HEALTHDRIVE CORP, S-1/A, 1998-06-19

HEALTHDRIVE CORP
S-1/A, 1998-06-19
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998

REGISTRATION NO. 333-49721
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

HEALTHDRIVE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 8741 04-3052905
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>

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

25 NEEDHAM STREET
NEWTON, MA 02161-1615
(617) 964-6681
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------

STEVEN S. CHARLAP, M.D.
CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE OFFICER AND PRESIDENT
HealthDrive Corporation
25 Needham Street
Newton, MA 02161-1615
(617) 964-6681
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

WITH COPIES TO:

<TABLE>
<S> <C>
VICTOR J. PACI, ESQ. DAVID F. DIETZ, P.C.
JOHAN V. BRIGHAM, ESQ. LIZETTE M. PEREZ, ESQ.
Bingham Dana LLP Goodwin, Procter & Hoar LLP
150 Federal Street Exchange Place
Boston, MA 02110-1726 Boston, MA 02109-2881
(617) 951-8000 (617) 570-1000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. / / ________________________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE (1)

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY (2) OFFERING PRICE (2) FEE
<S> <C> <C> <C> <C>
Representative's Warrants 160,000 Warrants $.01 $1,600 $1
Common Stock, $.01 par value, issuable upon
exercise of Representative's Warrants 160,000 Shares $9.60 $1,536,000 $454
</TABLE>

(1) 240,000 shares of Common Stock, $.01 par value per share, were registered
upon the initial filing of this registration statement and a filing fee of
$3,799.60 was paid in connection therewith.

(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933, as amended.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS

1,600,000 SHARES

[LOGO]

COMMON STOCK

All of the 1,600,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of HealthDrive Corporation (the "Company") offered hereby (the
"Offering") are being sold by the Company. Prior to this offering, there has
been no public market for the Common Stock. It is currently anticipated that the
initial public offering price will be between $7.00 and $8.00 a share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Company has applied to have the Common Stock
included for quotation on the Nasdaq SmallCap Market under the symbol "HDMD."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SUBSTANTIAL IMMEDIATE DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
Per Share.............. $ $ $
<S> <C> <C> <C>
Total(3)............... $ $ $
</TABLE>

(1) Excludes a non-accountable expense allowance equal to three percent (3.0%)
of the total proceeds from the sale of the Common Stock payable to H.C.
Wainwright & Co., Inc., the representative of the Underwriters (the
"Representative"), and the value of warrants to be issued to the
Representative to purchase the number of shares of Common Stock equal to ten
percent (10%) of the number of shares being offered hereby at an exercise
price of 120% of the Price to Public (the "Representative's Warrants"). In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
to be $854,000 ($909,600, if the Underwriter's over-allotment option is
exercised in full), including the Representative's non-accountable expense
allowance. See "Underwriting."

(3) Steven S. Charlap, M.D. and Alec H. Jaret, D.M.D., two of the Company's
largest shareholders (the "Selling Stockholders"), have granted to the
Underwriters a 30-day option to purchase up to 240,000 additional shares of
Common Stock, on the same terms as set forth above, solely to cover over-
allotments, if any. If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discount, Proceeds to Company and
proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Selling Stockholders" and "Underwriting."

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

The shares of Common Stock are being offered severally by the Underwriters
named herein, subject to prior sale, when, as and if issued to and accepted by
them, subject to the approval of certain legal matters by counsel for the
Underwriters and to certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the shares of Common Stock will be made in
Boston, Massachusetts on or about , 1998.

H.C. WAINWRIGHT & CO., INC.

THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[Map indicating in which states the Company currently operates.]

[Chart indicating which of the four major services provided by the Company's
Medical and Dental Practices are provided in each states in which the Company
operates.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
------------------------

HealthDrive-TM-, CustomCare-TM- and the Company's logo are trademarks of the
Company. This Prospectus also includes trademarks of companies other than the
Company.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. POTENTIAL
PURCHASERS OF THE COMMON STOCK SHOULD READ CAREFULLY THIS PROSPECTUS IN ITS
ENTIRETY AND SHOULD CONSIDER CAREFULLY THE FACTORS IDENTIFIED UNDER "RISK
FACTORS." EXCEPT AS OTHERWISE INDICATED, THE INFORMATION CONTAINED HEREIN
ASSUMES THE CONVERSION OF 571,428 SHARES OF THE COMPANY'S CLASS A CONVERTIBLE
PREFERRED STOCK ("CLASS A PREFERRED STOCK") AND 181,818 SHARES OF THE COMPANY'S
CLASS B CONVERTIBLE PREFERRED STOCK ("CLASS B PREFERRED STOCK") HELD BY DCC
INTERNATIONAL HOLDINGS B.V. ("DCC HOLDINGS") INTO 753,246 SHARES OF COMMON STOCK
UPON THE CLOSING OF THE OFFERING.

THE COMPANY

HealthDrive Corporation (the "Company") is the sole sponsor of, and provider
of administrative services to, four professional corporations and one Michigan
taxable not-for-profit corporation (collectively, the "Medical and Dental
Practices" and each a "Practice"). The Company and its founders established the
Medical and Dental Practices to focus on the provision of on-site geriatric
health care services primarily to residents of nursing homes. The Company does
not own the capital stock of any of the professional corporations or the
Michigan taxable not-for-profit corporation. Each of the Medical and Dental
Practices is affiliated with the Company through an exclusive long-term
Operating Agreement (collectively, the "Operating Agreements") pursuant to which
the Company receives a fee in exchange for the services it provides, and an
Option Agreement pursuant to which the Company is entitled to cause the sole
stockholder of the Practice to sell all of the outstanding capital stock of the
Practice to a designee of the Company at any time for a nominal price. The
Company and the Medical and Dental Practices are completely interdependent and
function as a single integrated economic unit, with the Company being entirely
dependent on the success of the Medical and Dental Practices for its revenues
and the Medical and Dental Practices being entirely dependent on the Company for
capital and all services other than the provision of medical, dental and
ancillary health care services. The Company does not itself provide health care
services.

In addition to providing services to nursing home residents, the Medical and
Dental Practices also provide services to a growing number of residents of
assisted living facilities ("ALFs") and independent living senior housing
facilities ("ILFs" and, collectively with nursing homes and ALFs, "LTCFs") that
are affiliated with nursing homes under service agreements with one or more of
the Practices. Physicians, dentists and ancillary health care service providers
employed by the Medical and Dental Practices ("Providers") travel to LTCFs where
they provide a growing range of geriatric medical and dental services. Services
currently provided by the Medical and Dental Practices include dentistry,
optometry, podiatry, audiology, and primary care. As of May 15, 1998, the
Medical and Dental Practices employed 95 Providers who were rendering services
at 884 LTCFs located in 11 states, and the Company employed an additional 106
people. The Company, headquartered in Newton, Massachusetts, operates four
regional offices located in Massachusetts, Connecticut, Pennsylvania and
Wisconsin.

The Company has positioned itself to capitalize on important trends shaping
geriatric care in the United States including: (i) changing demographics; (ii)
evolving care protocols and disease management techniques; and (iii) changing
reimbursement methodologies driven by federal legislation. In 1996, there were
approximately 15,300 nursing homes serving approximately 1.7 million residents
nationwide. In addition, it was estimated that in 1996 there were approximately
14,500 ALFs and ILFs nationwide. According to the U.S. Census Bureau, the
portion of the U.S. population aged 75 to 85 is expected to increase by 27.0%,
from approximately 10.0 million in 1990 to approximately 12.7 million by the
year 2010, and the number of persons aged 85 and older is expected to increase
by 90.0%, from approximately 3.0 million in 1990 to approximately 5.7 million by
the year 2010. According to the United States General Accounting Office, the
number of Americans aged 65 years and older who need assistance with activities
of daily living is expected to double from approximately 7.0 million in 1997 to
approximately 14.0 million by 2020. Nursing home residents require frequent
medical care and often suffer from decreased mobility which makes it difficult
for them to visit off-site physicians. The Company considers itself to be an
innovator in promoting, sponsoring and administering the delivery by the Medical
and Dental Practices of a broad spectrum of on-site geriatric medical and dental
services to residents of LTCFs. In order to do so effectively, the Company has
developed proprietary systems, procedures and expertise that aid it in the
complex task of providing a range of geriatric medical and dental services to a
large number and variety of LTCF residents. The Company believes such systems,
procedures and expertise give it and the Medical and Dental Practices a
significant competitive advantage over other health care services providers.

1
<PAGE>
The Company was founded in 1989 by Steven S. Charlap, M.D. and Alec H.
Jaret, D.M.D. to respond to the growing demand for convenient on-site dental
care services at nursing homes. Dr. Charlap and Dr. Jaret also founded three of
the Medical and Dental Practices with funds borrowed from the Company, Steven S.
Charlap, M.D., P.C. (the "Audiology and Primary Care Practice"), Alec H. Jaret,
D.M.D., P.C. (the "Dental Practice"), and HealthDrive Michigan Corporation,
which provides dental, optometry and podiatry services to residents of LTCFs in
Michigan. The Company has also established an optometry practice (Jeffrey Morer,
O.D., P.C., the "Optometry Practice"), and a podiatry practice (Mary C. Manesis,
D.P.M., P.C., the "Podiatry Practice"), as it identified opportunities in such
areas among residents of LTCFs serviced by its other Practices. In each case,
the Company designated the individual Provider who would incorporate the
professional corporation, and loaned money to the Practice to cover formation
and initial operating costs. Each of the Medical and Dental Practices (other
than HealthDrive Michigan Corporation) is a Massachusetts professional
corporation of which the named physician or dentist is the sole stockholder.
HealthDrive Michigan Corporation is a Michigan not-for-profit taxable
corporation of which Dr. Charlap is the sole stockholder.

Nursing homes are required by the Omnibus Budget Reconciliation Act ("OBRA")
of 1987 to ensure that medical and dental services are made available to their
residents. In addition, while not required to do so, certain ALFs and ILFs in
the Company's markets have begun to make on-site medical and dental services
available to their residents. Historically, it has not been cost-effective for
LTCFs to use their own resources to satisfy their residents' medical and dental
service needs, and they have looked to single-specialty solo health care service
providers ("Solo Providers") to meet such needs. Providing the range of
geriatric medical and dental services required by LTCF residents through Solo
Providers imposes a number of increasingly complex burdens on LTCFs which
include: (i) identifying and contracting with multiple, competent Solo Providers
to provide on-site services; (ii) allocating LTCF staff to coordinate the
services of such Solo Providers; (iii) monitoring the appropriateness of
services provided and related billings; (iv) complying with related federal and
state health care regulations; and (v) when necessary, transporting residents
off-site to receive such services.

The Balanced Budget Act of 1997 requires the Health Care Finance
Administration ("HCFA") by July 1, 1998 to begin converting from a cost-plus
reimbursement methodology to the Prospective Payment System ("PPS") for nursing
homes, pursuant to which the federal government will pay a per diem rate to
nursing homes for post-hospitalization services provided to their Medicare
covered residents. The Company believes that as a result of the change to PPS,
nursing homes will need to increase their focus on the efficiency and quality of
all of their operations to maximize their profitability. PPS does not cover
physician-related services such as those provided by the Medical and Dental
Practices. However, the Company believes an increased focus on efficiency and
quality will make the use of integrated providers of multiple medical and dental
services, such as the Medical and Dental Practices, more attractive than the use
of multiple Solo Providers.

The Company and the Medical and Dental Practices offer an efficient
alternative to Solo Providers because the Medical and Dental Practices, with the
assistance of the Company, are able to provide coordinated, comprehensive,
cost-effective on-site geriatric medical and dental services. The rendering of
such services requires: (i) multi-specialty clinical expertise; (ii) a staff of
highly qualified health care service providers; (iii) the purchase and
maintenance of specialized equipment; (iv) the development of sophisticated
management information systems; and (v) reimbursement and regulatory knowledge.
The Company and the Medical and Dental Practices have extensive experience in
providing such services. In addition, the Company has developed proprietary
procedures, systems and software necessary to overcome the logistical
complexities involved in coordinating on-site care. Specifically, the Company
has developed CustomCare, a proprietary software program that enhances the
Company's customer service capabilities by effectively integrating all facets of
the Company's services, including scheduling, billing, tracking dentures and
eyeglasses, coordinating transportation, compiling Provider productivity and
patient utilization data, monitoring payor pre-approvals, and generating
customized reports.

2
<PAGE>

a monthly fee (the "Compensation Amount") equal to all revenue generated by such
Practice minus the expenses incurred by such Practice (primarily compensation
and benefits, bad debt expense, insurance costs and the interest expense on
loans from the Company to such Practice), adjusted to give effect to certain
tax-related items. Under the terms of the Operating Agreements the Compensation
Amount may not exceed the fair market value of such services, the license of the
service mark and the extension of credit. Revenue is generated by the Medical
and Dental Practices pursuant to service agreements each of them enters into
with LTCFs to provide their respective services (the "Service Agreements") to
residents of such LTCFs. Each of the Medical and Dental Practices, other than
HealthDrive Michigan Corporation, practices one of the four major specialties.
LTCFs enter into a separate Service Agreement with each of the Medical and
Dental Practices from which they wish to obtain services for their residents,
and generally a LTCF may choose to contract with any number and any combination
of the Medical and Dental Practices. Under the respective Service Agreements, an
LTCF is responsible for notifying its residents that the Practice's services are
available to them, as medically necessary, and the Practice is responsible for
providing its services to those residents who need and request them. The Company
then bills the patient or his or her insurance company on behalf of the Medical
and Dental Practices for the services rendered, typically Medicare, Medicaid or
a commercial insurer, and in most instances does not receive payments from the
LTCFs.

In connection with the formation of the Medical and Dental Practices, and
from time to time thereafter, the Company has loaned money (the "Demand Loans")
pursuant to the Operating Agreements to the Medical and Dental Practices for
working capital purposes. The Medical and Dental Practices are required to pay
down the principal balance and accrued interest on these loans from time to time
to the extent possible, and the Company is entitled to demand repayment on
thirty days notice. The Demand Loans bear interest at rates determined by the
Company not to exceed a designated prime rate plus five percent and payments are
generally made on the Demand Loans no less frequently than on a monthly basis.

The primary strategic objective of the Company and the Medical and Dental
Practices is for the Medical and Dental Practices to become, acting in
cooperation with the Company, dominant providers of on-site, integrated and
cost-effective geriatric medical and dental services to residents of LTCFs. The
Company and the Medical and Dental Practices have identified three opportunities
for growth: (i) obtaining Service Agreements for the Medical and Dental
Practices with additional LTCFs in existing and contiguous markets; (ii)
increasing the number of Service Agreements with LTCFs under existing contracts
with the Medical and Dental Practices; and (iii) increasing the number of
patients served by the Medical and Dental Practices within LTCFs under existing
contracts. The Company has determined four means of capitalizing on such
opportunities to achieve growth within both existing geographic markets and new
geographic markets. These include: (i) increasing its sales and marketing
initiatives; (ii) expanding its existing customer relationships; (iii)
leveraging its operational infrastructure and its existing and planned
management information systems; and (iv) the consummation of acquisitions of
other LTCF-focused medical, dental or ancillary health care services practices
or related companies. These acquisitions are likely to take the form of a
purchase by one or more Medical and Dental Practices of existing service
agreements of another LTCF-focused heath care services provider, a purchase by
the Company of the non-medical assets of another LTCF-focused practice and
entrance by the Company into an operating agreement with such practice, or the
purchase by the Company of another entity engaged in the promotion,
administration or coordination of health care services to LTCFs. Because the
Company is entirely dependent on the activities of the Medical and Dental
Practices for its revenue, to the extent that any of these initiatives may be
successful in increasing the profitability of the Medical and Dental Practices,
the Company's profitability may be similarly affected. The Company believes that
most of the costs associated with these initiatives, such as increased sales and
marketing expenditures and recruitment and salary costs for new employees of the
Company, will be borne by the Company and not the Medical and Dental Practices.
In addition to the material expenses that will be required to increase the
Company's marketing efforts, the Company expects that enhancing its management
information systems to provide additional services and consummating potential
acquisitions will require substantial expenditures by the Company.

The Company was incorporated in Delaware in May 1989. Its corporate
headquarters are located at 25 Needham Street, Newton, Massachusetts 02161 and
its telephone number is (617) 964-6681.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock being offered by the Company................ 1,600,000 shares
Common Stock outstanding prior to the Offering (1)....... 2,763,246 shares
Common Stock to be outstanding after the Offering
(2)(3)................................................. 4,363,246 shares
Use of Proceeds.......................................... To expand sales and marketing initiatives, enhance
management information systems, finance acquisitions
by the Company, repay the amount outstanding under an
existing credit facility, and for working capital. See
"Use of Proceeds."
Proposed Nasdaq SmallCap Market symbol................... HDMD
</TABLE>

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

(1) Adjusted to give effect to the automatic conversion upon the closing of the
Offering of all outstanding shares of the Company's Class A Preferred Stock
and Class B Preferred Stock into an aggregate of 753,246 shares of Common
Stock.

(2) Does not include: (i) 436,400 shares of Common Stock reserved for issuance
upon the exercise of outstanding options granted pursuant to the Company's
Second Amended and Restated 1992 Stock Option Plan (the "Stock Option
Plan"), and up to 302,475 additional shares reserved for issuance upon the
exercise of options that may be granted in the future under the Stock Option
Plan; and (ii) 160,000 shares of Common Stock reserved for issuance upon the
exercise of the Representative's Warrants. See "Use of Proceeds" and
"Underwriting."

(3) Assumes that the Underwriters' option to purchase up to 240,000 shares of
Common Stock from the Selling Stockholders, solely to cover over-allotments,
if any, made in connection with the sale of the Common Stock offered hereby,
is not exercised. See "Selling Stockholders."

