covenants for 2002
and subsequent years, in addition to certain other modifications. As
consideration for the amendment, the Company has agreed to pay an amendment fee
of $2,000, payable in additional notes and increase the PIK interest rate by
one-half percentage point.

The entire principal of the Levine Note is due September 2005 but may be paid
earlier at the Company's election, subject to a prepayment penalty.
Additionally, the Levine Note has mandatory principal prepayments based upon a
change in ownership, certain asset sales, or excess cash flows. The Levine Note
bears interest at 12.5%, payable monthly, with an option to pay the interest in
a PIK note. The Company is currently issuing PIK notes at 17.0% for payment of
current interest amounts owed. The Securities Purchase Agreement contains
covenants, including but not limited to, restricting the Company's ability to
incur certain indebtedness, liens or investments, restrictions relating to
agreements affecting capital stock, maintenance of a specified net worth and
compliance with specified financial ratios.

Long-term debt is summarized as follows:



2001 2000
------------------ ------------------

Credit facility term note, variable interest (8.92% as of December 31,
2001), variable minimum required quarterly payments, as defined, due
September 30, 2003. $ 81,755 $ 100,420
Levine Note, interest at 17.0%, payable monthly; due September 2005 33,258 23,058
Senior subordinated note payable, face value of $2,083 discounted
interest at 8%; due July 2002 1,991 1,839
Subordinated note payable, interest at 8%, interest payable annually
through January 2002; due January 2002 696 696
Senior subordinated note payable, interest at 8%; due in monthly
installments of principal and interest of $14; due July 2002 83 238
Note payable to seller, interest at 8.5%, principal and interest payable
quarterly, secured by stock in subsidiary; due March 2003 581 581
Various unsecured acquisition notes payable, due in monthly and quarterly
installments of principal and interest at rates ranging from Prime to
10.0%; due through November 2009 14,073 10,777
------------------ ------------------
132,437 137,609
Less current portion (12,699) (12,975)
------------------ ------------------
$ 119,738 $ 124,634
================== ==================


Scheduled maturities on long-term debt are due as follows: $12,699 in 2002,
$84,421 in 2003, $1,519 in 2004, $33,353 in 2005, $102 in 2006 and $343
thereafter.

In 1998, the Company issued $30,000 of subordinated convertible notes
("Convertible Notes"). The Convertible Notes mature June 2006 and bear interest
at 7.0%, payable semi-annually with an option to pay the interest in a PIK note
also bearing interest at 7.0%, which the Company is currently exercising for
payment of current interest amounts due. In April 2001, the Company entered into
an amendment to the Convertible Notes and the lender waived the cross-default
provision that existed at December 31, 2000 due to the covenant violations under
the Credit Facility and agreed to reset all covenants for 2001 and subsequent
years, in addition to certain other modifications. As consideration for the
amendment, the Company has agreed to reduce the conversion price of the notes.
The Convertible Notes are convertible into shares of the common stock at $39.00
for each share of common stock issuable upon conversion of outstanding principal
and accrued but unpaid interest on such subordinated notes and shall be
automatically converted into common stock if the rolling 21-day average closing
market price of the common stock on 20 out of any 30 consecutive trading days is
more than $107.40.

(10) SHAREHOLDERS' EQUITY

A reconciliation of the total shares of preferred and common stock outstanding
during the three-year period ended December 31, 2001 is as follows:



Convertible
Preferred Preferred
Stock - Stock - Common
Series A Series D Stock
----------- ------------ ------------

Balance, January 1, 1999 100 1,628,663 3,430,605

Common stock issued in connection with:
Acquisitions -- -- 44,770
Employee purchase plan -- -- 6,681
Exercise of warrants -- -- 6,253
Exercise of options -- -- 10,102
Common shares cancelled -- -- (5,500)
----------- ------------ ------------

Balance, December 31, 1999 100 1,628,663 3,492,911

Common stock issued in connection with:
Financing -- -- 458,333
Acquisitions -- -- 6,427
Employee purchase plan -- -- 1,588
Exercise of warrants -- -- 13,798
Exercise of options -- -- 1,035
Non-redemption and accretion of redeemable
common stock -- -- 2,459
----------- ------------ ------------

Balance, December 31, 2000 and 2001 100 1,628,663 3,976,551
=========== ============ ============



Common Stock

A total of 36,920 and 56,541 outstanding shares of Common Stock issued at a
price of $2.70 and $1.35 per share, respectively, are subject to repurchase by
the Company at the original issue price at its election.

Preferred Stock

The Company's presently authorized Preferred Stock rank senior to outstanding
Common Stock. The shares of Series B Preferred Stock were authorized in
connection with issuance of the Convertible Notes as discussed in note 9. The
Series B Preferred Stock conversion provision of the Convertible Notes has
expired. Accordingly, although the Series B Preferred Stock is authorized, the
Company does not expect any such shares to ever be issued. Similarly, 100 shares
of Series C Preferred Stock were authorized and issued in connection with the
Convertible Note issuance, but then converted into 10 shares of common stock in
the March 1999 merger transaction. The Company does not expect any shares of
Series C Preferred Stock to be issued. The shares of Series D Preferred Stock
are convertible into shares of our Common Stock at the rate of one-sixth of a
share of Common Stock for each share of Series D Preferred Stock (assuming there
are no declared but unpaid dividends on the Series D Preferred Stock), in each
case subject to adjustment for stock splits, reverse splits, stock dividends,
reorganizations and similar anti-dilutive provisions. The Series D Preferred
Stock holders are entitled to vote on all matters as to which the Common Stock
shareholders are entitled to vote, based upon the number of shares Common Stock
the Series D Preferred Stock is convertible into. The Series A Preferred Stock
is not convertible, is entitled to elect a director, and is otherwise
non-voting.