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient service revenue.......................... $ 4,272 $ 6,778 $ 8,575 $ 11,006 $ 12,930 $ 3,023 $ 3,487
Direct patient care costs............................ 2,914 4,136 5,362 7,020 8,213 1,962 2,159
Selling, general and administrative expenses......... 1,512 2,104 3,218 4,880 4,602 1,138 1,149
Income (loss) from operations........................ (154) 538 (5) (894) 115 (77) 179
Net income (loss).................................... (148) 314 -- (745) 55 (92) 119
Accretion of dividends on preferred stock............ (60) (80) (90) (90) (90) (22) (22)
Net income (loss) available to common stockholders... $ (208) $ 234 $ (90) $ (835) $ (35) $ (114) $ 96
Pro forma net income (loss) available to common
stockholders....................................... $ 55 $ 119
Net income (loss) per common and potential common
share:
Basic.............................................. $ (0.10) $ 0.12 $ (0.04) $ (0.42) $ (0.02) $ (0.06) $ 0.05
Diluted............................................ (0.10) 0.09 (0.04) (0.42) (0.02) (0.06) 0.03
Pro forma diluted (1).............................. 0.02 0.04
Weighted average common and potential common shares
outstanding:
Basic.............................................. 2,000 2,000 2,000 2,001 2,010 2,010 2,010
Diluted............................................ 2,000 2,741 2,000 2,001 2,010 2,010 2,994
Pro forma diluted (1).............................. 2,883 2,994
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(2) AS ADJUSTED(2)(3)
----------- ----------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 29 $ 29 $ 10,335
Working capital............................................................. 879 879 11,185
Total assets................................................................ 3,161 3,161 13,467
Capital lease obligations, net of current portion........................... 35 35 35
Preferred stock............................................................. 1,973 -- --
Total common stockholders' equity (deficit)................................. (455) 1,517 11,823
</TABLE>

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

(1) Computed on the basis described in Note 2(i) of Notes to Financial
Statements.

(2) Adjusted to give effect to the automatic conversion upon the closing of the
Offering of all outstanding shares of the Company's Class A Preferred Stock
and Class B Preferred Stock into an aggregate of 753,246 shares of Common
Stock. Each share of Class A Preferred Stock and Class B Preferred Stock
converts into Common Stock on a 1:1 basis.

(3) Adjusted to give effect to the sale of 1,600,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$7.50 per share, after deducting the underwriting discount and estimated
offering expenses.

4
<PAGE>
RISK FACTORS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.

HISTORICAL LOSSES; QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; ACCUMULATED NET
LOSS

Although the Company and the Medical and Dental Practices generated net
income on a consolidated basis for the fiscal years ended December 31, 1997
("Fiscal 1997") and December 31, 1994, they experienced net losses of $745,000
for the fiscal year ended December 31, 1996, ("Fiscal 1996") and $148,000 for
the fiscal year ended December 31, 1993, and have experienced net losses on a
consolidated basis in other periods on a quarterly basis. During these same
periods, the Medical and Dental Practices generated net profits before the
payment of the fees due under their respective Operating Agreements. The Company
attributes the consolidated net loss for Fiscal 1996 primarily to increased
start-up expenses incurred by the Medical and Dental Practices and the Company
and the associated increase in administrative costs as the Company and the
Medical and Dental Practices expanded their respective operations into three new
geographic markets, which expenses and costs were not sufficiently offset by
increased revenue. The Company does not believe that increases in Provider
compensation were material factors in these losses. There can be no assurance
that the Company and the Medical and Dental Practices will achieve a specified
level of consolidated revenues or that they will remain profitable in future
periods. In addition, the consolidated operating results of the Company and the
Medical and Dental Practices have fluctuated in the past and may continue to
fluctuate significantly from quarter to quarter and from year to year. In
addition, as of March 31, 1998, the Company had an accumulated deficit of
$962,232. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON MEDICAL AND DENTAL PRACTICES AND OPERATING AGREEMENTS

Four of the Medical and Dental Practices are independent professional
corporations and one is an independent Michigan taxable not-for-profit
corporation. Although the Company has an option, pursuant to the Option
Agreements, to cause the sole stockholder of each of the Medical and Dental
Practices to sell all of the outstanding capital stock of their Practice to a
designee of the Company for a nominal price, the Company does not own the stock
of any of the Medical and Dental Practices and the Company's revenue is derived
entirely from the fees it receives under the Operating Agreements. Under the
terms of each of the Operating Agreements between the Company and each of the
Medical and Dental Practices, the Company receives a monthly fee equal to the
Compensation Amount. These fees are paid to the Company in consideration for the
services provided by the Company to the Medical and Dental Practices, including
ordering and purchasing of supplies, performance of bookkeeping and accounting
functions, billing and collections, as well as for the license of the
servicemark "HealthDrive" and the extension of credit. As of March 31, 1998, the
Company had loans outstanding to each of the Medical and Dental Practices in
amounts ranging from approximately $134,000 to approximately $913,000 and
aggregating approximately $2,823,000. As a result, any material adverse change
in the business, financial condition or results of operations of a Practice
which reduces its profitability and, accordingly, the Compensation Amount, or
weakens the ability of the Practice to repay its loan to the Company, could have
a material adverse effect on the Company's business, financial condition and
results of operations. Additionally, the termination of an Operating Agreement
(which, with respect to the Medical and Dental Practices, is permitted in the
event of a material default by or bankruptcy of the Company) could have a
material adverse effect on the Company's business, financial condition and
results of operations. In the event of a breach of an Operating Agreement by a
Practice, there can be no assurance that the legal remedies available to the
Company will be adequate to compensate the Company for its damages resulting
from such breach. In addition, in the event that an Operating Agreement is
terminated in accordance with its

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terms, there can be no assurance that the Company would be able to enter into a
new operating agreement with the terminating Practice, or a new Practice, on
satisfactory terms, if at all. The Operating Agreements contain non-competition
and non-solicitation provisions which prevent each Practice during the term of
the Operating Agreement and for two years thereafter from competing with the
Company or soliciting the Company's employees, customers or suppliers. There can
be no assurance that these provisions will be enforceable in a given situation.
A determination that these provisions are not enforceable could have a material
adverse effect on the Company's business, financial condition and results of
operations. Each Practice is likewise dependent upon the Company for the
services that the Company provides under each Operating Agreement and for the
capital that is loaned to each Practice by the Company from time to time. See
"--Loans to Medical and Dental Practices owned by Affiliates of the Company" and
"Business--Relationship between the Company and the Practices; Operating
Agreements with Medical and Dental Practices."

RISKS ASSOCIATED WITH OPERATIONS OF, AND RELATIONSHIPS BETWEEN, THE COMPANY AND
THE MEDICAL AND DENTAL PRACTICES

The Company has not received and, in connection with the Offering the
Underwriters will not be receiving, a legal opinion from counsel or any federal
or state judicial or regulatory authority that the operations of the Company and
the Medical and Dental Practices and the relationships among the Company, the
Medical and Dental Practices, the Providers and LTCFs do not violate federal and
state health care laws and regulations, including laws and regulations relating
to fraud and abuse, physician incentive plans, and corporate practice of
medicine and "fee-splitting." Failure by the Company, the Medical and Dental
Practices and the Providers to operate in compliance with such laws and
regulations could potentially result in, among other things, exclusion of the
Company, the Medical and Dental Practices and the Providers from Medicare and
Medicaid and significant civil and/or criminal penalties. Furthermore, if the
operations of the Company and the Medical and Dental Practices and the
relationships among the Company, the Medical and Dental Practices, the Providers
and LTCFs are determined not to be in compliance with such laws and regulations,
the Company and the Medical and Dental Practices may be unable to continue
operations under their current relationships in one or more states. Each of the
Operating Agreements contains provisions requiring the Company and the
applicable Medical and Dental Practice to use their best efforts to negotiate an
amendment to such Operating Agreement if the relationship it establishes creates
certain regulatory difficulties. However, there can be no assurance in such an
event that the Company will be able to modify its operations or establish new
relationships among itself, the Medical and Dental Practices, the Providers and
LTCFs in order comply with such laws and regulations, or that operating under
any such relationships will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, in the
event that such operations and relationships are significantly altered, the
Company may be required to make adjustments in the manner in which its financial
condition and results of operations are reported on a consolidated basis with
the Medical and Dental Practices. There can be no assurance that any such
adjustments will not have a material adverse effect on the price at which the
Common Stock is traded. See "--Government Regulation" and
"Business--Relationship between the Company and the Practices."

RISKS ASSOCIATED WITH POSSIBLE LOSS OF PROVIDERS AND COMPETITION WITH FORMER
PROVIDERS

All of the Company's revenue is derived from the fees it receives under the
Operating Agreements. The separate profitability of the Practices, upon which
the Compensation Amounts are determined, are entirely dependent upon revenue
generated by the medical and dental services provided by physicians, dentists
and ancillary health care service providers employed by the Medical and Dental
Practices. Such Providers have most of the day-to-day interaction with the LTCFs
and their residents. With the exception of a dentist in Michigan who had a
substantial LTCF-focused dental practice when he was recruited, the Medical and
Dental Practices have not entered into employment agreements with the Providers.
In the event that a significant number of Providers terminate their employment
with the Medical and Dental Practices or become unwilling or unable to continue
their roles, the business, financial condition and

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results of operations of the Company and the Medical and Dental Practices could
be materially and adversely affected. In addition, the Medical and Dental
Practices have encountered difficulty recruiting certain types of Providers in
certain markets and the Medical and Dental Practices have had to offer increased
compensation to secure sufficient Providers in those markets. There can be no
assurance that the Medical and Dental Practices will be able to attract and
retain Providers in all specialties and in sufficient numbers to service LTCFs
currently served and new LTCFs. Because the Company's profitability is entirely
dependent on the profitability of the Medical and Dental Practices, any event
having a material adverse impact on the Practices would have a material adverse
effect on the Company's business, financial condition and results of operations.

Under the Operating Agreements, the Medical and Dental Practices must
require each Provider to enter into a non-competition agreement (the
"Non-Compete Agreements") prohibiting such Provider from competing with the
Company and the Medical and Dental Practices. These covenants generally restrict
the Providers from competing for a period of eighteen months post-termination in
the coordination or provision of dental, medical and ancillary health care
services at corporate and institutional sites in any state in which the Medical
and Dental Practices provide services. They also restrict solicitation by the
Providers of employees and customers of the Company and the Medical and Dental
Practices for such period. There can be no assurance, however, that these
agreements will not be breached, or that, if breached, the Medical and Dental
Practices or the Company will have adequate remedies for such a breach. In
addition, in certain of the states in which the Medical and Dental Practices
operate, covenants not to compete with health care service providers are
prohibited or limited by statute, and it is uncertain whether a court will
enforce a covenant not to compete in those states in a given situation. In
addition, there is little judicial authority regarding whether the Company's
interests under the Operating Agreements will be viewed as the type of
protectable business interest that would permit it or one of the Medical and
Dental Practices to enforce such a covenant. Consequently, there can be no
assurance that a court in any particular state would enforce the covenants not
to compete contained in the Non-Compete Agreements. Since the value of each
Operating Agreement to the Company depends primarily on the ability of the
applicable Practice to preserve its business, which could be harmed if its
Providers enter into competition with it, a determination that such covenants
not to compete are unenforceable or are limited in scope and duration could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Health Care Service Providers and Company
Employees; Non-Competition Agreements."

RISKS ASSOCIATED WITH POST-PAYMENT AUDITS

The Medical and Dental Practices have, from time to time, been subject to
post-payment audits and inquiries by government sponsored health care
reimbursement programs. Although such audits have resulted in only one
significant post-payment adjustment to date, the Medical and Dental Practices
are the subject of six such audits currently ongoing, four of which the Company
believes are not material, and believes that recent events indicate an increase
in such audit activities with respect to the Medical and Dental Practices and in
the home health care industry generally. Although the Company believes, based on
its extensive regulatory experience and expertise, that it is in material
compliance with all relevant laws and regulations regarding such reimbursement,
there can be no assurance that any additional audits conducted in the future
will not yield additional adjustment or that any such current or future audits
will not have a material adverse effect on the business, financial condition and
results of operations of the Medical and Dental Practices or the Company. Third
party payors may also deny reimbursement if they decide that a particular
treatment was not performed in accordance with the cost-effective treatment
methods specified by such payors or for other reasons.

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<PAGE>
Medicare program were inappropriately billed in violation of published Medicare
program guidelines, based on a lack of sufficient clinical documentation
demonstrating medical necessity. The actual deemed overpayment for the sample
audited was $1,009. Extrapolating the percentage disallowance from the audit
sample to the entire group of claims paid by Medicare to the Optometry Practice
in Wisconsin under the same procedure code during the period covered by the
audit, indicates a potential liability to the Optometry Practice of
approximately $109,000. The maximum possible liability to the Optometry Practice
assuming all claims made under this procedure code were disallowed, is
approximately $154,000. Although the Company has not yet responded to this
notice and is currently evaluating the appropriate response, the Company and the
Optometry Practice intend to zealously contest the findings of this audit.

On March 4, 1998, the Dental Practice received notice from the Division of
Medical Assistance, Commonwealth of Massachusetts (the "Division") that it was
conducting a retrospective utilization review and peer review of the services
rendered by the Dental Practice to Medicaid recipients in Massachusetts during
the period between April 1, 1996 and September 30, 1997. On March 25, 1998 a
third-party reviewer contracted by the Division conducted an on-site review of
the Dental Practice's records for 46 of a randomly-selected sample of 50
patients. On April 3, 1998, the Company mailed to the reviewer the remaining
requested information. The Company has received no further communications from
either the Division or the third-party reviewer since March 25, 1998 and has
received no notice of the results of such review. Although the Company intends
to zealously contest any claimed assessments that result from this review, there
can be no assurance that this review will not result in a material assessment
against the Company for the period in question. The Company has not established
a reserve with respect to this audit.

RISKS ASSOCIATED WITH RESTRICTIVE DEBT COVENANTS; BREACHES OF COVENANTS

Pursuant to the Company's Revolving Credit Facility, dated as of May 23,
1995, as amended (the "Credit Facility"), with State Street Bank and Trust
Company (the "Bank"), the Company is subject to a number of covenants that,
among other things, restrict the Company's ability to incur additional
indebtedness, pay dividends, dispose of certain assets and create liens. The
Credit Facility also requires (and any replacement indebtedness incurred to
provide for working capital or other needs likely will require) the Company to
comply with certain financial ratios and tests, under which the Company is
required to achieve certain financial and operating results. The ability of the
Company to comply with such provisions may be affected by events beyond its
control, including changes in prevailing economic conditions and in the
Company's competitive environment, which could impair the Company's operating
performance. A breach of any of these covenants could result in a default under
the Credit Facility, in which event the Bank could elect to declare all
outstanding amounts borrowed thereunder, together with accrued and unpaid
interest thereon, to be due and payable. Acceleration of such indebtedness would
have a material adverse effect on the Company.

As of the date of this Prospectus, the Company is not in default under any
of the foregoing covenants. However, (i) during the third and fourth quarters of
Fiscal 1996 and the first quarter of Fiscal 1997, the Company was in breach of a
covenant of the Credit Facility prohibiting the Company from incurring net
losses, (ii) during the last quarter of Fiscal 1996 and the first two quarters
of Fiscal 1997, the Company was in breach of a covenant prohibiting the Company
from exceeding a maximum ratio of total liabilities to tangible net worth, and
(iii) from the second quarter of Fiscal 1996 through the first quarter of Fiscal
1997, and during the first quarter of the Company's fiscal year ended December
31, 1995, the Company was in breach of the requirement that it maintain a
minimum interest expense coverage ratio. Each of these breaches has been waived
in writing by the Bank. The Company expects to use a portion of the net proceeds
of the Offering to repay the outstanding principal balance of its loan under the
Credit Facility; however, there can be no assurance that the Company's past
breaches of the financial covenants under the Credit Facility will not impair
the Company's ability to secure additional financing on favorable terms upon the
scheduled expiration of the Credit Facility in January 1999. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

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<PAGE>
LOANS TO MEDICAL AND DENTAL PRACTICES OWNED BY AFFILIATES OF THE COMPANY

The Company has made and intends to continue to make loans pursuant to the
Operating Agreements to the Medical and Dental Practices to help fund
operations. The outstanding amounts of the Demand Loans as of March 31, 1998
ranged from approximately $134,000 to $913,000, and aggregated approximately
$2,823,000. The principal amounts of the various Demand Loans have fluctuated
from time to time along with the calculation of the various Compensation Amounts
due under the Operating Agreements. The outstanding amounts of the Demand Loans
as of March 31, 1998 ranged from approximately $14,000 to approximately $767,000
and aggregated approximately $2,147,000. These loans are demand loans that are
payable upon thirty days written notice, and bear interest at a rate determined
by the Company not to exceed the prime rate plus five percent. Under the terms
of the Operating Agreements, the Medical and Dental Practices are required to
use their best efforts to pay the outstanding principal balance of the Demand
Loans and accrued interest outstanding from time to time and payments on the
Demand Loans are generally made no less frequently than on a monthly basis. The
proceeds of the Demand Loans have been used in connection with the establishment
of the Medical and Dental Practices, to assist in the development of operations
in new geographic markets, and to fund the Practices' working capital
requirements from time to time. Although the Company has not yet made a demand
for repayment of the full amount of any of the Demand Loans, the accrual of
interest under the loans has historically reduced the Compensation Amounts
calculated under the various Operating Agreements. The loans made by the Company
to each Practice are secured by an unperfected lien on the Practice's accounts
receivable that is subordinate to a perfected lien on the same assets granted to
the Bank under the Credit Facility. Furthermore, the Operating Agreements
prohibit each Practice from (i) paying any of its Providers any amounts in
excess of the fair market value of such services (with the Company being the
ultimate arbiter of such value); and (ii) paying any dividends to its
shareholders while there are any amounts outstanding under the Practice's Demand
Loan. While the Company expects that all of these loans will be repaid in the
future, the failure of the Medical and Dental Practices to repay the Demand
Loans could have a material adverse impact on the Company's business, financial
condition and results of operations. See "-- Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."

GOVERNMENT REGULATION

The operations of the Company and the Medical and Dental Practices and the
relationships among the Company, the Medical and Dental Practices, the Providers
and LTCFs are subject to complex, extensive and increasing regulation under
numerous laws administered by governmental entities at the federal, state and
local levels.

FRAUD AND ABUSE STATUTES. The "anti-kickback" provisions of the Social
Security Act prohibit the payment, offer, solicitation or receipt of any form of
remuneration (including any kickback, bribe or rebate), directly or indirectly,
in return for, or in order to induce, (i) the referral of an individual for an
item or service, (ii) the furnishing of, or arranging for the furnishing of, an
item or service, or (iii) the purchase, lease or order, or the arrangement or
recommendation of a purchase, lease or order, of any item or service, which is
reimbursable under Medicare or Medicaid. Other fraud and abuse laws, known as
"Stark I" and "Stark II," prohibit a physician from referring Medicare or
Medicaid patients to an entity providing "designated health services" with which
any such physician or an immediate family member of any such physician has a
financial relationship or compensation arrangement or in which any such
physician or an immediate family member of any such physician has an ownership
or investment interest. Stark II also prohibits billing the Medicare and
Medicaid programs for services rendered following prohibited referrals.
Noncompliance with, or violation of, such fraud and abuse laws can result in
exclusion from the Medicare and Medicaid programs and civil and criminal
penalties. Massachusetts and Pennsylvania, where the Medical and Dental
Practices generated approximately 61.4% of their revenues for Fiscal 1997, have
enacted laws similar to the federal statutes which apply to referrals for items
or services reimbursable by Medicaid and any third party payor, respectively.
Such laws impose civil and criminal

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<PAGE>
penalties on physicians, dentists and ancillary health care service providers
who fraudulently or wrongfully bill third party payors or pay or receive
remuneration for referrals for medical and dental services. To comply with these
regulations, the Medical and Dental Practices do not refer patients to each
other and the LTCFs receive no remuneration from the Company, the Medical and
Dental Practices or the Providers and the only remuneration paid by the LTCFs to
the Medical and Dental Practices are fees for services provided to their
residents. In addition, with respect to Stark I and Stark II, the Company
believes that the Medical and Dental Practices do not provide "designated health
services" and do not refer patients to entities providing "designated health
services" as to which the proscribed relationships, arrangements or interests
exist. There can be no assurance, however, that such laws will not be hereafter
interpreted or amended in a manner that has a material adverse effect on the
business, financial condition and results of operations of the Medical and
Dental Practices or the Company. The Office of the Inspector General of the U.S.
Department of Health and Human Services (the "OIG") on April 15, 1998 issued
Advisory Opinion 98-4 which concluded that a management services contract
between a medical practice management company and a physician practice pursuant
to which the physician practice would pay the management company compensation
that would include a percentage of the physician practice's net revenues may
constitute prohibited renumeration under the anti-kickback provisions of the
Social Security Act. The OIG based its determination on: (i) the compensation to
be paid to the management company would be in part for marketing services, and
the likelihood of the financial incentive to the management company to increase
referrals among its affiliated physician practices; (ii) the absence of
safeguards against overutilization; and (iii) the financial incentive to the
management company to engage in upcoding and similar abusive billing practices.
Although the Operating Agreements provide that (i) neither party has an
obligation to refer patients to each other, or to any entity affiliated with
either party; (ii) the Medical and Dental Practices must maintain systems and
procedures necessary to prevent overutilization; and (iii) the Company must
maintain systems and procedures necessary to prevent billing practices that
unlawfully maximize revenues, Advisory Opinion 98-4 may not be relied upon by
the Company to insulate the Company from potential claims that the Company has
violated the "anti-kickback" provisions of the Social Security Act. A successful
claim that the Company has violated the "anti-kickback" provisions of the Social
Security Act could have a material adverse effect on the business, financial
condition and results of operations of the Medical and Dental Practices or the
Company. See "Business--Government Regulation: Federal Regulation."

FALSE CLAIMS/QUALITY OF CARE. Under the federal False Claims Act and
similar state laws enacted in Connecticut and Massachusetts, states in which the
Medical and Dental Practices generated 65.2% of their gross revenue for Fiscal
1997, criminal, civil and administrative penalties may be imposed on health care
providers who file or participate in the filing of false claims for
reimbursement for the delivery of health care services, including claims filed
under Medicare, Medicaid, and insurance programs. Penalties that previously were
sought primarily in instances of claims filed for services not actually
provided, in whole or in part, or provided by unauthorized providers, are now
being sought in an increasingly broader range of circumstances, including
claiming reimbursement for services that do not comply with quality and other
applicable standards of care. The Medical and Dental Practices have procedures
in place to oversee quality of care and to assure maintenance of the required
level of quality and standards of care. However, there can be no assurance as to
the adequacy of such procedures or that such laws will not hereafter be
interpreted or amended in a manner that has a material adverse effect on the
business, financial condition and results of operations of the Medical and
Dental Practices or the Company. See "Business-- Government Regulation."

REGULATIONS GOVERNING INCENTIVE COMPENSATION ARRANGEMENTS. Federal
regulations promulgated in 1996 under OBRA of 1990 govern physician incentive
plans that subject individual physicians to substantial financial risk in
providing services to Medicare and Medicaid patients. When applicable, the
regulations impose certain disclosure, survey and stop-loss requirements. Such
regulations also prohibit physician incentive plans which induce the limitation
or reduction of covered or medically necessary services. Violations of such
regulations can lead to the imposition of Medicare or Medicaid new member
enrollment

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<PAGE>
suspensions and civil monetary penalties. Although the Company believes that
neither the Company nor any of the Medical and Dental Practices have entered
into physician incentive plan contracts that require compliance with such
regulations, increasing efforts both under such regulations and otherwise to
regulate risk assumption in the delivery of health care could have a material
adverse effect on the business, financial condition and results of operations of
the Medical and Dental Practices or the Company. See "Business-- Government
Regulation."

EFFECTS OF ANTITRUST ENFORCEMENT. Because each of the Medical and Dental
Practices is a separate legal entity, they may be considered to be competitors
subject to a range of antitrust laws prohibiting anti-competitive conduct
including price fixing, concerted refusals to deal and division of market. More
particularly, governmental authorities have interpreted the antitrust laws to
prohibit, among other things, joint negotiations by competitors. The Company and
the Medical and Dental Practices intend to comply with such state and federal
antitrust laws as may affect their business, but there can be no assurance that
a review of the operations of the Company and the Medical and Dental Practices
by courts or regulatory authorities would not result in a determination that
could have a material adverse effect on the business, financial condition and
results of operations of the Medical and Dental Practices or the Company. See
"Business--Government Regulation."

CORPORATE PRACTICE OF MEDICINE AND "FEE-SPLITTING." The laws of many
states, including Connecticut, Massachusetts and Pennsylvania, states in which
the Medical and Dental Practices generated 80.5% of their gross revenues for
Fiscal 1997, prohibit business corporations, such as the Company, from
practicing medicine or dentistry or performing ancillary services and employing
physicians, dentists or ancillary service providers to practice medicine or
dentistry or perform ancillary services, respectively. To comply with these
regulations, the Medical and Dental Practices retain exclusive control over the
delivery of health care services under the Operating Agreements. However, many
aspects of the Company's operations have not been subject to formal state or
federal regulatory interpretation. Furthermore, the laws and regulations
governing the corporate practice of medicine have been subject to limited
judicial and regulatory interpretation in Connecticut, Massachusetts and
Pennsylvania and are subject to change. Therefore, no assurances can be given
that a review of the Company's relationships with the Medical and Dental
Practices by courts or regulatory authorities would not result in a
determination that could adversely affect the business, financial condition and
results of operations of the Company (for example, by rendering the Company's
Operating Agreement with a Practice unenforceable) or that the health care
regulatory environment will not change so as to restrict the Company's existing
operations or expansion. Massachusetts and Pennsylvania also prohibit
"fee-splitting" arrangements between physicians, dentists or ancillary health
care service providers and any party other than physicians, dentists and such
ancillary service providers, respectively, within the same practice. See
"Business--Government Regulation: State Regulation."

RISKS ARISING FROM THE CHANGING HEALTH CARE INDUSTRY

Federal and state governments currently are considering various types of
health care initiatives and comprehensive revisions to the health care system.
Some of the proposals under consideration, or others that may be introduced,
could, if adopted, have a material adverse effect on the business, financial
condition and results of operations of the Company or the Medical and Dental
Practices. It is uncertain what legislative programs, if any, will be adopted in
the future, or what actions Congress or state legislatures may take regarding
health care reform proposals or legislation. In addition, changes in the health
care industry, such as the growth of managed care organizations and provider
networks, and changes in reimbursement methodologies and practices, may result
in lower payments for services provided by the Medical and Dental Practices.
Because the Company's consolidated revenues and profitability are entirely
dependent on the revenues and profitability of the Medical and Dental Practices,
any reduction in the revenues received by the Medical and Dental Practices, to
the extent such reduction decreases their profitability and the respective
Compensation Amounts calculated under the Operating Agreements, would have a
material adverse effect on the Company's business, financial condition and
results of operations.

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<PAGE>
REIMBURSEMENT AND COST CONTAINMENT

Management estimates that approximately 71.5% of the revenues of the Medical
and Dental Practices for Fiscal 1997 were derived from government sponsored
health care programs (Medicare and Medicaid) and non-government third party
payors. The health care industry is experiencing a trend toward cost containment
as government and non-government third party payors seek to impose lower
reimbursement and utilization rates and negotiate reduced payment schedules with
health care service providers. These trends have caused a reduction in
per-patient revenue for certain of the services provided by the Medical and
Dental Practices, which the Company believes will continue to decrease. Further
reductions in payments to the Medical and Dental Practices or other changes in
reimbursement for health care services could have a material adverse effect on
the Medical and Dental Practices' business, financial condition and results of
operations. Historically, state and federal sponsored reimbursement programs
have been able to deny reimbursement for procedures that are determined not to
have been delivered or inadequate in quality or otherwise. In addition, such
programs routinely conduct post-payment audits of parties such as the Medical
and Dental Practices that seek reimbursement for services rendered.

The revenues of the Medical and Dental Practices are also affected by
changes in reimbursement methodologies. For example, certain of the states in
which the Podiatry Practice operates have replaced a commonly-used reimbursement
procedure code with three different codes, each of which yields a lower
reimbursement amount. It is currently unclear whether one or more of these
procedure codes may be combined in a majority of instances. Accordingly, it is
currently impossible to assess the impact of these procedure code changes on the
business of the Podiatry Practice or the Company. This particular procedure code
adjustment, or other possible procedure code adjustments that may be adopted by
one or more states in the future, could reduce payments to the Medical and
Dental Practices for certain services, which could have the effect of reducing
the Company's revenues. There can be no assurance that changes in reimbursement
procedure codes will not have a material adverse effect on the Company's
business, financial condition or results of operations.

The federal government has implemented, through the Medicare program, a
resource-based relative value scale ("RBRVS") payment methodology for physician
services. RBRVS is a fee schedule that, except for certain geographical and
other adjustments, pays similarly situated physicians the same amount for the
same services. The RBRVS is adjusted each year, and is subject to increases or
decreases at the discretion of Congress. To date, the implementation of RBRVS
has reduced payment rates for certain of the procedures historically provided by
the Medical and Dental Practices. RBRVS-type of payment systems have also been
adopted by certain non-government third party payors and may become a
predominant payment methodology. Increased implementation of such programs would
reduce payments by non-government third party payors to the Medical and Dental
Practices, which could have the effect of reducing the Company's revenues.

There can be no assurance that any or all of the factors that may lead to
reduced revenues and operating margins of the Medical and Dental Practices could
be offset through cost reductions, increased volume, introduction of new
procedures by the Medical and Dental Practices or otherwise. The failure to
offset reduced revenues and operating margins at either the Company or Practice
level could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Market Overview: Prospective
Payment, Consolidated Billing and Managed Care."

GROWTH OF MANAGED CARE

The number of individuals covered under managed care contracts or other
similar arrangements has grown over the past several years and may continue to
grow in the future. Entities providing managed care coverage have been
successful in reducing payments for health care services in numerous ways,
including entering into capitated payment arrangements, denying payment for
specified services, refusing payment for specified services unless prior
authorization has been obtained, and refusing to increase fees for

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specified services. During the three months ended March 31, 1998, approximately
one percent of the revenues of the Medical and Dental Practices was derived from
capitated payment arrangements. Because the Compensation Amount payable to the
Company is contingent upon profitability of the Medical and Dental Practices,
expenses incurred by the Medical and Dental Practices in excess of the capitated
payment will reduce the Compensation Amount and, accordingly, the Company's
consolidated revenues. The continued growth of the managed care industry and its
continued success in reducing payments to health care service providers could
have a material adverse effect on the business, financial condition and results
of operation of the Medical and Dental Practices or the Company. See
"Business--Market Overview: Prospective Payment, Consolidated Billing and
Managed Care."

DEPENDENCE ON KEY PERSONNEL; LIMITED MANAGEMENT TEAM

The Company's success depends to a significant extent on Steven S. Charlap,
M.D., the Company's Chairman, Chief Executive Officer and President and sole
equity holder of the Audiology and Primary Care Practice and HealthDrive
Michigan Corporation, Michael R. Kaplan, the Company's Chief Financial Officer
and Vice President of Finance, and Alec H. Jaret D.M.D., the President and sole
equity holder of the Dental Practice. The loss of Dr. Charlap's, Mr. Kaplan's or
Dr. Jaret's services to the Company would have a material adverse effect on the
success of the Company. Although Dr. Charlap and Mr. Kaplan have entered into
employment agreements with the Company and Dr. Jaret has entered into an
employment agreement with the Dental Practice, effective upon the consummation
of the Offering, it is not contemplated that Dr. Jaret or any of the other
Providers or any holders of the capital stock of the Practices will have an
employment agreement with the Company. In addition, if Drs. Charlap and Jaret
became unaffiliated with their respective Medical and Dental Practices, the new
equity holder or holders of such Practices could seek to negotiate changes in
the Operating Agreements. The Company has key person life insurance in the
amount of $1.5 million on Dr. Charlap, and the in amount of $500,000 on Dr.
Jaret. Following completion of the Offering, the Company anticipates recruiting
additional officers. The Company's future success will depend in part on the
ability to attract and retain highly qualified personnel to manage the future
growth of the Company. Competition for such personnel is intense, and there can
be no assurance that the Company will be successful in attracting and retaining
such personnel. The failure to attract and retain such individuals could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management."

CONFLICTS OF INTEREST

Steven S. Charlap, M.D., the Chairman of the Board of Directors, Chief
Executive Officer and President of the Company, is the owner of all of the
outstanding capital stock of the Audiology and Primary Care Practice and
HealthDrive Michigan Corporation. Alec H. Jaret, D.M.D., a director of the
Company, is the owner of all of the outstanding capital stock of the Dentistry
Practice. As a result of Dr. Charlap's and Dr. Jaret's ownership of three of the
Medical and Dental Practices, conflicts of interest may arise from time to time
in certain matters including, but not limited to, matters relating to the
Operating Agreements. Although the Company believes that the terms and
provisions of the Operating Agreements with the Dentistry Practice, the
Audiology and Primary Care Practice and HealthDrive Michigan Corporation are
fair and no less favorable than those that the Company could obtain from third
parties, and each of Dr. Charlap and Dr. Jaret have fiduciary duties to the
Company, there can be no assurance that the Company will not be materially
adversely affected by matters in which Dr. Charlap or Dr. Jaret have conflicts
of interest.

BROAD DISCRETION IN USE OF PROCEEDS

Following the Offering and the specific application of some of the net
proceeds of the Offering as described under "Use of Proceeds," the Company will
have approximately $8.2 million (or approximately 80%) of the net proceeds
available for working capital and general corporate purposes, which may include

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acquisitions. The Company's management, subject to approval of the Board of
Directors in certain circumstances, will have broad discretion with respect to
the application of such proceeds. Unless a possible acquisition involves a
merger of the Company with or into another company, it is unlikely that the
stockholders of the Company will have an opportunity to vote whether or not to
approve such a transaction. See "Use of Proceeds."

POSSIBILITY OF EXPOSURE TO PROFESSIONAL LIABILITY

In recent years, health care providers have become subject to an increasing
number of lawsuits alleging malpractice and related legal theories. Some of
these lawsuits involve large claims and significant defense costs. Any suits
involving the Company, the Medical and Dental Practices or the Providers, if
successful, could result in substantial damage awards. Such an award may exceed
the limits of the Company's and/or the Medical and Dental Practices' insurance
coverage or any insurance the Providers may have individually. Although the
Company does not itself engage in the practice of medicine or dentistry or
provide ancillary health care services or have responsibility for compliance
with certain regulatory and other requirements directly applicable to
physicians, dentists, physician and dental groups and ancillary health care
service providers, there can be no assurance that the Company will not become
subject to litigation in the future as a result of the health care services
provided by the Medical and Dental Practices. The Company does not itself
maintain medical malpractice liability insurance and, because the Company's
revenue is entirely dependent upon the fees it receives under the Operating
Agreements, any substantial damage award against the Medical and Dental
Practices in excess of their insurance coverage would have a material adverse
effect on the Company's revenues and profitability. The Company maintains
general liability insurance for itself and the Operating Agreements provide that
the Medical and Dental Practices must maintain comprehensive professional
liability insurance. While the Company believes that it and the Medical and
Dental Practices have adequate liability insurance coverage, there can be no
assurance that the coverage will be adequate to cover losses or that coverage
will continue to be available upon terms satisfactory to the Company and the
Medical and Dental Practices. In addition, certain types of risks and
liabilities, including penalties and fines imposed by governmental agencies, are
not covered by insurance. Malpractice insurance, moreover, can be expensive and
varies from state to state. There can be no assurance that the cost of such
insurance to the Company or the Medical and Dental Practices in the future will
not have a material adverse effect on the Company's business, financial
condition or results of operations. Successful malpractice claims against the
Company or the Medical and Dental Practices could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Insurance."