Stock Warrants

In connection with certain financing and acquisition activities, the Company has
granted warrants to purchase shares of the Company's common stock. At December
31, 2001 there are a total of 583,561 outstanding warrants at an exercise price
ranging from $3.66 to $56.63 per share. All warrants have been recorded at their
estimated fair value at the date of grant and expire at various dates through
April 2011.

Deferred Compensation

The Company made advances of $11,500 to certain officers of the Company and
provided certain other officers with a minimum guarantee of the value of their
stock options in order to retain and provide incentives to such officers. In
connection with the advances, such officers issued interest-bearing notes
payable to the Company. Shares of the Company's common stock and options owned
by such officers have been pledged to secure the notes. The notes were included
in shareholders' equity as a reduction to equity. Interest on the notes accrues
at rates ranging from 6.4% to 10.2%. The notes and accrued interest are due June
2004, payable in cash or Company common stock and options with varying minimum
values. The notes and accrued interest are with recourse to the officers until
May or June of 2002, depending upon the individual note agreement, after which
the notes and accumulated interest are non-recourse, subject only to the
underlying pledged collateral. The minimum guarantee of the value of certain
officers' stock options can be exercised for a two-year period beginning June
30, 2002.

The difference in the amount of the notes and the value of the collateral at the
date of the loans was being amortized over the life of the notes, representing
stock compensation expense. The amortization reflected the deficit of the
underlying pledged collateral on the individual note dates. The Company also
adjusted the amortization to reflect changes in the quoted fair market value.
The decline, if any, was amortized as stock compensation expense over the life
of the notes. The amortization expense was adjusted cumulatively for changes in
fair value of the collateral. Increases in the stock price, if any, resulted in
a credit to expense, up to the amount of prior expense recognized for this
portion of the notes. In addition, the minimum guarantee of the value of the
stock options was being amortized as stock compensation expense.

The total original advance included advances of $5,900 to DCA officers. These
advances were sold in connection with the sale of DCA as discussed in note 5.
The remaining non-amortized outstanding balance of the advances to DCA officers
at the time of the sale transaction of $4,600 was included in the determination
of impairment of long-lived assets and advances recorded in the fourth quarter
of 2000. During the third quarter of 2001, the entire unamortized balance of the
remaining notes was written off as a result of the acceleration of the
non-recourse provision of the note due from the former CEO and the significant
decline in the underlying value of the pledged collateral, which is considered
to be other than temporary.

Also, in connection with the execution of an officer's amended employment
agreement, a note receivable and related accrued interest of $182 were to be
forgiven, subject to provisions of the agreement. The note and accrued interest
were being expensed over the twenty-four month service period ending May 2002.
During the third quarter of 2001, the remaining balance on the note was written
off as compensation expense based on the note being converted to non-recourse
pursuant to the severance agreement with the officer.

Shareholder Notes Receivable

In 1997, the Company was issued a shareholder note receivable by an officer with
a face amount of $150. In connection with the execution of the officer's amended
employment agreement in May 2000, the note and related accrued interest of $182,
subject to provisions of the agreement, was to be forgiven in May 2002. The note
and accrued interest was being expensed over the twenty-four month period.
During 2001, the remaining balance on the note was written off as compensation
expense based on the note being converted to non-recourse pursuant to the
severance agreement with the officer. The Company recorded a stock compensation
expense of $129 and $53, respectively during the years ended December 31, 2001
and 2000. In addition, the Company forgave its rights to repurchase 33,382
common shares held by the officer at $2.70 and recorded a charge to stock
compensation of $27 during the year ended December 31, 2000.

(11) REDEEMABLE COMMON STOCK

The shares of common stock subject to the put rights are reported on the balance
sheet as redeemable common stock. Such shares have been recorded at their fair
value as of date of acquisition, inclusive of accretion during each of the three
years in the period ended December 31, 2001. The Company records accretion on a
ratable basis over the redemption period of the respective stock. The following
summary presents the changes in the redeemable common stock:


Shares of
Redeemable Redeemable
Common Stock Common Stock
------------- --------------

Balance, January 1, 1999 30,118 $ 2,102

Accretion of redeemable common stock -- 12
Exercise of redeemable common stock (3,792) (318)
------------- --------------

Balance, December 31, 1999 26,326 1,796

Accretion of redeemable common stock -- 8
Exercise of redeemable common stock (1,015) (121)
Non-redemption redeemable common stock (2,459) (199)
------------- --------------

Balance, December 31, 2000 22,852 1,484

Accretion of redeemable common stock -- 1
Exercise of redeemable common stock (4,947) (438)
------------- --------------

Balance, December 31, 2001 17,905 $ 1,047
============= ==============

At December 31, 2001, a total of 1,239 shares of Common Stock are subject to put
rights over the next two-year period at $51 per year. In addition, the Company
completed a private placement offering (the "Placement Offering") of 16,666
shares of the Company's redeemable common stock in June 1996. In connection with
the Placement Offering, the shareholder received certain put rights which are
exercisable after June 21, 2001 but not later than June 21, 2003 if the Company
has not completed a public offering of its common stock by June 21, 2001 at a
price of at least $132.00 per share and with net proceeds to the Company of at
least $10,000. The per share price applicable to the put rights is 20 times the
Company's average adjusted net income per share for the two most recent fiscal
years preceding the exercise of the rights. As of December 31, 2001, the Company
has not recorded any accretion related to the above put rights.