RISKS ASSOCIATED WITH GROWTH STRATEGY AND UNSPECIFIED ACQUISITIONS

The Company and the Medical and Dental Practices intend to grow by
selectively expanding into new markets and adding additional services either
through the establishment of new operations or the acquisition of existing
LTCF-focused practices by the Medical and Dental Practices. There can be no
assurance that the Company will be able to successfully identify geographic
markets suitable for expansion or establish new regional offices to serve such
additional markets, or that the Medical and Dental Practices will be able to
secure the relationships with additional Providers which will be necessary to
provide health care services in such markets. In addition, in pursuing a growth
strategy of expansion into additional geographic markets, the Company will be
required to develop expertise and comply with laws and regulations that may be
significantly different from those applicable to the Company's current
operations as well as face competitors with greater knowledge of such markets
than the Company. To the extent the Company and the Medical and Dental Practices
pursue their strategy of establishing new operations, the process of identifying
new geographic markets with potential, recruiting additional Providers,
purchasing necessary equipment and supplies and, where necessary, establishing a
new regional office can be lengthy and costly. Furthermore, because new
operations will have no previous patient bases, significant sales, advertising
and marketing expenditures may be required to secure Service Agreements with
LTCFs. There

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can be no assurance that the Company and the Medical and Dental Practices will
be able to successfully identify additional health care services for the Medical
and Dental Practices to provide, adapt the Medical and Dental Practices'
existing operations to provide such services, or, secure the relationships with
additional Providers which will be necessary to provide such services.
Furthermore, such an expansion strategy could cause management's time and
resources to be diverted from the Company's existing markets to new markets, and
may require the Company to use the proceeds of the Offering to finance its
expansion into new markets. See "Business--Strategy."

The Company and the Medical and Dental Practices also intend to pursue a
strategy of growth through the acquisition of existing LTCF-focused practices.
Any such acquisitions are likely to take the form of a purchase by one or more
Practices of the existing service agreements of another LTCF-focused health care
services provider, a purchase by the Company of the non-medical assets of
another LTCF-focused practice and entrance by the Company into an operating
agreement with such practice, or the purchase by the Company of another entity
engaged in the promotion, administration or coordination of health care services
to LTCFs. In any case, the consideration to be paid to the seller could take the
form of cash (whether payable immediately or over time), debt or Common Stock,
or some combination of the same, with any such consideration to be paid by the
Medical and Dental Practices most likely requiring a loan from the Company. Any
cash used in such an acquisition could be derived from the net proceeds of the
Offering, borrowings by the Company under any credit facility the Company is
party to in the future, cash generated by operations or by additional capital
financings, or some combination of these. Identifying appropriate acquisition
candidates and negotiating and consummating acquisitions can be a lengthy and
costly process. There can be no assurance that suitable acquisition candidates
will be identified, that acquisitions will be consummated on favorable terms, on
a timely basis, or at all, or that acquired practices will be successfully
integrated with existing operations. In addition, the Company may not obtain
fairness opinions from third parties in connection with some or all of such
possible acquisitions. To the extent that the Company and the Medical and Dental
Practices are successful in pursuing a strategy of acquisitions of existing
LTCF-focused practices by the Medical and Dental Practices, such acquisitions
could involve a number of risks, including the diversion of management's
attention to the assimilation of acquired entities, and have short-term adverse
effects on the Company's operating results. In addition, the Company and the
Medical and Dental Practices have no experience in consummating acquisitions of
existing LTCF-focused practices by the Medical and Dental Practices.

RISKS ASSOCIATED WITH ENHANCEMENT OF MANAGEMENT INFORMATION SYSTEM

As part of the Company's growth strategy, the Company intends to capitalize
on its existing billing operations, reimbursement expertise, patient demographic
databases and management information systems by providing clinical data and
consolidated billing services to LTCFs and unaffiliated primary care physicians
who service LTCFs. The Company has never independently marketed a clinical data
and consolidated billing service. The Company believes that market acceptance of
this service depends upon the continued increase in the administrative
complexity of billing and reimbursement and continued increases in pressures on
LTCFs to be more efficient. No assurance can be given that the Company will be
successful in bringing its independent clinical data and consolidated billing
service to commercial acceptance. Failure to gain market acceptance may have a
material adverse effect on the Company's growth strategy.

To facilitate growth in its current operations and those of the Medical and
Dental Practices, the Company also intends to use approximately $1.0 million of
the net proceeds of the Offering to finance an enhancement of the Company's
current management information system. The development and implementation of
enhancements to the Company's management information system involves the risk of
unanticipated delays and expense, as well as possible interruptions of current
operations, and there can be no assurance that the Company will be successful in
implementing and integrating these enhancements. Any significant delay or
expense associated with such enhancements, or any interruption in operations

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caused by the implementation of such enhancements, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Use of Proceeds."

The Company currently employs three systems susceptible to Year 2000 issues,
including a billing system, CustomCare and an accounting system and has reviewed
the Year 2000 issue with respect to each system. The vendor of the Company's
billing system has indicated that an upgrade to the system that addresses the
Year 2000 issue will be available by the third quarter of fiscal 1998, without
requiring a substantial additional license fee. The Company believes that
CustomCare's displays will require minor modifications to address Year 2000 and
that its employees will be able to complete such modifications without incurring
material expense by the end of fiscal 1999. The Company expects to replace its
accounting system without incurring a material expense. Upon upgrade of such
systems, management believes that the Company and the Medical and Dental
Practices will be Year 2000 compliant.

HIGHLY COMPETITIVE INDUSTRY

The health care services industry is highly competitive. The industry is
also subject to continuing changes in how services are provided and how
providers are selected and paid. Many of the current and potential competitors
of the Company and the Medical and Dental Practices, including national LTCF
operators, are significantly larger, have a captive group of affiliated
potential customers and have greater financial and marketing resources than the
Company. In addition, to the extent that an LTCF operator which has contracted
with the Medical and Dental Practices determines to provide services similar to
those offered by the Company, the Company may lose the revenue currently
generated from services provided by the Medical and Dental Practices to such
LTCFs. In 1997, SunAlliance Healthcare Services, Inc. ("SunAlliance"), a
division of Sun Healthcare Group, Inc. ("Sun Healthcare Group"), adopted such a
strategy which the Company believes resulted in the cancellation of one or more
Service Agreements with 20 Sun Healthcare Group facilities. These contracts
represented $437,000 of the revenue of certain of the Medical and Dental
Pratices in Fiscal 1996. The Company currently recognizes SunAlliance as its
principal competitor in certain of its markets. There can be no assurance that
the Company and the Medical and Dental Practices will be successful in competing
effectively in its existing markets or in markets it may enter in the future.
See "Business--Competition."

DEPENDENCE ON PROPRIETARY ASSETS; LIMITED PROTECTION OF PROPRIETARY ASSETS

The Company has made significant investments in the systems and procedures
it has developed in order to coordinate the provision of a range of on-site
geriatric medical and dental services, including CustomCare, the Company's
management information system which integrates all of the Company's services.
The Company depends on trade secret law and nondisclosure and other contractual
provisions to protect its systems and procedures and has not filed for copyright
protection for CustomCare. There can be no assurance that the precautions taken
by the Company will be adequate to prevent infringement or misappropriation of
the Company's proprietary assets. Infringement of the Company's proprietary
assets by a competitor may result in a loss of the Company's competitive
advantage and have a material adverse effect on the Company's business,
financial condition and results of operations.

Although the Company believes that CustomCare does not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that a license or similar agreement will be available on reasonable terms in the
event of an unfavorable outcome on any such claim. In addition, any such claim
may require the Company to incur substantial litigation expenses or subject the
Company to significant liabilities that could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company has invested a considerable amount of time and marketing
resources generating the goodwill associated with the name "HealthDrive." The
Company has a pending service mark application for the name "HealthDrive."
Although the Company is aware of no other entity using the name

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"HealthDrive" and believes it will be able to obtain the registration that its
has applied for, no assurance can be given that it will succeed. In the event of
any successful opposition, the Company may be required to change the service
mark used in connection with its operations and/or the name of the Company.

STATE SALES AND USE TAXES

Certain states in which the Company and the Medical and Dental Practices
operate impose sales and use taxes on the provision of certain services,
including management, management consulting and data processing services. While
the Company believes that the Company and the Medical and Dental Practices file
sales and use tax returns in each jurisdiction where they are required to do so,
the Company and the Medical and Dental Practices do not currently file sales or
use tax returns or pay sales or use taxes in certain jurisdictions with respect
to some of the services the Company provides to the Medical and Dental
Practices. There can be no assurance that any state or local revenue authority
will not initiate an audit of the sales and use tax returns filed by the Company
or the Medical and Dental Practices in such jurisdictions, or investigate
whether or not the Company or the Medical and Dental Practices should be paying
taxes with respect to the services provided by the Company to the Medical and
Dental Practices in such jurisdictions. Any such audit or investigation could
result in the Company being required to pay amounts in back taxes and, in some
cases, interest and penalties with respect to prior periods, as well as to pay
additional taxes in future periods. The Company has not historically established
reserves against any possible liabilities resulting from such possible audits or
investigations, and there can be no assurance that the results of any such audit
or investigation, including any imposition of penalties, will not have a
material adverse effect on the Company's business, financial position or results
of operations.

CONTROL BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS

After giving effect to the sale of the shares of Common Stock offered
hereby, executive officers of the Company, current members of the Company's
Board of Directors and certain holders of the Common Stock, including Steven S.
Charlap, M.D., the Company's Chairman of the Board, Chief Executive Officer and
President, and DCC Holdings, will beneficially own or control in the aggregate
approximately 64.4% of the outstanding Common Stock, assuming the Underwriters'
over-allotment option is not exercised. As a result, these persons will have the
ability to control or exert significant influence over, significant corporate
transactions requiring stockholder approval, including mergers and sales of
assets and the election of members of the Company's Board of Directors, and over
the Company's Board of Directors, and, therefore, the business policies and
affairs of the Company. Furthermore, such control could preclude any unsolicited
acquisition proposals for the Company and, consequently, adversely affect the
market price for the Common Stock. DCC Holdings is controlled by DCC plc, an
equity fund publicly-traded on the London and Dublin stock exchanges. See
"Principal and Selling Stockholders."

POSSIBILITY OF NASDAQ QUOTATION TERMINATION OR SUSPENSION AND DECREASE IN STOCK
PRICE; PENNY STOCK REGULATION

The trading of the Common Stock on the Nasdaq SmallCap Market is conditioned
upon meeting certain asset, capital and surplus, earnings and stock price tests.
To maintain eligibility on the Nasdaq SmallCap Market, the Company must, among
other things, maintain compliance with one of the following three tests: (i) net
tangible assets must be in excess of $2,000,000; (ii) market capitalization must
be in excess of $35,000,000; or (iii) net income must be in excess of $500,000
in the latest fiscal year or in two of the last three fiscal years. If the
Company fails all of these tests or if the Company fails to maintain an average
bid price of at least $1.00 per share, the Common Stock may be suspended or
terminated from inclusion on the Nasdaq SmallCap Market. The effects of
suspension or termination include the limited release of the market prices of
the Common Stock and limited news coverage of the Company. Suspension or
termination may restrict investors' interest in the Common Stock and materially
adversely affect the

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trading market and prices for such securities and the Company's ability to issue
additional securities or to secure additional financing.

In addition to the risk of volatility of stock prices and possible
suspension or termination, low price stocks are subject to additional risks of
additional federal and state regulatory requirements and the potential loss of
effective trading markets. In particular, if trading of the Common Stock on the
Nasdaq SmallCap Market was to be suspended or terminated and the trading price
of the Common Stock was less than $5.00 per share, such Common Stock could be
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which, among other things, requires that broker/dealers satisfy
special sales practice requirements, including making individualized written
suitability determinations and receiving any purchaser's written consent prior
to any transaction. In such case, the Common Stock could also be deemed "penny
stock" under the Securities Enforcement and Penny Stock Reform Act of 1990 which
would require additional disclosure in connection with trades in the Common
Stock, including the delivery of a disclosure schedule explaining the nature and
risks of the penny stock market. Such requirements could severely limit the
liquidity of the Common Stock and the ability of purchasers in this Offering to
sell their Common Stock in the secondary market. There can be no assurance that
the Company will not be delisted from the Nasdaq SmallCap Market or that the
price of the Common Stock per share will remain above $5.00. See "--Absence of
Public Market: Negotiated Offering Price" and "-- Potential Adverse Impact on
Market Price of Shares Eligible for Future Sale and Registration Rights."

SUBSTANTIAL AND IMMEDIATE DILUTION; SIGNIFICANT BENEFIT TO CURRENT SHAREHOLDERS

Purchasers of the Common Stock offered hereby will incur immediate dilution
of net tangible book value of $4.79 per share (after deducting underwriting
discounts and commissions and offering expenses payable by the Company), or
63.9% of the anticipated offering price of the Common Stock. Such purchasers
will incur additional dilution upon the exercise of outstanding stock options.
See "Management--Second Amended and Restated 1992 Stock Option Plan."
Shareholders of the Company who purchased their shares prior to the Offering
acquired, and option holders who exercise their stock options after the Offering
will acquire, their shares at a cost substantially below the price offered
hereby and, accordingly purchasers of shares of the Company pursuant to this
Offering will bear a disproportionate risk of investment in the Common Stock.
See "Dilution."

ABSENCE OF PUBLIC MARKET; NEGOTIATED OFFERING PRICE

Prior to this Offering there has been no market for the Common Stock.
Although the Company has applied to include the Common Stock for quotation on
the Nasdaq SmallCap Market, there can be no assurance that an active trading
market will develop for the Common Stock, or, if developed, that it will be
maintained. The price of the Common Stock offered hereby will be determined
through negotiation between the Company and the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. The
factors considered in determining the offering price will be the preliminary
demand for the Common Stock, prevailing market and economic conditions, the
Company's revenue and earnings, estimates of its business potential and
prospects, the present state of its business operations, an assessment of its
management, the consideration of these factors in relation to the market
valuation of comparable companies in related businesses and the current
condition of the markets in which it operates. See "Underwriting."

ADDITIONAL CAPITAL REQUIREMENTS

The Company believes that the estimated net proceeds from this Offering,
together with current cash and cash equivalent balances and internally generated
funds, will satisfy the Company's projected requirements for working capital and
commitments for a period of at least twelve months. If cash generated from
operations is insufficient to satisfy the Company's projected requirements, or
if the Company subsequently

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elects to use funds to finance acquisitions by the Medical and Dental Practices
or other matters, the Company may be required to sell additional equity or debt
securities or obtain additional bank financing. There can be no assurance that
the Company will be able to sell such securities or obtain such credit
facilities on acceptable terms in the future, if at all. In the event that the
Company is unable to secure such additional financing, the Company may be forced
to curtail projected expansion, delay or discontinue planned capital
expenditures, reduce the Company's workforce or close less-profitable
operations, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. This potential sale of
additional equity or debt securities could result in further dilution to the
Company's shareholders and increased interest expense. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

NO INTENTION TO DECLARE OR PAY DIVIDENDS

The Company does not currently intend to declare or pay any cash dividends
on the Common Stock in the foreseeable future and anticipates that earnings, if
any, will be used to finance the development and expansion of its business.
Furthermore, until the Company's Revolving Credit Facility with State Street
Bank & Trust Company expires on January 1, 1999, it does not permit the Company
to declare dividends on its Common Stock. The Company anticipates that it may in
the future seek to obtain a loan, revolving credit agreement or other financing
arrangement, the terms of which, although not known to the Company at this time,
may similarly prohibit the declaration and payment of dividends without prior
lender approval. Any payment of future dividends and the amounts thereof will be
dependent upon the Company's earnings, financial requirements and other factors
deemed relevant by the Company's Board of Directors, including the Company's
contractual obligations. See "Dividend Policy."

ANTITAKEOVER MEASURES

Certain provisions of the Company's Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") and By-Laws (the "By-Laws") could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that investors might be willing to pay in
the future for the Common Stock. These provisions require that the Company have
a Board of Directors comprised of three classes of directors with staggered
terms of office, require super-majority approval to amend certain provisions in
the Restated Certificate of Incorporation and By-Laws or enter into certain
transactions with significant stockholders of the Company and impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. See "Description of Capital
Stock."

POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE AND
REGISTRATION RIGHTS

Upon completion of the Offering, the Company will have outstanding
approximately 4,363,246 shares of Common Stock. Of these shares, the 1,600,000
shares of Common Stock sold in the Offering, and any shares purchased from the
Selling Stockholders in the event that the Underwriter's over-allotment option
to purchase up to 240,000 shares is exercised, will be freely tradable without
restriction or further limitation under the Securities Act, except for any
shares purchased by an "affiliate" of the Company, which will be subject to the
limitations imposed on "affiliates" of the Company under Rule 144 promulgated
under the Securities Act ("Rule 144"). The remaining 2,763,246 outstanding
shares of Common Stock (2,523,246 if the Underwriters' over-allotment option is
exercised in full) are "restricted securities" within the meaning of Rule 144
and may not be resold except pursuant to a registration statement effective
under the Securities Act or pursuant to an exemption therefrom, including the
exemption provided by Rule 144. An additional 429,625 shares issuable upon the
exercise of outstanding options as of May 15, 1998 granted to officers,
directors and employees of the Company and the Medical and Dental Practices
pursuant to the Stock Option Plan, once issued, shall be freely tradable subject
to certain limitations imposed by Rule 701 promulgated under the Securities Act.

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In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, subject to certain
restrictions, sell within any three-month period a number of shares which does
not exceed the greater of: (i) 1% of the then outstanding shares of Common Stock
or (ii) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission as
required by Rule 144. Rule 144 also permits the sale of shares without any
volume limitation by a person who is not an affiliate of the Company and who has
satisfied a two-year holding period. The one-year holding period with respect to
2,753,246 outstanding shares of Common Stock has expired. The remaining 10,000
shares of outstanding Common Stock, which were issued to a director of the
Company in accordance with Rule 701 promulgated under the Securities Act, will
become eligible for sale subject to the other limitations of Rule 144 ninety
days after the effective date of the registration statement of which this
Prospectus is a part (the "Registration Statement"). See "Shares Eligible for
Future Sale."