(12) STOCK OPTIONS

The Company adopted the InterDent, Inc. 1999 Stock Incentive Plan (the
"Incentive Plan"). Benefits under the Incentive Plan include the granting of
incentive stock options, non-qualified stock options, stock appreciation rights,
and stock awards to employees and non-employees of the Company. The Incentive
Plan is administered by the Compensation Committee of the Company's Board of
Directors (the "Committee"), which has the authority to determine the persons,
or entities to whom awards are be made, the amounts, and other terms and
conditions of the awards. Share grants issued under the Incentive Plan generally
expire ten to fifteen years from the original grant date, depending upon the
nature of the share grant. The Incentive Plan provides for the issuance of up to
541,666 shares of Company common stock. As of December 31, 2001, options for a
total of 207,988 shares were outstanding, of which options for 76,201 shares
were exercisable.

The Company adopted the InterDent, Inc. 2000 Key Executive Stock Incentive Plan
(the "Executive Plan"). Benefits under the Executive Plan include, without
limitation, the granting of incentive stock options, non-qualified stock
options, stock appreciation rights, performance shares, and restricted and
non-restricted stock awards to employees and non-employees of the Company. The
Committee administers the Executive Plan and has the authority to determine the
persons or entities to which awards will be made, the amounts, and other terms
and conditions of the awards. Share grants issued under the Executive Plan
generally expire ten years from the original grant date, depending upon that
nature of the share grant. The Executive Plan provides for the issuance of up to
500,000 shares of Company common stock. As of December 31, 2001, options for a
total of 366,667 shares were outstanding, of which none were exercisable.

Prior to the merger of GDSC and DCA, each of the entities had active incentive
and non-qualified stock option plans (collectively the "Former Plans"). Benefits
under the Former Plans include incentive stock options, non-statutory stock
options, stock appreciation rights or bonus rights, award of stock bonuses,
and/or sale of restricted stock that were granted to employees and
non-employees. The Former Plans provided for the issuance of up to 687,875
shares of Company common stock and were frozen during 1999. As of December 31,
2001, options for a total of 51,012 shares were outstanding, of which options
for 43,010 shares were exercisable. Shares outstanding under the Former Plans
are generally subject to a three to five-year vesting schedule from the date of
grant and expire ten years from the original grant date.

Stock options issued to non-employees have been recorded at their estimated fair
market value and are being expensed over their respective vesting lives of up to
five years. Total compensation expense recorded for the years ended December 31,
2001, 2000, and 1999 was $2, $25 and $55, respectively.

Statement of Financial Accounting Standards No. 123

The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed for pro forma disclosure purposes the
fair value of all options granted during the three-year period ended December
31, 2001. The options have been valued using the Black-Scholes pricing model as
prescribed by SFAS 123.

The following weighted average assumptions have been used for grants of stock
options during the three-year period ended December 31, 2001:




2001 2000 1999
------------------- ----------------- ------------------

Risk free interest rate 4.8% 6.3% 5.8%
Expected dividend yield -- -- --
Expected lives 5 years 5 years 5 years
Expected volatility 183% 119% 74%



Options were assumed to be exercised over their expected lives for the purpose
of this valuation. Adjustments are made for options forfeited prior to vesting.
The total estimated value of options granted which would be amortized over the
vesting period of the options is $164, $14,220 and $2,167 for the years ended
December 31, 2001, 2000 and 1999, respectively. The options granted during the
years ended December 31, 2001, 2000 and 1999 were valued at a per share amount
of $0.36, $18.00 and $23.28, respectively. If the Company had accounted for
stock options issued to employees in accordance with SFAS 123, the Company's net
income (loss) attributable to common stock and pro forma net income (loss) per
share would have been reported as follows:

Net income (loss) attributable to common stock:



2001 2000 1999
------------------ ------------------ -----------------

As reported $ (35,080) $ (48,712) $ 5,222
Pro forma $ (23,337) $ (56,539) $ 2,932

Pro forma net income (loss) per
share attributable to common stock:

2001 2000 1999
-------------- -------------- -------------

As reported - basic $ (9.09) $ (13.19) $ 1.53
Pro forma - basic (6.05) (15.31) 0.86
As reported - diluted (9.09) (13.19) 1.39
Pro forma - diluted $ (6.05) $ (15.31) $ 0.78



The effects of applying SFAS 123 for providing pro forma disclosures for the
three-year period ended December 31, 2001 are not likely to be representative of
the effects on reported net income (loss) and net income (loss) per common
equivalent share for future years as options vest over several years and
additional awards generally are made each year.

The following summary presents the options granted and outstanding under the
various plans for the three-year period ended December 31, 2001:



Number of shares
Weighted Ave.
Employee Non-employee Total Exercise Price
---------------------------------------------------- ---------------------

Outstanding, January 1, 1999 216,642 138,988 355,630 $ 40.86
Granted 73,386 19,593 92,979 37.70
Exercised (7,926) (2,177) (10,103) 24.31
Canceled (27,152) (14,571) (41,723) 39.82
---------------------------------------------------- ---------------------

Outstanding, December 31, 1999 254,950 141,833 396,783 40.07
Granted 775,167 15,992 791,159 23.52
Exercised (618) (418) (1,036) 19.02
Canceled (14,262) (23,236) (37,498) 42.72
---------------------------------------------------- ---------------------

Outstanding, December 31, 2000 1,015,237 134,171 1,149,408 28.38
Granted 460,000 -- 460,000 0.37
Exercised -- -- -- --
Canceled (896,851) (86,890) (983,741) 28.56
---------------------------------------------------- ---------------------
Outstanding, December 31, 2001 578,386 47,281 625,667 $ 7.49
==================================================== =====================


The following table sets forth the exercise prices, the number of options
outstanding and exercisable, and the remaining contractual lives of the
Company's stock options granted under the various plans at December 31, 2001:



Weighted average
number of options
------------------------------------------
Exercise Contractual life
price Outstanding Exercisable remaining
----------------- -------------------- ------------------- -------------------

$ 0.00 - 6.000 467,543 7,543 9.7
18.01 - 24.00 103,723 66,021 8.4
24.01 - 30.00 19,173 17,056 4.7
30.01 - 26.00 4,837 2,900 6.7
36.01 - 42.00 11,141 10,305 7.3
42.01 - 48.00 6,849 6,782 5.9
48.01 - 54.00 9,482 5,685 6.0
$ 54.01 - 60.00 2,919 2,919 3.2
-------------------- ------------------- -------------------
625,667 119,211 9.1
==================== =================== ===================



(13) EMPLOYEE BENEFITS

In 1999 the Company adopted the InterDent, Inc. 401(k) Plan (the "InterDent
Plan") in accordance with Section 401(k) of the IRC. The InterDent Plan covers
substantially all employees of the Company and its affiliates. Contributions to
the InterDent Plan are discretionary. There was no Company contributions to the
plans during the three-year period ended December 31, 2001.

(14) INCOME TAXES

Income tax provision (benefit) consists of the following:



2001
------------------------------------------------------------------
Current Deferred Total
--------------------- -------------------- -------------------

U.S. Federal income taxes $ -- $ -- $ --
State and local income taxes 115 -- 115
--------------------- -------------------- -------------------
$ 115 $ -- $ 115
===================== ==================== ===================

2000
------------------------------------------------------------------
Current Deferred Total
--------------------- -------------------- -------------------

U.S. Federal income taxes $ (732) $ (2,959) $ (3,691)
State and local income taxes 91 (402) (311)
--------------------- -------------------- -------------------

$ (641) $ (3,361) $ (4,002)
===================== ==================== ===================

1999
------------------------------------------------------------------
Current Deferred Total
--------------------- -------------------- -------------------

U.S. Federal income taxes $ 1,137 $ 220 $ 1,357
State and local income taxes 374 284 658
--------------------- -------------------- -------------------

$ 1,511 $ 504 $ 2,015
===================== ==================== ===================

The effective tax rate differed from the U.S.
statutory Federal rate of 34% due to the following:

2001 2000 1999
------------------- -------------------- -------------------

U.S. Federal taxes at statutory rate $ (9,983) $ (17,920) $ 2,465
Increase (decrease):
State income taxes, net of federal tax benefit (1,014) (2,235) 434
Valuation allowance for deferred tax assets 11,288 16,975 (778)
Purchase accounting adjustments -- -- (1,138)
Transaction costs originally non-deductible -- (732) 909
Amortization of nondeductible goodwill and other
nondeductible items 288 318 290
Other (464) (408) (167)
------------------- -------------------- -------------------

Income tax provision (benefit) $ 115 $ (4,002) $ 2,015
=================== ==================== ===================



Deferred income tax assets (liabilities) are comprised of the following
components:



2001 2000
-------------------- -------------------

Deferred income tax assets:
Capital Loss $ 14,944 $ --
Net operating loss carryforward 19,837 2,519
Allowance for doubtful accounts 117 1,404
Impairment of long-lived assets and advances 658 19,924
Accrued payroll and related costs 653 473
Cash versus accrual reporting for tax purposes -- 89
Restructure and severance accrual 176 307
Other accruals 2,030 516
Tax credits 246 238
Other 88 90
-------------------- -------------------
Total gross deferred income tax assets 38,749 25,560

Less valuation allowance (29,028) (17,739)
-------------------- -------------------
Deferred income tax assets, net of valuation allowance 9,721 7,821
-------------------- -------------------

Deferred income tax liabilities:
Property and equipment, principally due to differences in depreciation
and capitalized costs (5,354) (4,695)
Intangible assets, principally due to accrual for financial reporting
purposes (3,742) (2,483)
Other (625) (643)
-------------------- -------------------
Deferred income tax liabilities (9,721) (7,821)
-------------------- -------------------
Net deferred income tax asset $ -- $ --
==================== ===================
Reconciliation of net deferred income tax liability:
Current deferred income tax assets $ 2,888 $ 2,572
Long-term deferred income tax liabilities (2,888) (2,572)
-------------------- -------------------
$ -- $ --
==================== ===================



The Company has a valuation allowance for all net deferred tax assets. At
December 31, 2001, the Company has net operating loss carryforwards for federal
income tax purposes of approximately $51,942 that are available to offset future
taxable income, if any, through 2021. The Company also has certain state net
operating loss carryforwards, which are available to offset future taxable
income. In accordance with the Internal Revenue Code, the annual utilization of
net operating loss carryforwards and credits that existed in certain
corporations prior to affiliation with InterDent may be limited.

(15) COMMITMENTS AND CONTINGENCIES

Commitments

The Company has entered into various operating leases, primarily for commercial
property. Commercial properties under operating leases mostly include space
required to perform dental services and space for administrative facilities.
Lease expense, including month-to-month rentals, for the three-year period ended
December 31, 2001 was $ 13,122 during 2001, $15,056 during 2000 and $11,711
during 1999.