Shareholders holding approximately 98.8% of the Company's outstanding Common
Stock and Common Stock issuable upon the exercise of outstanding stock options
have agreed not to offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, any securities of
the Company they currently hold without the prior written consent of the
Representative for a period of 180 days after the effective date of the
Registration Statement. See "Underwriting."

DCC Holdings, who will hold 1,308,246 shares of Common Stock upon completion
of the Offering, and the Representative, who will hold warrants to purchase
160,000 shares of Common Stock, have registration rights for the Common Stock
they own or may acquire, which might allow them to require the Company, subject
to certain conditions, to register their shares under the Securities Act. The
sale of a substantial number of shares of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect the market price for the Common Stock and impair the Company's
ability to raise additional capital in the future through the sale of equity
securities should it desire to do so. See "--Substantial and Immediate Dilution;
Significant Benefit to Current Shareholders" and "Underwriting."

LIMITATION OF LIABILITY

The Restated Certificate of Incorporation provides that directors of the
Company shall not be liable personally for monetary damages to the Company or
its stockholders for breach of fiduciary duty as a director, subject to certain
limitations. Although such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission, the
presence of these provisions in the Restated Certificate of Incorporation could
prevent the recovery of monetary damages against directors of the Company. See
"Description of Capital Stock."

POSSIBLE VOLATILITY OF STOCK PRICE

From time to time after the Offering, there may be significant volatility in
the market price for the Common Stock. Fluctuations in quarterly operating
results of the Company, changes in general conditions in the economy, the
financial markets or the health care industry, or other developments affecting
the Company, the Medical and Dental Practices or their respective competitors
could cause the market price of the Common Stock to fluctuate substantially. The
equity markets have, on occasion, experienced significant price and volume
fluctuations that have affected the market price of many companies' securities
and have often been unrelated to the operating performance of these companies.
Concern about the potential effects of health care reform measures has
contributed to the volatility of stock prices of companies in health care and
related industries and may similarly affect the price of the Common Stock
following the Offering. Any such fluctuations that occur following the
completion of this Offering may adversely affect the market price of the Common
Stock.

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FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains certain forward-looking statements including: (i)
anticipated trends in the Company's financial condition and results of
operations, including expected changes in the Company's gross profit, sales and
marketing expense, general and administrative expense and professional expenses;
(ii) the Company's business strategy for future growth, including the Company's
plans to increase penetration in existing markets, expand into new geographic
markets, offer additional services and consummate acquisitions, (iii) the
Company's expectations regarding the cost of Year 2000 compliance, and (iv) the
Company's expectations regarding its ability to finance its capital requirements
in the future. When used in the Prospectus, the words "believes," "intends,"
"anticipates," "expects," and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are based largely
on the Company's current expectations and are subject to a number of risks and
uncertainties. In addition to the other risks described elsewhere in this "Risk
Factors" Section, important factors to consider in evaluating such
forward-looking statements include: (i) changes in external competitive market
factors which might impact trends in the Company's results of operations; (ii)
unanticipated working capital and other cash requirements; (iii) general changes
in health care and related industries; and (iv) various other competitive
factors that may prevent the Company from competing successfully in the
marketplace. In light of these risks and uncertainties, many of which are
described in greater detail elsewhere in this "Risk Factors" Section, actual
results could differ materially from the forward-looking statements contained in
this Prospectus.

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USE OF PROCEEDS

Assuming an initial public offering price of $7.50 per share, the net
proceeds to the Company from the sale of shares of Common Stock offered hereby
are estimated to be approximately $10.3 million after deducting the underwriting
discount and expense allowance and estimated offering expenses. The Company will
not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. The Company maintains broad discretion with respect to the
application of the proceeds of the Offering.

The Company expects to use approximately $600,000 of the net proceeds of the
Offering to repay amounts outstanding under the Company's Revolving Credit
Facility, dated as of May 23, 1995, as amended, with State Street Bank and Trust
Company (the "Credit Facility"). The Credit Facility matures on January 1, 1999,
and borrowings thereunder bear interest at a rate of 1% in excess of State
Street Bank and Trust Company's prime rate (yielding a combined rate of 9.5% as
of March 31, 1998). The outstanding balance under the Credit Facility as of
March 31, 1998 was approximately $514,000, of which approximately $4,000
represented accrued interest. The Company has historically used borrowings under
the Credit Facility for working capital and other general corporate purposes,
including payroll expenses, general operating expenses and capital expenditures.
Some of the net proceeds of the loans under the Credit Facility were used to
make loans to the Practices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

The Company plans to use the balance of the net proceeds from the Offering
for recruiting and compensating additional Company personnel, including
marketing, sales and related personnel (approximately $500,000), enhancing the
Company's management information systems to increase billing capacity and
possibly develop new services to be offered by the Company (approximately $1.0
million), and general working capital (approximately $8.2 million). The Company
expects this approximately $8.2 million, together with any excess cash generated
by operations, to be available for use in acquisitions or for other general
corporate purposes. The Company does not currently intend to loan any of the net
proceeds of the Offering to any of the Medical and Dental Practices. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." While the Company engages in discussions from time to time with
LTCF-focused practice managers and managers of complementary businesses with
respect to possible acquisitions by the Company or the Medical and Dental
Practices, neither the Company nor any of the Medical and Dental Practices is
currently a party to any commitments or agreements with respect to any possible
acquisition. See "Strategy--Acquiring Single Specialty LTCF-Focused Practices
and Similar Entities."

The following table sets forth the currently anticipated uses of the net
proceeds of the Offering:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Net proceeds of Offering......................................................... $ 10.3
-----
-----
Management information systems enhancement....................................... $ 1.0
Personnel recruitment and compensation........................................... 0.5
Repayment of Credit Facility..................................................... 0.6
General working capital.......................................................... 8.2
-----
-----
Total Uses..................................................................... $ 10.3
</TABLE>

Pending use of the net proceeds as described above, the Company intends to
invest the net proceeds of the Offering in short-term investment-grade,
interest-bearing instruments.

22
<PAGE>
DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock since its
formation. The Company does not currently intend to declare or pay any cash
dividends on the Common Stock in the foreseeable future and anticipates that
earnings, if any, will be used to finance the development and expansion of its
business. In addition, until its expiration on January 1, 1999, the Credit
Facility does not permit the Company to declare dividends on its Common Stock.
Furthermore, the Company anticipates that it may in the future seek to obtain a
loan, revolving credit agreement or other financing arrangement, the terms of
which, although not known to the Company at this time, may prohibit the
declaration of dividends without prior lender approval. The declaration and
payment of dividends by the Company are subject to the discretion of its Board
of Directors and to compliance with applicable law. Any determination as to the
payment of dividends in the future will depend upon, among other things, general
business conditions, future earnings and capital requirements of the Company and
the Medical and Dental Practices.

23
<PAGE>
CAPITALIZATION

The following table sets forth the unaudited consolidated capitalization of
the Company at March 31, 1998: (i) on an actual basis; (ii) on a pro forma basis
to give effect to the conversion of all outstanding shares of Class A Preferred
Stock and Class B Preferred Stock into Common Stock upon the consummation of
this Offering; and (iii) on an adjusted pro forma basis to reflect the
consummation of the sale by the Company of 1,600,000 shares of Common Stock
offered hereby at an assumed public offering price of $7.50 per share. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto, appearing elsewhere in this
Prospectus. See "Use of Proceeds," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Capital lease obligations, net of current portion............................. $ 35 $ 35 $ 35
--------- ----------- -----------
CONVERTIBLE PREFERRED STOCK:
Class A Convertible Preferred Stock, $0.01 par value, 571,428 shares
authorized, issued and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted (1)........................ 1,355 -- --
--------- ----------- -----------
Class B Convertible Preferred Stock, $0.01 par value, 181,818 shares
authorized, issued and outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted (1)........................ 617 -- --
--------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock, $0.01 par value 3,259,162 shares authorized, 2,010,000 shares
issued and outstanding, actual; 3,259,162 shares authorized, 2,763,246
shares issued and outstanding, pro forma; and 7,500,000 shares authorized,
4,363,246 shares issued and outstanding, pro forma as adjusted (2).......... 20 28 44
Additional paid in capital.................................................... 96 1,979 12,269
Retained earnings (accumulated deficit)....................................... (571) (490) (490)
--------- ----------- -----------
Total stockholders' equity.................................................... (455) 1,517 11,823
--------- ----------- -----------
Total capitalization.......................................................... $ 1,552 $ 1,552 $ 11,858
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

- ------------------------
(1) Upon consummation of the Offering, 571,428 shares of Class A Preferred Stock
and 181,818 shares of Class B Preferred Stock held by DCC Holdings will
convert into 571,428 shares of Common Stock and 181,818 shares of Common
Stock, respectively.

(2) Does not include: (i) 436,400 shares of Common Stock reserved for issuance
upon the exercise of outstanding options granted pursuant to the Stock
Option Plan, and up to 302,475 additional shares reserved for issuance upon
the exercise of options that may be granted in the future under the Stock
Option Plan and (ii) 160,000 shares reserved for issuance upon the exercise
of the Representative's Warrants. See "Underwriting."

24
<PAGE>
DILUTION

The pro forma net tangible book value of the Company as of March 31, 1998,
was $1,517,000 or $0.55 per share of Common Stock, after giving effect to the
conversion of all outstanding Class A Preferred Stock and Class B Preferred
Stock into Common Stock. Pro forma net tangible book value per share of Common
Stock represents the amount of total tangible assets less total liabilities
divided by the number of shares of Common Stock outstanding (assuming the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock). After giving effect to the sale by the Company of the Common Stock
offered hereby at an assumed initial public offering price of $7.50 per share
and the application of the net proceeds received by the Company therefrom as
described under "Use of Proceeds," the pro forma as adjusted net tangible book
value of the Company at March 31, 1998, would have been approximately
$11,823,000, or $2.71 per share. This represents an immediate increase in pro
forma net tangible book value of $2.16 per share to existing shareholders, and
an immediate dilution in pro forma net tangible book value of $4.79, or 63.9%
per share to new investors purchasing shares of Common Stock in this Offering.
The following table illustrates the immediate per share dilution to new
investors:

<TABLE>
<S> <C> <C>
Initial public offering price (1)............................................ $ 7.50
Pro forma net tangible book value at December 31, 1997....................... $ 0.55
Increase per share attributable to new investors (2)......................... 2.16
---------
Pro forma as adjusted net tangible book value per share after the Offering... 2.71
---------
Dilution per share to new investors.......................................... $ 4.79
---------
---------
Percentage dilution per share to new investors............................... 63.9%
---------
---------
</TABLE>

- ------------------------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) After deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.

The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between the number of shares purchased from the Company,
the total consideration paid to the Company and the average price per share paid
by the existing shareholders and by new investors (based upon an assumed initial
public offering price of $7.50 per share):

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders (2).......................... 2,763,246 63.3% $ 2,070,900 14.7% $ 0.75
New investors...................................... 1,600,000 36.7% 12,000,000 85.3 7.50
---------- ----- ------------- -----
Total.......................................... 4,363,246 100.0% $ 14,070,900 100.0% $ 3.22
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>

(1) The calculation of net tangible book value and the other computations above
assume no exercise of outstanding options under the Stock Option Plan. As of
March 31, 1998, 436,400 shares of Common Stock were issuable upon exercise
of outstanding stock options at a weighted average exercise price of $2.37
per share, of which options to purchase 232,100 shares were then exercisable
at a weighted average exercise price of $1.60 per share. To the extent the
outstanding options are exercised and that any of the shares reserved for
issuance are issued with exercise prices below the initial public offering
price, there will be further dilution to new investors. See "Management --
Second Amended and Restated 1992 Stock Option Plan" and "Shares Eligible for
Future Sale." Includes 753,246 shares of Common Stock issuable upon the
closing of the Offering upon the conversion of 571,428 shares of Class A
Preferred Stock and 181,818 shares of Class B Preferred Stock. Each share of
Class A Preferred Stock and Class B Preferred Stock converts into Common
Stock on a 1:1 basis.

(2) The shares of Common Stock held by the existing shareholders were purchased
from the Company (on an as-converted basis, taking into account a previous
stock split of the Common Stock) at prices ranging from $.005 to $2.75.

25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data set forth below with respect to the consolidated
statement of operations of the Company and the Medical and Dental Practices for
each of the fiscal years ended December 31, 1995, 1996 and 1997 and the
consolidated balance sheet data as of December 31, 1996 and 1997 have been
derived from audited financial statements of the Company and the Medical and
Dental Practices included elsewhere in this Prospectus. The summary consolidated
financial data for the years ended December 31, 1993 and 1994 and the
consolidated balance sheet data as of December 31, 1993, 1994 and 1995 are
derived from audited financial statements of the Company and the Medical and
Dental Practices which are not included in this Prospectus. The consolidated
financial data presented as of March 31, 1998 and for the three months ended
March 31, 1997 and March 31, 1998 are derived from unaudited financial
statements of the Company and the Medial Dental Practices included elsewhere in
this Prospectus. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED SUMMARY CONSOLIDATED FINANCIAL DATA:
Net patient service revenue................................ $ 4,272 $ 6,778 $ 8,575 $ 11,006 $ 12,930 $ 3,023
Direct patient care costs.................................. 2,914 4,136 5,362 7,020 8,213 1,962
--------- --------- --------- --------- --------- ---------
Gross profit............................................... 1,358 2,642 3,213 3,986 4,717 1,061
Selling, general, and administrative expenses.............. 1,512 2,104 3,218 4,880 4,602 1,138
--------- --------- --------- --------- --------- ---------
Income (loss) from operations.............................. (154) 538 (5) (894) 115 (77)
Interest income (expense), net............................. 3 4 4 (26) (65) (15)
Other income............................................... 3 5 1 15 5 --
--------- --------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income
taxes.................................................... (148) 547 -- (905) 55 (92)
Provision (benefit) for income taxes....................... -- 233 -- (160) -- --
--------- --------- --------- --------- --------- ---------
Net Income (loss).......................................... (148) 314 -- (745) 55 (92)
Accretion of dividends on preferred stock.................. (60) (80) (90) (90) (90) (22)
--------- --------- --------- --------- --------- ---------
Net income (loss) available to common stockholders......... $ (208) $ 234 $ (90) $ (835) $ (35) $ (114)
--------- --------- --------- --------- --------- ---------
Pro forma net income (loss) available to common
stockholders............................................. $ 55
---------
Net income (loss) per common and potential common share:
Basic.................................................... $ (0.10) $ 0.12 $ (0.04) $ (0.42) $ (0.02) $ (0.06)
Diluted.................................................. (0.10) 0.09 (0.04) (0.42) (0.02) (0.06)
Pro forma diluted (1).................................... 0.02
Weighted average common and potential common shares
outstanding:
Basic.................................................... 2,000 2,000 2,000 2,001 2,010 2,010
Diluted.................................................. 2,000 2,741 2,000 2,001 2,010 2,010
Pro forma diluted (1).................................... 2,883

1998
-----------
<S> <C>

SELECTED SUMMARY CONSOLIDATED FINANCIAL DATA:
Net patient service revenue................................ $ 3,487
Direct patient care costs.................................. 2,159
-----------
Gross profit............................................... 1,328
Selling, general, and administrative expenses.............. 1,149
-----------
Income (loss) from operations.............................. 179
Interest income (expense), net............................. (12)
Other income............................................... 11
-----------
Income (loss) before provision (benefit) for income
taxes.................................................... 178
Provision (benefit) for income taxes....................... 59
-----------
Net Income (loss).......................................... 119
Accretion of dividends on preferred stock.................. (23)
-----------
Net income (loss) available to common stockholders......... $ 96
-----------
Pro forma net income (loss) available to common
stockholders............................................. $ 119
-----------
Net income (loss) per common and potential common share:
Basic.................................................... $ 0.05
Diluted.................................................. 0.03
Pro forma diluted (1).................................... 0.04
Weighted average common and potential common shares
outstanding:
Basic.................................................... 2,010
Diluted.................................................. 2,994
Pro forma diluted (1).................................... 2,994
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1998
----------------------------------------------------- ---------
1993 1994 1995 1996 1997 ACTUAL
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 414 $ 781 $ 362 $ 2 $ 15 $ 29
Working capital.......................................... 944 1,629 1,454 502 712 879
Total assets............................................. 1,750 2,897 2,859 2,739 2,713 3,161
Capital lease obligations, net of current portion........ 72 94 44 82 56 35
Preferred stock.......................................... 1,160 1,680 1,770 1,860 1,950 1,973
Total common stockholders' equity (deficit).............. $ 167 $ 395 $ 305 $ (516) $ (551) $ (455)

PRO FORMA (2)
---------------

<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 29
Working capital.......................................... 879
Total assets............................................. 3,161
Capital lease obligations, net of current portion........ 35
Preferred stock.......................................... --
Total common stockholders' equity (deficit).............. $ 1,517
</TABLE>

- ------------------------
(1) Computed on the basis described in Note 2(i) of Notes to Financial
Statements.

(2) Adjusted to give effect to the automatic conversion upon the closing of the
Offering of all outstanding shares of Preferred Stock and Class B Preferred
Stock into an aggregate of 753,246 shares of Common Stock. Each share of
Class A Preferred Stock and Class B Preferred Stock converts into Common
Stock on a 1:1 basis.

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED. SEE "RISK FACTORS."

OVERVIEW

The Company is the sole sponsor of, and provider of administrative services
to, four professional corporations and one Michigan taxable not-for-profit
corporation. The Company and its founders established the Medical and Dental
Practices to focus on the provision of on-site geriatric health care services
primarily to residents of nursing homes. The Company does not own the capital
stock of any of the professional corporations or the Michigan taxable
not-for-profit corporation. Each of the Medical and Dental Practices is
affiliated with the Company through an exclusive long-term Operating Agreement
pursuant to which the Company receives a fee in exchange for the services it
provides, and an Option Agreement pursuant to which the Company is entitled to
cause the sole stockholder of the Practice to sell all of the outstanding
capital stock of the Practice to a designee of the Company at any time for a
nominal price. The Company and the Medical and Dental Practices are completely
interdependent and function as a single integrated economic unit, with the
Company being entirely dependent on the success of the Medical and Dental
Practices for its revenues and the Medical and Dental Practices being entirely
dependent on the Company for capital and all services other than the direct
provision of medical, dental and ancillary health care services. The Company
does not itself provide health care services.