The future minimum lease payments under capital and noncancelable operating
leases with remaining terms of one or more years consist of the following at
December 31, 2001:



Capital Operating
------------------------ --------------------------

2002 $ 1,172 $ 9,623
2003 657 8,763
2004 279 6,846
2005 168 5,601
2006 130 4,679
Thereafter 274 12,782
------------------------ --------------------------

Total minimum lease obligations 2,680 $ 48,294
==========================
Less portion attributable to 462
interest
------------------------
Obligations under capital lease 2,218
Less current portion 967
------------------------
$ 1,251
========================


Contingencies

On November 12, 1999, Robert D. Rutner, D.D.S. filed a lawsuit seeking to
rescind his May 14, 1999 sale of Serra Park Dental Services, Incorporated, and
seeking damages. The complaint named InterDent, as well as Gentle Dental Service
Corporation and Serra Park Services, Inc. as defendants. InterDent, along with
others, filed an answer on January 21, 2000 along with a cross-complaint
alleging causes of action for breach of employment agreement, breach of stock
purchase agreement, fraud, negligent misrepresentation, breach of the dentist
employment agreement, interference with contractual relations and indemnity. The
cases were settled on November 30, 2001. As part of the settlement, the assets
associated with three affiliated dental practices were transferred to Robert D.
Rutner, D.D.S. The Company recorded a charge of $3,485 as a result of the
settlement, which is included in the loss on dental locations dispositions and
impairment of long-lived assets as discussed in note 5. No additional
contingencies or obligations relating to these cases exist at December 31, 2001.


On November 28, 2000, the Court entered its Order of Related Cases with regard
to an action previously filed by InterDent on September 28, 2000 in Los Angeles
Superior Court Case No. BC237600, wherein InterDent alleged causes of action
against Amerident for breach of contract, breach of the implied covenant of good
faith and fair dealing, intentional misrepresentation and negligent
misrepresentation. On October 18, 2000, Amerident Dental Corp. ("Amerident")
filed a lawsuit against InterDent and Gentle Dental Management, Inc. seeking
damages related to the July 21, 1999 sale of substantially all of the assets of
ten dental practices in California and Nevada. On January 19, 2001, Amerident
filed another action against InterDent and Gentle Dental Management, Inc. for
Breach of a Promissory Note and related common counts, that action was similarly
deemed related and consolidated with the earlier filed InterDent action.
Discovery is ongoing. The trial has been set for May 20, 2002. InterDent
believes that this case is without merit and intends to vigorously defend all
allegations. Accordingly, no liability for this suit has been recorded at this
time.

On January 19, 2001, JB Dental Supply Company filed a complaint against
InterDent and Gentle Dental Service Corporation in Los Angeles Superior Court
Case No. BC245573 for breach of contract and related common counts alleging the
failure of certain offices to pay for dental supplies. The case was settled on
January 10, 2002 for $237, which has been accrued at December 31, 2001.

The Company has been named as a defendant in various other lawsuits in the
normal course of business, primarily for malpractice claims. The Company and
affiliated dental practices, and associated dentists are insured with respect to
dentistry malpractice risks on a claims-made basis. Management believes all of
these pending lawsuits, claims, and proceedings against the Company are without
merit or will not have a material adverse effect on the Company's consolidated
operating results, liquidity or financial position.

(16) SUBSEQUENT EVENT

On April 15, 2002, the Company entered into amendments to its existing Credit
Facility and Levine Note, as more fully described in note 9.







Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

The information required by this item is included under Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure in the
Company's 2002 Proxy Statement and is incorporated herein by reference.








PART III

Item 10. Directors and Executive Officers of the Registrant

Information with respect to the executive officers and directors of InterDent is
set forth below.




Name Age Position

Mr. H. Wayne Posey...................62 Chairman of the Board, President and Chief Executive Officer
Mr. L. Theodore Van Eerden ..........46 Executive Vice President, Chief Financial Officer and Secretary



H. Wayne Posey. Mr. Posey has been a director of InterDent since March 12, 1999
and has served as Chairman, President, and Chief Executive Officer since
September 2001. Mr. Posey was a director of Gentle Dental Service Corporation
since November 1997 and served as a director of GMS Dental Group, Inc. from
December 1996 until the merger of GMS Dental Group, Inc. with Gentle Dental
Service Corporation in November 1997. Mr. Posey was a founder of ProMedCo
Management Company and served as its President, Chief Executive Officer,
director and a member of the executive committee from its inception in 1994, and
Chairman from December 1998 until his retirement in February 2001. Mr. Posey was
also a healthcare consultant from 1975 until 1994, and prior to that was
employed by Hospital Affiliates International from 1970 until 1975, holding the
positions of Controller, Vice President and Controller, Senior Vice President of
Operations, director and member of the executive committee.

L. Theodore Van Eerden. Mr. Van Eerden has served as Chief Development Officer,
Executive Vice President and Secretary for Interdent since March 12 1999. He was
also Chief Development Officer from March 1999 until October 2001 when he became
Chief Financial Officer. Previously, Mr. Van Eerden served as Executive Vice
President, Chief Development Officer and as a director of Gentle Dental Service
Corporation since November 1997. He served as Chief Financial Officer from March
1996 until November 1997. Before joining Gentle Dental Service Corporation as
Chief Financial Officer in March 1996, Mr. Van Eerden was Vice
President-Administration for HOSTS Corporation, a Vancouver, Washington company
that provides proprietary educational software products and instructional
delivery systems to schools throughout the United States. From April 1993 to
April 1994, Mr. Van Eerden was Director of Development for The ServiceMaster
Company where he focused on mergers and acquisitions and new business
development. Before that, Mr. Van Eerden was Vice President and Chief Financial
Officer of Medical SafeTec, Inc., a manufacturer of medical waste destruction
equipment. Prior to Medical SafeTec, Inc., Mr. Van Eerden served in various
positions with ServiceMaster focusing on mergers and acquisitions.

The information required by this item concerning the Company's Directors is
included under "Election of Directors" in the Company's 2002 Proxy Statement and
is incorporated herein by reference. The information required by Item 405 of
Regulation S-K is included under "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's 2002 Proxy Statement and is incorporated herein by
reference.

Item 11 Executive Compensation

The information required by this item is included under "Directors'
Compensation," and "Executive Compensation" in the Company's 2002 Proxy
Statement and is incorporated herein by reference.

Item 12 Security Ownership of Certain Beneficial Owners and Management

The information required by this item is included under "Ownership of
Securities" in the Company's 2002 Proxy Statement and is incorporated herein by
reference.

Item 13 Certain Relationships and Related Transactions

The information required by this item is included under "Certain Relationships
and Related Transactions" in the Company's 2002 Proxy Statement and is
incorporated herein by reference.









PART IV

Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K

a) Financial Statement Schedules

1 & 2 The financial statements and schedules filed as part of this report
are listed in the index to the Consolidated Financial Statements under
Item 8.

3 Exhibits

3.1 Certificate of Incorporation of InterDent, Inc. (formerly known as
Wisdom Holdings, Inc.), including all amendments thereto.

3.2 Bylaws of the Company. Incorporated by reference to Exhibit 3.3
of InterDent's Registration Statement on Form S-4,
Registration No. 333-66475, filed on October 30, 1998.

4.1 1999 Credit Facility, Related Documents and Amendments Thereto.

4.1.1 Amended and Restated Credit Agreement, dated as of June 15, 1999 (the
"Amended and Restated Credit Agreement"), by and among Gentle Dental
Service Corporation, Dental Care Alliance, Inc. and Gentle Dental
Management, Inc., as borrowers (the "Borrowers"), certain of the
Company's subsidiaries, as guarantors (the "Guarantors"), the financial
institutions signatory thereto, as lenders, Union Bank of California,
N.A., as administrative agent (the "Administrative Agent"), and The
Chase Manhattan Bank, as syndication agent (the "Syndication Agent").
Incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999.

4.1.2 Amended and Restated Guaranty, dated as of March 31, 2000, by the
Company in favor of the Administrative Agent. Incorporated by reference
to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000.

4.1.3 Amendment Agreement No. 1 to the Amended and Restated Credit Agreement,
dated as of July 30, 1999, by and among the Borrowers, the Guarantors,
the financial institutions signatory thereto, as lenders, the
Administrative Agent and the Syndication Agent. Incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.

4.1.4 Amendment Agreement No. 2 to the Amended and Restated Credit Agreement,
dated as of August 9, 1999, by and among the Borrowers, the Guarantors,
the financial institutions signatory thereto, as lenders, the
Administrative Agent and the Syndication Agent. Incorporated by
reference to Exhibit 10.3 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.

4.1.5 Amendment Agreement No. 3 to the Amended and Restated Credit Agreement,
dated as of March 31, 2000, by and among the Borrowers, the Guarantors,
the financial institutions signatory thereto, as lenders, the
Administrative Agent and the Syndication Agent. Incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000.

4.1.6 Amendment Agreement No. 4 to the Amended and Restated Credit Agreement,
dated as of June 15, 2000, by and among the Borrowers, the Guarantors,
the financial institutions signatory thereto, as lenders, the
Administrative Agent and the Syndication Agent.

4.1.7 Amendment Agreement No. 5 to the Amended and Restated Credit
Agreement, dated as of August 15, 2000, by and among the
Borrowers, the Guarantors, the financial institutions signatory
thereto, as lenders, the Administrative Agent and the
Syndication Agent.

4.1.8 Amendment Agreement No. 6 and Waiver, effective as of April 13, 2001,
to the Amended and Restated Credit Agreement, dated as of June 15,
1999, by and among the Borrowers, the Guarantors, the financial
institutions signatory thereto, as lenders, the Administrative Agent
and the Syndication Agent. Incorporated by reference to Exhibit 10.3 of
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2001.

4.1.9 Amendment Agreement No. 7 and Consent, effective as of May 31, 2001, to
the Amended and Restated Credit Agreement, dated as of June 15, 1999,
by and among the Borrowers, the Guarantors, the financial institutions
signatory thereto, as lenders, the Administrative Agent and the
Syndication Agent. Incorporated by reference to Exhibit 10.4 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.

4.1.10 Amendment Agreement No. 8, effective as of April 15, 2002, to the
Amended and Restated Credit Agreement, dated as of June 15, 1999, by
and among the Borrowers, the Guarantors, the financial institutions
signatory thereto, as lenders, the Administrative Agent and the
Syndication Agent.

4.2 2000 Credit Facility, Related Documents and Amendments Thereto.

4.2.1 Credit Agreement, dated as of March 31, 2000 (the "Credit Agreement"),
by and among the Borrowers, the Guarantors, the financial institutions
signatory thereto, as lenders, the Administrative Agent, and the
Syndication Agent. Incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000.

4.2.2 Amendment Agreement No. 1 and Waiver, effective as of June 15, 2000, to
the Credit Agreement, dated as of March 31, 2000, by and among the
Borrowers, the Guarantors, the financial institutions signatory
thereto, as lenders, the Administrative Agent and the Syndication
Agent.

4.2.3 Amendment Agreement No. 2 and Waiver, effective as of August 15, 2000,
to the Credit Agreement, dated as of March 31, 2000, by and among the
Borrowers, the Guarantors, the financial institutions signatory
thereto, as lenders, the Administrative Agent and the Syndication
Agent.