In addition to providing services to nursing home residents, the Medical and
Dental Practices also provide services to a growing number of residents of ALFs
and ILFs. Providers employed by the Medical and Dental Practices travel to LTCFs
where they provide a growing range of geriatric medical and dental services.
Services currently provided by the Medical and Dental Practices include
dentistry, optometry, podiatry, audiology, and primary care. As of May 15, 1998,
the Medical and Dental Practices employed 95 Providers who were rendering
services at 884 LTCFs located in 11 states, and the Company employed an
additional 106 people. The Company, headquartered in Newton, Massachusetts,
operates four regional offices located in Massachusetts, Connecticut,
Pennsylvania and Wisconsin.

OPERATING AGREEMENTS WITH MEDICAL AND DENTAL PRACTICES. Although each
Practice was established by the Company, each of them remains a separate legal
entity. The Company's relationships with the Medical and Dental Practices and
the holders of their capital stock are governed by separate Operating Agreements
between the Company and each Practice and separate Option Agreements among the
Company, each Practice and the holder of its capital stock. The nature of the
relationships dictated by the Operating Agreements and the Option Agreements,
pursuant to which, among other things, the Company is able to effect changes in
the sole stockholders of the various Practices at nominal cost to itself, permit
the Company and the Medical and Dental Practices to consolidate for financial
reporting purposes. Under EITF 97-2, a company that meets the criteria set forth
in footnote 1 thereto (which generally requires a company that desires to
consolidate with medical practices to which it provides services to have the
ability to cause a change in the "nominal" shareholder of such practice for no
more than nominal cost to such company) may report its financial results on a
consolidated basis with the medical practices to which it provides services.
Pursuant to the Operating Agreements, the Company provides certain services,
licenses the use of the name "HealthDrive", and extends credit to the Medical
and Dental Practices. Specifically, the Medical and Dental Practices receive the
following services exclusively from the Company under the Operating Agreements:
(i) ordering and purchasing of inventory and supplies ordinarily required by the
Medical and Dental Practices; (ii) performance of bookkeeping, accounting and
payroll functions for the Medical and Dental Practices; (iii) administration of
the Medical and Dental Practices' benefit plans; and (iv) processing of claims
and collection of fees on behalf of the Medical and Dental Practices.

27
<PAGE>

Pursuant to the Operating Agreements, the Company has from time to time
loaned certain amounts to the Medical and Dental Practices for working capital
purposes when it has determined that such Practice will have a need for such
funds. These loans are made in the sole discretion of the Company's management.
In addition, the principal amount of the Demand Loans is increased on a monthly
basis as the Compensation Amounts are earned under the respective Operating
Agreements. The Demand Loans are payable upon demand after thirty days notice
and bear interest at rates determined by the Company and not to exceed a
designated prime rate plus five percent. The Company determines the rates of
interest on the Demand Loans, in its sole discretion, as a result of market
conditions. The interest charged on the Demand Loans, while it increases the
principal amount of the Demand Loan when charged, causes a corresponding
decrease in the amount of the Compensation Amount calculated each month. Under
the terms of the Operating Agreements, the Practices are required to pay down
the principal balance and accrued interest on the Demand Loans from time to time
to the extent possible, and payments are generally made under the Demand Loans
no less frequently than on a monthly basis. Because the accrual of interest on
the Demand Loans has the effect of decreasing the Compensation Amounts payable
under the Operating Agreements on a monthly basis in the same amount, and
payments under the Demand Loan are made without regard to whether the balance at
the time of payment is attributable to accrued interest, earned Compensation
Amounts or prior working capital advances, the Company's financial condition and
results of operations are not materially affected by changes in the amounts of
interest charged. In addition, the interest expenses are eliminated in
consolidation. The Company does not believe that it incurs substantial credit
risk as a result of the making of the Demand Loans because (i) the Demand Loans
are secured by an unperfected lien on the Practices' accounts receivable; (ii)
under the terms of the Operating Agreements, the Practices are prohibited from
paying any of its Providers any amounts in excess of the fair market value of
such services (with the Company being the ultimate arbiter of such value); and
(iii) the Operating Agreements also prohibit the Practices from paying any
dividends to their shareholders while there are any amounts outstanding under
their respective Demand Loans. As of March 31, 1998 the Demand Loans totaled
approximately $2.8 million and the gross accounts receivable of the Medical and
Dental Practices also totaled approximately $2.8 million.

The Medical and Dental Practices' cash flows used for operating activities
are directly related to the changes in the outstanding loan balances. For the
year ended December 31, 1997, the Practices had cash flows used for operating
activities on an aggregate basis of $266,914, of which $265,355 was used to fund
the increase in the gross accounts receivable balance. This change is directly
related to the change in the outstanding loan balances with the Company. There
were no cash flows related to investing activities for the year. Likewise, for
the period ended March 31, 1998, the Practices had cash flows used for operating
activities of $756,232, of which $752,878 was used to fund the increase in the
gross accounts receivable balance. This change is directly related to the change
in the outstanding loan balances with the Company. There were no cash flows
related to investing activities for this period.

Under the Operating Agreements, the provision of medical, dental and
ancillary health care services is supervised, directed and controlled, and all
final determinations with respect thereto are made, exclusively by the Medical
and Dental Practices and the Providers, including: (i) employment of Providers;
(ii) supervision and direction of Providers, including assignment of patients
and peer review; (iii) determination of the hospital supplying Providers when
applicable; (iv) maintenance of patient records; (v) establishment of policies
and procedures with respect to patient acceptance; and (vi) establishment of
hours of operation, scope of services provided and fees for services. The
Company expressly disclaims any control, direct or indirect, over the delivery
of medical, dental or ancillary health care services.

The Operating Agreements have a 40-year term and may be terminated by either
party only in the event of a breach by the other party or bankruptcy of the
other party. The Company has the right to terminate each Operating Agreement if
the applicable Practice at any time does not qualify as a

28
<PAGE>
professional corporation or otherwise loses its authority to render medical or
dental services or a Provider's license to practice medicine or dentistry is
revoked or threatened to be revoked.

In exchange for its services under an Operating Agreement, the license of
the service mark and the extension of credit, the Company receives the
Compensation Amount. The Compensation Amount with respect to each Practice is
equal to all revenue generated by the Practice minus the expenses incurred by
the Practice (primarily compensation and benefits, bad debt expense, insurance
costs and interest expense on loans from the Company to such Practice), adjusted
to give effect to certain tax-related items. Under the terms of the Operating
Agreements, the Compensation Amount may not exceed the fair market value of the
services provided by the Company, the license of the service mark and the
extension of credit. The Medical and Dental Practice is entitled, under the
terms of the Operating Agreement, to challenge the calculation of any
Compensation Amount within the thirty-day period after the month for which it is
calculated. In the event of such a challenge, the final determination of the
fair market value of the services is delegated to a committee of three persons
of which one is nominated by the Company, one is nominated by the Medical and
Dental Practice that is challenging the calculation, and the final person in
nominated by each of the two other persons. The primary factors to be considered
by this committee include the value of all of the services provided by the
Company to the Practice taken as a whole during the period, the potential impact
on the Practice of a discontinuation of the services provided by the Company,
and the fees charged by other similarly situated companies to similarly situated
medical or dental practices in the Company's industry.

PAYMENT OF COMPENSATION AMOUNT AND REPAYMENT OF DEMAND LOANS. The
Compensation Amount due under each Operating Agreement is calculated on a
monthly basis for the applicable Medical and Dental Practice as follows. An
amount equal to all expenses incurred by the Practice during the month is
subtracted from the gross revenues realized by the Practice for such month, with
each amount calculated in accordance with generally accepted accounting
principles ("GAAP"). The expenses calculated for the Practice include, but are
not limited to, all compensation and benefits for the Providers employed by the
Practice, bad debt expense recorded by the Practice for such month, insurance
cost incurred by the Practice, and interest expense relating to the Demand Loan
of such Practice. The resulting amount is then adjusted, on a non-GAAP basis,
for all items of income and expense that are reported differently for financial
statement reporting and tax reporting purposes. Historcally, these items have
included amounts relating to accrued expenses, bad debt expense, compensation
expense, amortization of start-up costs and net operating loss deductions, meals
expense, vacation expense and amounts related to leased automobiles.

29
<PAGE>

The following table depicts the revenue, expenses and profit (on a basis
consistent with GAAP) of each of the Medical and Dental Practices for each of
the quarters in the two years ended December 31, 1997, and for the three months
ended March 31, 1998, as well as the total amount of the adjustments made to
such profit to determine the Compensation Amount due from such Practices.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE DENTISTRY PRACTICE
Revenues................... $ 989,769 $ 983,419 $1,028,114 $1,094,866 $1,081,059 $1,146,461 $1,114,925 $1,118,708 $1,199,032
Expenses................... 534,721 561,517 593,377 642,871 620,529 617,064 625,827 658,660 640,655
Adjustments................ 26,156 96,085 49,408 (156,447) 26,670 14,111 13,031 (150,066) 72,144
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Compensation Amount........ $ 481,204 $ 517,987 $ 484,145 $ 295,548 $ 487,200 $ 543,508 $ 502,129 $ 309,982 $ 630,521
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
THE OPTOMETRY PRACTICE
Revenues................... $1,020,077 $1,017,528 $ 946,277 $1,022,353 $ 971,847 $ 986,385 $ 976,788 $ 987,158 $1,040,788
Expenses................... 462,424 498,882 476,279 584,122 499,050 482,353 503,938 513,139 520,488
Adjustments................ 70,596 23,546 68,363 (36,823) 62,893 35,898 37,114 (156,230) 80,020
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Compensation Amount........ $ 628,249 $ 542,192 $ 538,361 $ 401,408 $ 535,690 $ 539,930 $ 509,964 $ 317,789 $ 600,320
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
THE PODIATRY PRACTICE
Revenues................... $ 526,905 $ 591,832 $ 572,699 $ 675,311 $ 777,659 $ 827,871 $ 849,724 $ 866,922 $ 895,057
Expenses................... 242,451 285,683 291,140 325,562 351,477 369,095 374,274 382,447 404,296
Adjustments................ 33,023 68,066 48,465 (118,931) 71,974 29,668 40,914 (48,081) 52,864
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Compensation Amount........ $ 317,477 $ 374,215 $ 330,024 $ 230,818 $ 498,156 $ 488,444 $ 516,364 $ 436,394 $ 543,625
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
THE AUDIOLOGY AND PRIMARY
CARE PRACTICE
Revenues................... $ 75,516 $ 81,222 $ 146,462 $ 188,257 $ 181,785 $ 163,933 $ 191,078 $ 263,201 $ 266,871
Expenses................... 22,914 31,911 42,451 71,885 98,251 123,735 108,724 118,488 123,105
Adjustments................ 7,495 25 12,701 11,563 8,759 (5,634) 3,958 (20,454) 13,587
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Compensation Amount........ $ 60,097 $ 49,336 $ 116,712 $ 127,935 $ 92,293 $ 34,164 $ 86,312 $ 124,259 $ 157,353
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
HEALTHDRIVE MICHIGAN
CORPORATION
Revenues................... $ -- $ -- $ -- $ 5,152 $ 10,604 $ 83,427 $ 214,159 $ 116,502 $ 85,514
Expenses................... -- -- -- 6,364 8,668 37,768 62,070 68,606 45,055
Adjustments................ -- -- -- 2,212 1,064 6,116 8,619 3,620 6,465
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Compensation Amount........ $ -- $ -- $ -- $ 1,000 $ 3,000 $ 51,775 $ 160,708 $ 51,516 $ 46,924
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>

After the final determination of the Compensation Amount for a particular
month, the entire amount of the Compensation Amount is added to the balance of
the Demand Loan of such Practice. From time to time and no less frequently than
monthly, the Company withdraws the maximum amount it deems advisable in the best
interests of the Company from a joint account maintained with the Practice and
applies such amount to the outstanding balance of the Demand Loan. From time to
time during the course of a particular month, the Company may make additional
advances to the Practices when it deems such advances to be advisable in the
best interests of the Company. To the extent that the Company causes the
Practice to repay an amount on its Demand Loan that is less than the
Compensation Amount calculated for such Practice for such month, the aggregate
principal amount of the Demand Loan is increased.

30
<PAGE>

The following table depicts the Compensation Amount earned by the Company
from each of the Medical and Dental Practices during each of the quarters in the
two years ended December 31, 1997, and for the three months ended March 31,
1998, the interest calculated on the Demand Loans due from each of the Practices
during such time and the changes in the principal balance of the Demand Loans
during such periods.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE DENTISTRY PRACTICE
Beginning balance on loan..... $ 515,232 $ 430,032 $ 470,878 $ 583,089 $ 462,651 $ 511,889 $ 611,851 $ 739,872
Increases to loan
Compensation Amount......... 481,204 517,987 484,145 295,548 487,200 543,508 502,129 309,982
Interest accrued............ 8,895 9,067 11,110 14,566 11,614 14,052 15,520 17,395
Misc. Advances (Payments)... 19,546 28,292 22,556 43,648 22,424 27,402 35,372 24,279
Repayment to Company.......... (594,845) (514,500) (405,600) (474,200) (472,000) (485,000) (425,000) (599,000)
--------- --------- --------- --------- ----------- --------- --------- ---------
Ending balance of loan........ $ 430,032 $ 470,878 $ 583,089 $ 462,651 $ 511,889 $ 611,851 $ 739,872 $ 492,528
--------- --------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- --------- ----------- --------- --------- ---------
THE OPTOMETRY PRACTICE
Beginning balance on loan..... $ 785,648 $1,217,155 $1,055,785 $ 759,485 $ 666,375 $ 767,215 $ 740,383 $ 799,401
Increases to loan
Compensation Amount......... 628,249 542,192 538,361 401,408 535,690 539,930 509,964 317,789
Interest accrued............ 20,060 36,874 23,633 20,390 15,946 20,163 18,561 19,176
Misc. Advances (Payments)... (802) 16,564 6,556 (11,958) (3,796) 2,075 (6,507) 5,643
Repayment to Company.......... (216,000) (757,000) (864,850) (502,950) (447,000) (589,000) (463,000) (513,000)
--------- --------- --------- --------- ----------- --------- --------- ---------
Ending balance of loan........ $1,217,155 $1,055,785 $ 759,485 $ 666,375 $ 767,215 $ 740,383 $ 799,401 $ 629,000
--------- --------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- --------- ----------- --------- --------- ---------
THE PODIATRY PRACTICE
Beginning balance on loan..... $ 334,001 $ 621,390 $ 821,702 $ 530,268 $ 407,732 $ 600,357 $ 601,867 $ 643,636
Increases to loan
Compensation Amount......... 317,477 374,215 330,024 230,818 498,156 488,444 516,364 436,394
Interest accrued............ 8,218 18,865 17,454 14,401 12,255 16,402 15,445 16,500
Misc. Advances (Payments)... 5,194 11,732 7,488 (605) 7,214 4,664 1,960 4,578
Repayment to Company.......... (43,500) (204,500) (646,400) (367,150) (325,000) (508,000) (492,000) (489,000)
--------- --------- --------- --------- ----------- --------- --------- ---------
Ending balance of loan........ $ 621,390 $ 821,702 $ 530,268 $ 407,732 $ 600,357 $ 601,867 $ 643,636 $ 612,108
--------- --------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- --------- ----------- --------- --------- ---------
THE AUDIOLOGY AND PRIMARY CARE
PRACTICE
Beginning balance on loan..... $ 66,919 $ 107,218 $ 106,988 $ 138,101 $ 194,113 $ 252,466 $ 219,727 $ 219,233
Increases to loan
Compensation Amount......... 60,097 49,336 116,712 127,935 92,293 34,164 86,312 124,259
Interest accrued............ 1,698 3,252 2,437 4,137 5,585 6,177 5,525 5,595
Misc. Advances (Payments)... 1,504 2,182 1,614 16,940 1,975 2,420 3,669 4,409
Repayment to Company.......... (23,000) (55,000) (89,650) (93,000) (41,500) (75,500) (96,000) (144,000)
--------- --------- --------- --------- ----------- --------- --------- ---------
Ending balance of loan........ $ 107,218 $ 106,988 $ 138,101 $ 194,113 $ 252,466 $ 219,727 $ 219,233 $ 209,493
--------- --------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- --------- ----------- --------- --------- ---------
HEALTHDRIVE MICHIGAN
CORPORATION
Beginning balance on loan..... $ -- $ -- $ -- $ -- $ 2,640 $ 14,681 $ 81,365 $ 156,061
Increases to loan
Compensation Amount......... -- -- -- 1,000 3,000 51,775 160,708 51,516
Interest accrued............ -- -- -- 12 88 716 4,084 3,638
Misc. Advances (Payments)... -- -- -- 1,628 12,953 1,193 904 306
Repayment to Company.......... -- -- -- -- (4,000) 13,000 (91,000) (68,000)
--------- --------- --------- --------- ----------- --------- --------- ---------
Ending balance of loan........ $ -- $ -- $ -- $ 2,640 $ 14,681 $ 81,365 $ 156,061 $ 143,521
--------- --------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- --------- ----------- --------- --------- ---------

MARCH 31,
1998
-----------
<S> <C>
THE DENTISTRY PRACTICE
Beginning balance on loan..... $ 492,528
Increases to loan
Compensation Amount......... 630,521
Interest accrued............ 15,024
Misc. Advances (Payments)... 36,965
Repayment to Company.......... (405,000)
-----------
Ending balance of loan........ $ 770,038
-----------
-----------
THE OPTOMETRY PRACTICE
Beginning balance on loan..... $ 629,000
Increases to loan
Compensation Amount......... 600,320
Interest accrued............ 17,800
Misc. Advances (Payments)... (5,414)
Repayment to Company.......... (329,000)
-----------
Ending balance of loan........ $ 912,706
-----------
-----------
THE PODIATRY PRACTICE
Beginning balance on loan..... $ 612,108
Increases to loan
Compensation Amount......... 543,625
Interest accrued............ 16,319
Misc. Advances (Payments)... 3,932
Repayment to Company.......... (423,000)
-----------
Ending balance of loan........ $ 752,984
-----------
-----------
THE AUDIOLOGY AND PRIMARY CARE
PRACTICE
Beginning balance on loan..... $ 209,493
Increases to loan
Compensation Amount......... 157,353
Interest accrued............ 5,620
Misc. Advances (Payments)... 2,348
Repayment to Company.......... (122,000)
-----------
Ending balance of loan........ $ 252,814
-----------
-----------
HEALTHDRIVE MICHIGAN
CORPORATION
Beginning balance on loan..... $ 143,521
Increases to loan
Compensation Amount......... 46,924
Interest accrued............ 3,509
Misc. Advances (Payments)... (913)
Repayment to Company.......... (59,000)
-----------
Ending balance of loan........ $ 134,041
-----------
-----------
</TABLE>

OPTION AGREEMENTS. Pursuant to separate Option Agreements among the
Company, each Medical and Dental Practice and the holder of the capital stock of
such Practice, the holders of the capital stock of the Practices have granted an
option to the Company to designate an individual to purchase, at any time,

31
<PAGE>

all of the outstanding capital stock of such Practice for the lesser of $100,000
or the fair market value of such stock. In addition, pursuant to each Option
Agreement the holder of the capital stock of the Practice may cause the Company
to designate an individual to purchase all of the capital stock of the Practice
for an aggregate purchase price of $50.00 upon two years advance written notice.