4.2.4 Amendment Agreement No. 3 and Waiver, effective as of April 13, 2001,
to the Credit Agreement, dated as of March 31, 2000, by and among the
Borrowers, the Guarantors, the financial institutions signatory
thereto, as lenders, the Administrative Agent and the Syndication
Agent. Incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

4.2.5 Amendment Agreement No. 4 and Consent, effective as of May 31, 2001, to
the Credit Agreement, dated as of March 31, 2000, by and among the
Borrowers, the Guarantors, the financial institutions signatory
thereto, as lenders, the Administrative Agent and the Syndication
Agent. Incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

4.2.6 Form of Warrant to Purchase shares of Company Common Stock issued to
the lenders pursuant to Amendment Agreement No. 6 and Waiver, effective
as of April 13, 2001, to the Amended and Restated Credit Agreement,
dated as of June 15, 1999, and Amendment Agreement No. 3 and Waiver,
effective as of April 13, 2001, to the Credit Agreement, dated as of
March 31, 2000. Incorporated by reference to Exhibit 10.5 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.

4.2.7 Amendment Agreement No. 5, effective as of April 15, 2002, to the
Credit Agreement, dated as of March 31, 2000, by and among
the Borrowers, the Guarantors, the financial institutions signatory
thereto, as lenders, the Administrative Agent and the
Syndication Agent.

4.3 Levine Leichtman Capital Partners II, L.P. investment documents.

4.3.1 Securities Purchase Agreement dated June 15, 2000, by and among the
Company, the Borrowers, the Guarantors and Levine Leichtman Capital
Partners II, L.P. Incorporated by reference to Exhibit 99.2 of the
Company's Report on Form 8-K filed on June 27, 2000.

4.3.2 Senior Subordinated Note dated June 15, 2000 executed by the Borrowers
in favor of Levine Leichtman Capital Partners II, L.P. Incorporated by
reference to Exhibit 4.1 of the Company's Report on Form 8-K filed on
June 27, 2000.

4.3.3 Warrant to purchase shares of Company Common Stock dated June 15, 2000
issued by the Company to Levine Leichtman Capital Partners II, L.P.
Incorporated by reference to Exhibit 4.2 of the Company's Report on
Form 8-K filed on June 27, 2000.

4.3.4 Investor Rights Agreement dated June 15, 2000, by and among the
Company, Levine Leichtman Capital Partners II, L.P., Sprout
Capital VII, L.P., Sprout Growth II, L.P., The Sprout CEO Fund, L.P.,
DLJ Capital Corp., DLJ First ESC L.L.C., SRM '93 Children's Trust,
CB Capital Investors, LLC, Michael T. Fiore, Steven R. Matzkin,
D.D.S. and Curtis Lee Smith, Jr. Incorporated by reference to Exhibit
99.3 of the Company's Report on Form 8-K filed on June 27, 2000.

4.3.5 Amendment to Securities Purchase Agreement, Consent to Allonge to
Senior Subordinated Note and PIK Notes, Consent to Dispositions and
Waiver, dated April 13, 2001, by and among the Company, the Borrowers,
the Guarantors, and Levine Leichtman Capital Partners II, L.P.
Incorporated by reference to Exhibit 10.8 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001.

4.3.6 Amendment Allonge to Senior Subordinated Note Due 2005 dated as of June
15, 2000, payable to the order of Levine Leichtman Capital Partners II,
L.P., a California limited Partnership, dated April 13, 2001.

4.3.7 Amended and Restated Warrant to purchase shares of Company Common
Stock dated April 13, 2001 issued by the Company to Levine
Leichtman Capital Partners II, L.P.

4.3.8 Amendment No. 2 to Securities Purchase Agreement, Consent to Allonge to
Senior Subordinated Note and PIK Notes, Consent to Dispositions and
Waiver, dated April 15, 2002, by and among the Company, the Borrowers,
the Guarantors, and Levine Leichtman Capital Partners II, L.P.

4.3.9 Allonge Amendment No. 2 to Senior Subordinated Note Due 2005 dated
as of June 15, 2000, as amended on April 13, 2001,
payable to the order of Levine Leichtman Capital Partners II, L.P., a
California limited Partnership, dated April 15, 2002.

4.4 1998 Preferred Stock and Convertible Subordinated Note investment
documents.

4.4.1 Securities Purchase Agreement dated May 12, 1998 by and among Gentle
Dental Service Corporation ("Gentle Dental") and the purchasers named
therein, including form of 7% Convertible Subordinated Notes.
Incorporated by reference to Exhibit 4.1 of Gentle Dental's Report on
Form 8-K filed on July 2, 1998.

4.4.2 Amendment dated as of April 13, 2001 to the 7% Convertible Subordinated
Notes issued by Gentle Dental. Incorporated by reference to Exhibit
10.9 of the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.

4.4.3 Registration Rights Agreement dated March 11, 1999 by and among the
Company and the purchasers under the Securities Purchase
Agreement dated May 12, 1998.

4.4.4 First Amendment to Registration Rights Agreement, dated June 15, 2000,
by and among the Company, the Requisite Holders and Levine Leichtman
Capital Partners II, L.P. Incorporated by reference to Exhibit 99.4 of
the Company's Report on Form 8-K filed on June 27, 2000.

4.4.5 Second Amendment to Registration Rights Agreement dated as of April 13,
2001 by and among the Company, the Requisite Holders and Union Bank,
Chase Bank, Fleet Capital Corporation, Sovereign Bank and U.S. Bank
National Association. Incorporated by reference to Exhibit 10.7 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.

*10.1 Interdent, Inc. 1999 Stock Incentive Plan.

*10.2 2000 Key Executive Stock Incentive Plan. Incorporated by reference
to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000.

*10.3 Employment Agreement dated September 15, 2001 between the Company and
H. Wayne Posey.

*10.4.1 Employment Agreement dated March 11, 1999 between the Company and L.
Theodore Van Eerden.

*10.4.2 Amendment to Employment Agreement dated October 11, 2001 between the
Company and L. Theodore Van Eerden.

*10.4.3 Employee Retention Incentive Agreement dated January 10, 2002 between
the Company and L. Theodore Van Eerden.

*10.5.1 Employment Agreement dated March 11, 1999 between the Company and
Michael T. Fiore.

*10.5.2 First Amendment to Employment Agreement dated May 16, 2000 by and
between the Company and Michael T. Fiore, including
Addendum No. 1 thereto. Incorporated by reference to Exhibit 10.3
of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.

*10.5.2 Addendum #2 to the First Amendment to Employment Agreement, dated as of
May 16, 2000, between the Company and Michael T. Fiore. Incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000.

*10.5.3 Promissory Note, dated May 16, 2000, by Michael T. Fiore payable to
Gentle Dental Management, Inc. Incorporated by reference to Exhibit
10.4 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.

*10.5.4 Promissory Note, dated June 15, 2000, by Michael T. Fiore payable to
Gentle Dental Management, Inc. Incorporated by reference to Exhibit
10.5 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.

*10.5.5 Promissory Note, dated September 1, 2000, by Michael T. Fiore payable
to Gentle Dental Management, Inc. Incorporated by reference to Exhibit
10.8 of the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.

*10.5.6 Pledge and Security Agreement dated May 16, 2000, by and between
Michael T. Fiore and Gentle Dental Management, Inc. Incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000.

*10.5.7 Confidential Separation and Release Agreement dated as of September 6,
2001, by and among Michael T. Fiore, the Company and Gentle Dental
Management, Inc. Incorporated by reference to Exhibit 99.2 of the
Company's Report on Form 8-K filed on September 20, 2001.

*10.6.1 First Amendment dated May 31, 2001, by and between the Company and
Steven R. Matzkin to certain option award agreements issued to Steven
R. Matzkin. Incorporated by reference to Exhibit 10.10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

*10.6.2 Consulting Agreement dated May 31, 2001, by and between InterDent
and Steven R. Matzkin. Incorporated by reference to
Exhibit 10.11 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001.

10.7 Agreements with Mon Acquisition Corp.

10.7.1 Asset Purchase Agreement dated April 17, 2001 by and among the Company,
Gentle Dental, DentalCo Management Services of Maryland, Inc. and
Mon Acquisition Corp. Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K filed on June 18, 2001.

10.7.2 Purchase Agreement dated April 17, 2001 by and among the Company,
Gentle Dental, DentalCo Management Services of Maryland,
Inc. and Mon Acquisition Corp. Incorporated by reference to Exhibit
2.2 to the Company's Report on Form 8-K filed on June 18, 2001.

10.7.3 Business Collaboration Agreement dated April 17, 2001, by and among
Mon Acquisition Corp., the Company and Gentle Dental.
Incorporated by reference to Exhibit 10.14 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001.

10.7.4 Software License and Maintenance Agreement dated May 16, 2001, by and
between Gentle Dental and Mon Acquisition Corp. Incorporated by
reference to Exhibit 10.15 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2001.

10.7.5 First Amendment to the Software License and Maintenance Agreement dated
May 31, 2001, by and between Gentle Dental and Mon Acquisition Corp.
Incorporated by reference to Exhibit 10.16 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001.

10.7.6 Transitional Services Agreement dated May 16, 2001, by and between
Gentle Dental and Mon Acquisition Corp. Incorporated by reference to
Exhibit 10.17 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001.

21 Subsidiaries of the registrant.

23.1 Consent of Independent Accountants, Ernst & Young LLP.

23.2 Consent of Independent Accountants, KPMG LLP.


- -----------------------------

* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed in the fourth quarter of the year
ended December 31, 2001.







SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on April 16, 2002.

INTERDENT, INC.

By: H. WAYNE POSEY
-----------------------------------
H. Wayne Posey
Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities indicated on April 16, 2002.

Signature Title

Principal Executive Officer:

HH. WAYNE POSEY Chairman of the Board and
- ------------------------------------ Chief Financial Officer
H. Wayne Posey

Principal Financial and
Accounting Officer:

L. THEODORE VAN EERDEN Chief Financial Officer
- ------------------------------------
L. Theodore Van Eerden

Directors:

STEVEN R. MATZKIN, DDS Director
- ------------------------------------
Steven R. Matzkin, DDS

GERALD R. AARON, DDS Director
- ------------------------------------
Gerald R. Aaron DDS

ERIC GREEN Director
- -----------------------------------
Eric Green

PAUL H. KECKLEY Director
- ------------------------------------
Paul H. Keckley

ROBERT FINZI Director
- ------------------------------------
Robert Finzi

ROBERT F. RAUCCI Director
- -----------------------------------
Robert F. Raucci














SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999



Additions
------------------------------
Balance at
costs and other Charged to Charged to
beginning of Expenses accounts Deductions Balance at
year (1) (2) (3) (4) end of year
-------------- -------------- ------------- -------------- ---------------

Accounts Receivable Allowance:
2001 $ 9,755,000 $ 14,579,000 $ 314,000 $ 20,021,000 $ 4,627,000
2000 8,548,000 10,445,000 4,258,000 13,496,000 9,755,000
1998 6,855,000 6,539,000 3,629,000 8,475,000 8,548,000
Advances to PA Allowance:
2001 $ 20,282,000 $ -- $ 217,000 $ 20,499,000 $ --
2000 152,000 19,913,000 256,000 39,000 20,282,000
1999 149,000 -- 3,000 -- 152,000





(1) Before considering recoveries on accounts or notes previously written off.

(2) On accounts receivable allowances, charged to allocation of acquisition
purchase accounting entry.

(3) On advances to PA allowances, charged to management fees revenue.

(4) Accounts written off, net of recoveries. For 2001, includes write offs
associated with dental location dispositions of $988,000 for Accounts
Receivable Allowances and $20,499,000 for Advances to PA Allowances.