SERVICE AGREEMENTS. The Medical and Dental Practices have entered into
Service Agreements with 884 LTCFs. Pursuant to the Service Agreements, each
Practice must provide all equipment and care required by the LTCF residents who
choose to use its services and bill the LTCF residents or their health insurance
for all services rendered. Payments for services are generally made by Medicare,
Medicaid and patients directly to the Medical and Dental Practices, and the
Medical and Dental Practices in most instances do not receive payments directly
from LTCFs. The fees generated by the services of the Medical and Dental
Practices range from approximately $10 to $1,000. The Service Agreements do not
obligate the LTCF to obtain the services of the Medical and Dental Practices for
any of its patients, and do not prohibit the LTCF from obtaining similar
services from other health care service providers. See "Business-- Operations."

OPERATIONS. The operations of the Company and the Medical and Dental
Practices are governed by the Operating Agreements. Because of the relationships
established by the Operating Agreements and the Option Agreements, the Company
is able to report all of the revenue generated by the Company and the Medical
and Dental Practices on a consolidated basis (hereinafter "Revenue"). All of the
Revenue reported results from care provided to residents of LTCFs by the Medical
and Dental Practices primarily on a fee-for-service basis. The Company receives
no revenue directly from the fees generated by the provision of health care
services by the Medical and Dental Practices. Instead, the Company receives the
Compensation Amount under the respective Operating Agreements. Under the
principles of consolidation, all of the Compensation Amounts received by the
Company are eliminated and only the Revenue is reported. The Medical and Dental
Practices enter into Service Agreements with LTCFs whereby Providers travel to
LTCFs to provide on-site care to the residents of LTCFs. The nature of the care
provided is the sole responsibility of the Medical and Dental Practices and the
individual Providers. The Company then bills on behalf of each Practice the
third party payors or the resident/patient for the care provided. Certain of the
Medical and Dental Practices have entered into capitated payment arrangements
with certain LTCFs whereby they are paid a fixed amount per resident to provide
their services to the residents of the LTCF. In connection with its primary care
business, one of the Medical and Dental Practices has, in some cases, entered
into contractual arrangements whereby it provides medical directorship services
to certain facilities for a fixed monthly fee. The capitated arrangements and
the primary care services represent an immaterial percentage of the total
Revenue of the Medical and Dental Practices, and have not had a measurable
effect on the Company's consolidated results of operations.

REVENUE RECOGNITION. Revenue is recognized when medical and/or dental
services are rendered by the Providers. Revenue is reported at estimated
realizable value which represents the actual amounts the Medical and Dental
Practices are expected to receive (before accounting for bad debts) from third
party payors and patients. Generally, Medicare and Medicaid payments are based
on pre-determined published fee schedules while commercial insurance companies
reimburse based on the usual and customary charge for the services rendered.

MEDICARE AND MEDICAID. As participants in the Medicare program, the Medical
and Dental Practices may not bill any patient or such patient's insurer for an
amount in excess of the fee allowed by Medicare pursuant to its fee schedule for
the geographic area concerned. This restriction prohibits what is referred to as
"balance billing." After the patient has satisfied a $100 deductible (the
"Medicare Deductible"), Medicare generally pays the first 80.0% of any service
it approves (the "Medicare Approved Service"). The Medical and Dental Practices
must then bill the patient's secondary insurance or the patient, if he or she
has no secondary insurance, for the remaining 20.0% (the "Medicare Copayment").

32
<PAGE>

The various state Medicaid programs pay for services specifically covered
under their respective statutes. Generally, for patients with Medicaid as their
only insurance (i.e., Medicaid is the primary insurance), Medicaid will pay
100.0% of the amount listed on its fee schedule for any service it approves (the
"Medicaid Approved Service"). Medicaid fee schedules are generally lower than
those prescribed by Medicare. No provider may bill any patient covered by
Medicaid any amount with respect to any service covered by Medicaid. Only
Medicaid may be billed for such services. Medicaid is always the payor of last
resort, meaning that all billings for a service must first be made to all other
insurers that cover a particular patient.

A substantial portion of the patients of the Medical and Dental Practices
have both Medicare and Medicaid coverage with Medicare being the primary
insurance and Medicaid being the secondary insurance or payor of last resort.
Medicaid programs differ in their policies regarding the amount they will pay
when they are the secondary insurer. In some states, if a claim is first
submitted to Medicare for a Medicare Approved Service, Medicaid will pay the
full 20.0% Medicare Copayment or the amount applied to the Medicare Deductible,
regardless of the amount of such Medicare Copayment or such amount applied to
the Medicare Deductible, which may or may not be greater than the fee prescribed
on the Medicaid fee schedule for the service billed. In other states, Medicaid
will not pay any amount as a secondary insurer if the provider has already
received payment by any primary insurer in an amount exceeding the amount
Medicaid would have paid pursuant to its fee schedule for the service performed
had Medicaid been the primary insurer. In this case, if the services were
approved by the primary insurer and the payment made by such primary insurer is
less than the fee for the services performed according to the Medicaid fee
schedule, then Medicaid would pay an amount equal to the amount under its fee
schedule less the amount the provider was paid by the primary insurer. In some
states, Medicaid takes a hybrid approach where it will pay up to the full amount
applied to the Medicare Deductible, but, with respect to payment of Medicare
Copayments, only an amount equal to the amount prescribed by the Medicaid fee
schedule less the amount that the provider was paid by the primary insurance.

The Medicare and Medicaid programs may, from time to time, conduct
post-payment reviews of providers of services reimbursed under such programs.
Although the Medical and Dental Practices have been subject to only one
significant post-payment adjustment to date, the Medical and Dental Practices
are the subject of six such audits currently ongoing, four of which the Company
believes are not material, and believes that recent events indicate an increase
in such review activities in the home health care industry. In 1993, two
optometrists were selected for post-payment review with respect to services
performed principally in 1992. The Optometry Practice protested the results of
this review before agreeing in 1997 to a compromise settlement with HCFA in the
amount of $52,200. This amount is being paid in twenty-four equal, monthly
installments (including interest), with the first payment having been made in
September 1997. The settlement amount was accrued in the fourth quarter of
Fiscal 1996.

On May 13, 1998, the Optometry Practice received notice from Wisconsin
Physician Service Medicare Part B that it had conducted a limited audit
(covering twenty-five patients) of certain ophthalmological services billed to
and paid by the Medicare program under a procedure code for new patient
comprehensive medical examinations. The results of this audit indicated that
over 70.0% of the claims paid by the Medicare program were inappropriately paid
in violation of published Medicare program guidelines, based on a lack of
sufficient clinical documentation demonstrating medical necessity. The actual
deemed overpayment for the sample audited was $1,009. Extrapolating the
percentage disallowance from the audit sample to the entire group of claims paid
by Medicare to the Optometry Practice in Wisconsin under the same procedure code
during the period covered by the audit, indicates a potential liability to the
Optometry Practice of approximately $109,000. The maximum possible liability to
the Optometry Practice assuming all claims made under this procedure code were
disallowed, is approximately $154,000. Although the Company has not yet
responded to this notice and is currently evaluating the appropriate response,
the Company and the Optometry Practice intend to zealously contest the findings
of this audit.

33
<PAGE>
On March 4, 1998, the Dental Practice received notice from the Division of
Medical Assistance, Commonwealth of Massachusetts (the "Division") that it was
conducting a retrospective utilization review and peer review of the services
rendered by the Dental Practice to Medicaid recipients in Massachusetts during
the period between April 1, 1996 and September 30, 1997. On March 25, 1998 a
third-party reviewer contracted by the Division conducted an on-site review of
the Dental Practice's records for 46 of a randomly-selected sample of 50
patients. On April 3, 1998, the Company mailed to the reviewer the remaining
requested information. The Company has received no further communications from
either the Division or the third-party reviewer since March 25, 1998 and has
received no notice of the results of such review. Although the Company intends
to zealously contest any claimed assessments that result from this review, there
can be no assurance that this review will not result in a material assessment
against the Company for the period in question. The Company has not established
a reserve with respect to this audit.

The following table outlines the mix of Revenue recognized for the periods
presented:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------------------- -----------------------
1995 % 1996 % 1997 % 1997 %
------------ --------- ------------- --------- ------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dental.................. $ 3,585,241 41.8% $4,101,320 37.3% $4,715,573 36.5% $ 1,091,663 36.1%
Optometry............... 3,070,942 35.8% 4,006,235 36.4% 4,029,118 31.2% 971,847 32.1%
Podiatry................ 1,780,295 20.8% 2,407,994 21.9% 3,406,466 26.3% 785,035 26.0%
Audiology............... 138,710 1.6% 490,209 4.4% 690,624 5.3% 173,181 5.7%
Primary Care............ 0 0.0% 0 0.0% 88,014 0.7% 1,228 0.1%
------------ --------- ------------- --------- ------------- --------- ------------ ---------
$ 8,575,188 100.0% $11,005,758 100.0% $12,929,795 100.0% $ 3,022,954 100.0%
------------ --------- ------------- --------- ------------- --------- ------------ ---------
------------ --------- ------------- --------- ------------- --------- ------------ ---------

1998 %
------------ ---------
<S> <C> <C>
Dental.................. $ 1,261,718 36.2%
Optometry............... 1,045,896 30.0%
Podiatry................ 912,096 26.2%
Audiology............... 220,771 6.3%
Primary Care............ 46,781 1.3%
------------ ---------
$ 3,487,262 100.0%
------------ ---------
------------ ---------
</TABLE>

The Medical and Dental Practices currently receive payments from a variety
of sources including Medicare, various Medicaid programs, private insurance and
individual LTCF residents. The following table outlines the source of receipts
for the Medical and Dental Practices for the periods presented.

OPERATING EXPENSES. On a consolidated basis, certain of the operating
expenses of the Company and the Medical and Dental Practices can be grouped into
two major categories: direct patient care costs ("DPCC") and selling, general
and administrative expenses ("SGA"). The major expenses included in DPCC are
compensation related costs and employee benefits for Providers, bad debt
expense, transportation expenses, clinical fees and supplies expenses, workers'
compensation and malpractice insurance expenses and the depreciation of medical
equipment. Of these expenses, compensation related costs and employee benefits
for Providers, bad debt expenses, workers' compensation for Providers and
malpractice insurance expenses are generally borne by the Practices, and the
remainder are borne by the Company. Those expenses borne by the Practices are
subtracted from the revenues generated by the Practice on a monthly basis in
calculating the Compensation Amount. The major expenses included in SGA are
compensation related costs and employee benefits for corporate and regional
staff, rent expense, telephone expense, postage expense, travel and lodging
expense, professional fees expense, recruitment costs and the depreciation of
office and computer equipment, all of which are borne by the Company.

34
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth, as a percentage of net revenue, certain
items in the Company's Consolidated Statements of Operations of the Company and
the Medical and Dental Practices for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net patient service revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct patient care costs................................... 62.5 63.8 63.5 64.9 61.9
--------- --------- --------- --------- ---------
Gross profit................................................ 37.5 36.2 36.5 35.1 38.1
Selling, general and administrative expenses................ 37.6 44.3 35.6 37.6 33.0
--------- --------- --------- --------- ---------
Income (loss) from operations............................... (0.1) (8.1) 0.9 (2.5) 5.1
Interest income (expense), net.............................. 0.1 (0.2) (0.5) (0.5) (0.3)
Other income................................................ 0.0 0.1 0.0 0.0 0.3
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes... 0.0 (8.2) 0.4 (3.0) 5.1
Provision (benefit) for income taxes........................ 0.0 (1.4) 0.0 0.0 1.7
--------- --------- --------- --------- ---------
Net income (loss) (1)....................................... 0.0% (6.8)% 0.4% (3.0)% 3.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

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

(1) Exclusive of accretion of preferred stock dividends.

THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1997

NET PATIENT SERVICE REVENUE. Net patient service revenue increased 15.4%,
to $3.5 million for the three months ended March 31, 1998 from $3.0 million for
the three months ended March 31, 1997. Net patient service revenue from
long-standing existing geographic markets increased 9.8% to $3.1 million for the
three months ended March 31, 1998 from $2.8 million for the three months ended
March 31, 1997. Net patient service revenue from the three geographic markets
entered into in 1996 increased 86.5% to $400,000 for the three months ended
March 31, 1998 from $200,000 for the three months ended March 31, 1997.

DIRECT PATIENT CARE COSTS. DPCC increased 10.1%, to $2.2 million for the
three months ended March 31, 1998 from $2.0 million for the three months ended
March 31, 1997. This increase was due primarily to increases in Provider and
transportation compensation and payroll tax expenses, resulting primarily from
the increase in net patient service revenue. As a percentage of net patient
service revenue, DPCC decreased to 61.9% for the three months ended March 31,
1998 from 64.9% for the three months ended March 31, 1997. This decrease was due
primarily to a decrease in Provider and transportation compensation and payroll
tax expenses as percentage of net patient service revenue. This decrease
resulted primarily from the implementation of the self transport model and
improved Provider productivity.

GROSS PROFIT. Gross profit increased 25.1%, to $1.3 million for the three
months ended March 31, 1998 from $1.1 million for the three months ended March
31, 1997. As a percentage of net patient service revenue, gross profit increased
to 38.1% for the three months ended March 31, 1998 from 35.1% for the three
months ended March 31, 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SGA expenses remained
relatively constant, increasing 1.0%, to $1.15 million for the three months
ended March 31, 1998 from $1.14 million for the three months ended March 31,
1997. As a percentage of net patient service revenue, SGA expenses decreased to
33.0% for the three months ended March 31, 1998 from 37.6% for the three months
ended March 31, 1997. This

35
<PAGE>
decrease was due primarily to decreases in corporate and regional staff
compensation and payroll tax expenses to 22.6% for the three months ended March
31, 1998 from 27.6% for the three months ended March 31, 1997, a decrease of
5.0%, as a percentage of net patient service revenue. This decrease was due to
the fact that net patient service revenue increased by 15.4% while corporate and
regional staff compensation and payroll tax expenses decreased by 5.5%, for the
three months ended March 31, 1998. This decrease resulted primarily from tight
company wide cost control of SGA compensation, centralization of certain
functions previously performed at regional offices and certain open positions
not being filled within the period ended March 31, 1998.

INCOME (LOSS) FROM OPERATIONS. Income from operations increased $256,000,
to $179,000 for the three months ended March 31, 1998 from a loss from
operations of $77,000 for the three months ended March 31, 1997. As a percentage
of net patient service revenue, income from operations increased to 5.1% for the
three months ended March 31, 1998 from a loss from operations of 2.5% for the
three months ended March 31, 1997.

INTEREST INCOME (EXPENSE), NET. Interest expense, net decreased 20.6%, to
$12,000 for the three months ended March 31, 1998 from $15,000 for the three
months ended March 31, 1997.

OTHER INCOME. Other income increased to $11,000 for the three months ended
March 31, 1998 from $0 for the three months ended March 31, 1997. This increase
was due to gains recognized by the Company on the sale of certain vehicles.

PROVISION (BENEFIT) FOR INCOME TAXES. The Company recorded a provision for
income taxes of $59,000 for the three months ended March 31, 1998, resulting in
an effective tax rate of approximately 33%. Income taxes in 1998 have been
provided at the Company's respective federal and state statutory rates, reduced
primarily for the anticipated use of net operating loss carryforwards not
previously benefited.

NET INCOME (LOSS). Net income increased $211,000, to $119,000 for the three
months ended March 31, 1998 from a net loss of $92,000 for the three months
ended March 31, 1997. As a percentage of net patient service revenue, net income
increased to 3.4% for the three months ended March 31, 1998 from a net loss of
3.0% for the three months ended March 31, 1997.

YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET PATIENT SERVICE REVENUE. Net patient service revenue increased 17.5%,
to $12.9 million in 1997 from $11.0 million in 1996. Net patient service revenue
from existing geographic markets increased 5.2% to $11.4 million in 1997 from
$10.8 million in 1996. Net patient service revenue from three geographic markets
entered in 1996 increased to $1.5 million in 1997 from $200,000 in 1996,
primarily as a result of growth in market penetration and the recognition of a
full year of revenue in 1997 from operations in these markets.

DIRECT PATIENT CARE COSTS. DPCC increased 17.0%, to $8.2 million in 1997
from $7.0 million in 1996. The increase of $1.2 million was due primarily to
increases in Provider and transportation compensation and payroll tax expenses,
resulting primarily from the increase in net patient service revenue. As a
percentage of net patient service revenue, DPCC remained relatively constant
decreasing to 63.5% in 1997 from 63.8% in 1996. This decrease was due primarily
to decreases in clinical supplies expense, bad debt expense and a Medicare audit
charge offsetting increases in Provider and transportation compensation and
payroll tax expenses as a percentage of net revenue.

GROSS PROFIT. Gross profit increased 18.3%, to $4.7 million in 1997 from
$4.0 million in 1996. As a percentage of net patient service revenue, gross
profit remained relatively constant, increasing to 36.5% in 1997 from 36.2% in
1996.

36
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SGA expenses decreased 5.7%,
to $4.6 million in 1997 from $4.9 million in 1996. This decrease was due
primarily to decreases in travel and lodging expense and recruitment expense
that were made possible by increased controls restricting recruitment costs and
travel costs. As a percentage of net patient service revenue, SGA expenses
decreased to 35.6% in 1997 from 44.3% in 1996. This decrease was due primarily
to decreases in (i) corporate and regional staff compensation and payroll tax
expenses to 26.0% in 1997 from 29.7% in 1996, a decrease of 3.7%, (ii)
recruitment expense to 0.3% in 1997 from 1.8% in 1996, a decrease of 1.5% and
(iii) travel and lodging expense to 0.5% from 1.6%, a decrease of 1.1%, as a
percentage of net patient service revenue. The decrease in corporate and
regional staff compensation and payroll tax expenses as a percentage of net
revenue was due to the fact that net patient service revenue increased by 17.5%
while corporate and regional staff compensation and payroll tax expenses
increased only 2.9% in 1997. This resulted from the leveraging of staff in newer
maturing markets where percentage revenue growth far outstripped compensation
related growth, tight company wide control of compensation related expenses in
more mature markets and the restructuring of the corporate staff which resulted
in a decrease in the amount spent on corporate staff compensation related
expenses in 1997 despite growth in company wide revenue. The decreases in
recruitment expense and travel and lodging expense as a percentage of net
patient service revenue resulted primarily from increased controls restricting
recruitment costs and travel costs resulting in significant reductions in the
amounts spent for recruiting and travel and lodging in 1997 despite growth in
company wide revenue.

INCOME (LOSS) FROM OPERATIONS. Income from operations increased $1.0
million, to $115,000 in 1997 from a loss from operations of $894,000 in 1996. As
a percentage of net patient service revenue, income from operations increased to
0.9% in 1997 from a loss from operations of 8.1% in 1996.

INTEREST INCOME (EXPENSE), NET. Interest expense, net increased 150.1%, to
$65,000 in 1997 from $26,000 in 1996. This increase was due to an increase in
the average outstanding balance of the Company's bank line of credit during
1997, which was used primarily to finance working capital needs.

OTHER INCOME. Other income decreased 65.1%, to $5,050 in 1997 from $14,500
in 1996.

PROVISION (BENEFIT) FOR INCOME TAXES. The Company recorded a benefit for
income taxes of $160,000 in 1996 due to the refund generated by the carryback of
operating losses against prior profitable years.

NET INCOME (LOSS). Net income increased $800,390, to $55,193 in 1997 from a
net loss of $745,197 in 1996. As a percentage of net patient service revenue,
net income increased to 0.4% in 1997 from a net loss of 6.8% in 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

NET PATIENT SERVICE REVENUE. Net patient service revenue increased 28.3%,
to $11.0 million in 1996 from $8.6 million in 1995. Net patient service revenue
from existing geographic markets increased 16.2% to $9.7 million in 1996 from
$8.4 million in 1995. Net patient service revenue from one geographic market
entered in 1995 increased to $1.1 million in 1996 from $200,000 in 1995,
primarily as a result of growth in market penetration and the recognition of a
full year of revenue in 1996 from operations in this market. Net patient service
revenue from three new geographic markets entered in 1996 increased to $200,000
in 1996 from $0 in 1995, resulting from establishing operations in these markets
in 1996.

DIRECT PATIENT CARE COSTS. DPCC increased 30.9%, to $7.0 million in 1996
from $5.4 million in 1995. This increase was due primarily to increases in
Provider and transportation compensation and payroll tax expenses and bad debt
expense, resulting primarily from the increase in net patient service revenue.
As a percentage of net patient service revenue, DPCC increased to 63.8% in 1996
from 62.5% in 1995. This increase was due primarily to increases in travel and
lodging expense, hearing aids expense and a Medicare audit charge as a
percentage of net patient service revenue.

37
<PAGE>
GROSS PROFIT. Gross profit increased 24.1%, to $4.0 million in 1996 from
$3.2 million in 1995. As a percentage of net revenue, gross profit decreased to
36.2% in 1996 from 37.5% in 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SGA expenses increased 51.7%,
to $4.9 million in 1996 from $3.2 million in 1995. This increase was due
primarily to increases in corporate and regional staff compensation and payroll
tax expenses, travel and lodging expense and recruitment expense related to the
Company's expanding operations and the additional corporate infrastructure
required to support such expansion. As a percentage of net patient service
revenue, SGA expenses increased to 44.3% in 1996 from 37.6% in 1995. This
increase was due primarily to increases in (i) corporate and regional staff
compensation and payroll tax expenses to 29.7% in 1996 from 27.5% in 1995, an
increase of 2.2, (ii) travel and lodging expense to 1.6% in 1996 from 0.4% in
1995, an increase of 1.2 and (iii) recruitment expense to 1.8% in 1996 from 1.1%
in 1995, an increase of 0.7, in each case as a percentage of net patient service
revenue. The increase in corporate and regional staff compensation and payroll
tax expenses as a percentage of net revenue was due to the fact that net patient
service revenue increased by 28.3% while corporate and regional staff
compensation and payroll tax expenses increased by 38.7% in 1996. This resulted
from additional regional and corporate level compensation related costs incurred
in connection with expansion into three new markets in 1996 which generated
little revenue in 1996. The increases in travel and lodging expense and
recruitment expense as a percentage of net patient service revenue resulted
primarily from increased travel to new markets and one existing market in 1996
and increased recruitment advertising and recruitment fees incurred for
corporate staff and for the three new markets and one existing market.

INCOME (LOSS) FROM OPERATIONS. Loss from operations increased $889,000, to
$894,000 in 1996 from $5,000 in 1995. As a percentage of net patient service
revenue, loss from operations increased to 8.1% in 1996 from 0.1% in 1995.

INTEREST INCOME (EXPENSE), NET. Interest income (expense), net decreased
$30,200, to interest expense, net of $26,000 in 1996 from interest income, net
of $4,200 in 1995. This decrease resulted primarily from higher utilization of
the Company's available cash and bank line of credit during 1996 to finance
expansion and working capital needs.

OTHER INCOME. Other income increased to $14,500 in 1996 from $900 in 1995.

PROVISION (BENEFIT) FOR INCOME TAXES. The Company recorded a benefit for
income taxes of $160,000 in 1996 due to the refund generated by the carryback of
operating loss against prior profitable years.

NET INCOME (LOSS). Net income decreased $745,366, to a net loss of $745,197
in 1996 from net income of $169 in 1995. As a percentage of net patient service
revenue, net income decreased to a net loss of 6.8% in 1996 from net income of
0% in 1995.

38
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited financial data for each of the nine
consecutive fiscal quarters ended March 31, 1998, including such data expressed
as a percentage of the Company's consolidated net revenue. When read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus, the Company believes that this
information includes all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of such quarterly information.
The operating results of any quarter are not necessarily indicative of the
results of any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEP. 30 DEC. 31 MARCH 31 JUNE 30 SEP. 30 DEC. 31
1996 1996 1996 1996 1997 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net patient service
revenue............... $ 2,612 $ 2,694 $ 2,704 $ 2,996 $ 3,023 $ 3,208 $ 3,322 $ 3,377
Direct patient care
costs................. 1,610 1,697 1,747 1,966 1,962 2,014 2,082 2,155
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........... 1,002 997 957 1,030 1,061 1,194 1,240 1,222
Selling, general and
administrative
expenses.............. 1,028 1,107 1,249 1,496 1,138 1,158 1,170 1,136
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations............ (26) (110) (292) (466) (77) 36 70 86
Interest income
(expense), net........ (2) (15) (1) (8) (15) (21) (16) (13)
Other income........... 1 1 1 12 -- 4 -- 1
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
provision (benefit)
for income taxes...... (27) (124) (292) (462) (92) 19 54 74
Provision (benefit) for
income taxes.......... (5) (21) (52) (82) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)
(1)................... $ (22) $ (103) $ (240) $ (380) $ (92) $ 19 $ 54 $ 74
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

MARCH 31
1998
-----------

<S> <C>
Net patient service
revenue............... $ 3,487
Direct patient care
costs................. 2,159
-----------
Gross profit........... 1,328
Selling, general and
administrative
expenses.............. 1,149
-----------
Income (loss) from
operations............ 179
Interest income
(expense), net........ (12)
Other income........... 11
-----------
Income (loss) before
provision (benefit)
for income taxes...... 178
Provision (benefit) for
income taxes.......... 59
-----------
Net income (loss)
(1)................... $ 119
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEP. 30 DEC. 31 MARCH 31 JUNE 30 SEP. 30 DEC. 31
1996 1996 1996 1996 1997 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net patient service
revenue............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct patient care
costs................. 61.6 63.0 64.6 65.6 64.9 62.8 62.7 63.8
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........... 38.4 37.0 35.4 34.4 35.1 37.2 37.3 36.2
Selling, general and
administrative
expenses.............. 39.3 41.1 46.2 49.9 37.6 36.1 35.2 33.6
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations............ (0.9) (4.1) (10.8) (15.5) (2.5) 1.1 2.1 2.6
Interest income
(expense), net........ (0.1) (0.5) -- (0.3) (0.5) (0.6) (0.5) (0.5)
Other income........... -- -- -- 0.4 -- 0.1 -- 0.1
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
provision (benefit)
for income taxes...... (1.0) (4.6) (10.8) (15.4) (3.0) 0.6 1.6 2.2
Provision (benefit) for
income taxes.......... (0.2) (0.8) (1.9) (2.7) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)
(1)................... (0.8)% (3.8)% (8.9)% (12.7)% (3.0)% 0.6% 1.6% 2.2%
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

MARCH 31
1998
-----------
<S> <C>
Net patient service
revenue............... 100.0%
Direct patient care
costs................. 61.9
-----------
Gross profit........... 38.1
Selling, general and
administrative
expenses.............. 33.0
-----------
Income (loss) from
operations............ 5.1
Interest income
(expense), net........ (0.3)
Other income........... 0.3
-----------
Income (loss) before
provision (benefit)
for income taxes...... 5.1
Provision (benefit) for
income taxes.......... 1.7
-----------
Net income (loss)
(1)................... 3.4%
-----------
-----------
</TABLE>

- ------------------------
(1) Exclusive of accretion of preferred stock dividends.

The Company's results of operations have been, and may in the future be,
subject to quarterly fluctuations due to a variety of factors, including the
availability of Providers, compensation fluctuations, expansion into new
markets, changes in reimbursement, nonrecurring income, postpayment reviews by
third-party payors, differing numbers of business days in various quarters,
fluctuations in demand for the Company's services, utilization of Provider
incentive plans and fluctuations in SGA expenses. These uncertainties make the
estimation of revenue and the results of operations on a quarterly basis
difficult

39
<PAGE>
and increase the potential margin for error in performance forecasts derived
from such estimates. As a result, the Company believes that the period-to-period
comparison of its results of operations is not necessarily meaningful and should
not be relied upon as any indication of future performance.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically funded its working capital, capital expenditure
and expansion needs primarily through private equity financings, institutional
borrowings, capital lease financing and cash provided by operations. Net cash
used in operations was $147,797 for the three months ended March 31, 1998 on net
income of $118,500, offset principally by changes in operating assets and
liabilities. Net cash provided by operations was $231,355 in 1997 on net income
of $55,193, increased principally by changes in operating assets and
liabilities. Net cash used in operations was $223,076 in 1996 on a net loss of
$745,197, offset principally by changes in operating assets and liabilities. Net
cash used in operations was $40,257 in 1995 on net income of $169, offset
principally by changes in operating assets and liabilities.

Cash flow provided by investing activities for the three months ended March
31, 1998 was $4,000, resulting primarily from the sale of certain property and
equipment. Cash flow used in investing activities for 1997, 1996 and 1995 was
$60,000, $377,000 and $279,000, respectively. These investment expenditures were
primarily for computer, medical and office equipment related to the Company's
expanding business.

Net cash provided by financing activities was $158,000 for the three months
ended March 31, 1998, due primarily to borrowings under the Credit Facility
referred to below, offset by payments required under capital leases. Net cash
used in financing activities was $159,000 in 1997 due to the partial paydown of
a bank line of credit and payments required under capital leases. Net cash
provided by financing activities was $241,000 in 1996 due primarily to
borrowings under a bank line of credit offset by payments required under capital
leases. Net cash used in financing activities was $99,000 in 1995 attributable
to payments required under capital leases.

The Company's external sources of financing have been private equity
financings, a bank line of credit and capital lease financing. The Company has
raised three rounds of private equity financing from DCC Limited and DCC
International Holdings B.V. (collectively, "DCC"), its largest shareholder prior
to the Offering. In April 1994, the Company raised $500,000 by the issuance of
Series B Preferred Stock to DCC pursuant to a stock purchase agreement. In May
1992, the Company raised $1.0 million by the issuance of Series A Preferred
Stock to DCC pursuant to a stock purchase agreement. In October 1989, the
Company raised $550,000 by the issuance of Common Stock to DCC pursuant to a
stock purchase agreement. Pursuant to an agreement between the Company and DCC,
all of the outstanding preferred stock will be converted to Common Stock
concurrently with the completion of this Offering and DCC will retain certain
rights with respect to registration of its shares of Common Stock under the
Securities Act. All other rights pertaining to its holdings of common or
preferred stock prior to the Offering will be waived concurrently with the
completion of this Offering.

In May 1995, the Company entered into the Credit Facility with State Street
Bank and Trust Company (the "Bank") originally in the amount of $750,000 and
subsequently increased to $1.25 million. As of March 31, 1998, the outstanding
balance of the Credit Facility was $510,000. Under the Credit Facility, the
Company may borrow amounts up to 70.0% of its third-party accounts receivable
less than 120 days old and 50% of its self-pay accounts receivable less than 120
days old. Borrowings under the Credit Facility are secured by all of the assets
of the Company and the Medical and Dental Practices and bear interest at the
prime rate plus one percent (1.0%). During 1995, 1996 and 1997, the Company
failed to meet certain of the financial covenants contained in the Credit
Facility and obtained waivers from the Bank for such failures. The Credit
Facility matures on January 1, 1999.

The Company has used capital lease financing as the primary means of
financing its acquisition of vans used to transport medical equipment and
records.

To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash has
been and the Company contemplates that it will continue to be invested in
interest-bearing, investment grade securities. For all of the periods presented
the

40
<PAGE>

Company has consistently provided for bad debt through charges to expenses at a
rate of six to seven percent of revenues. The Company believes that this
percentage is reasonable based on the inherent trends of the industry and the
Company's historical level of write-offs. See Note 2(g) of Notes to Consolidated
Financial Statements.

The lease for the Company's corporate headquarters terminates on June 30,
1998. The Company intends to either negotiate an extension of its existing lease
or lease new space for its corporate headquarters. Although the Company believes
that there is adequate space available for its needs in close proximity to its
current headquarters and the location of its regional office in Newton,
Massachusetts, the Company believes that the terms of a lease of the new
corporate headquarters may not be as favorable financially to the Company. The
rent for the Company's current facility is $4,412 a month and the Company
believes that a lease for new space may cost the Company up to three times that
amount in monthly rent and related costs.

The Company believes that the net proceeds from the sale of Common Stock
offered hereby, together with cash generated from operations and existing cash
balances and advances available under the Credit Facility will be adequate to
finance its capital requirements for at least the next twelve months. However,
the Company's capital requirements beyond such period will depend upon the pace
of its acquisition strategy and the profitability of its operations. To the
extent that such amounts are insufficient to finance the Company's capital
requirements, the Company will be required to raise additional funds through
equity or debt financing, which could include the sale of additional shares of
Common Stock or borrowings under the Credit Facility with the Bank, or any
replacement credit facility or line of credit that the Company obtains after
consummation of the Offering. No assurance can be given that such financing will
be available on terms acceptable to the Company, and, if available, such
financing may result in further dilution to the Company's stockholders and
higher interest expense. In the event that the Company is unable to secure such
additional financing, the Company may be forced to curtail projected expansion,
delay or discontinue planned capital expenditures, reduce the Company's
workforce or close less-profitable operations. The primary capital expenses that
the Company expects to incur for the foreseeable future include (i)
approximately $1.0 million for enhancements to the Company's management
information systems that the Company expects to incur within 12 months, after
the consummation of the Offering, and (ii) up to $500,000 annually for the next
several years for the purchase of medical equipment and related capital
equipment in connection with planned expansion of the business of the Company
and the Medical and Dental Practices. Some of the capital expenditures made by
the Medical and Dental Practices may be funded by loans from the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997.

In July 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No.
131 requires certain financial and supplementary information to be disclosed on
an annual and interim basis for each reportable segment of an enterprise. SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997. Unless
impracticable, companies would be required to restate prior information upon
adoption.

41
<PAGE>
voting equity instruments of the physician practice. The EITF reached a
consensus that an entity can establish a controlling financial interest in a
physician practice through contractual management arrangements and, therefore,
require the consolidation of the physician practice if certain requirements are
met. The Company has applied the guidance provided in EITF 97-2 to the Operating
and Option Agreements with the Medical and Dental Practices. There was no effect
to the Company upon the implementation of EITF 97-2 as the consolidation status
of the Medical and Dental Practices did not change.

YEAR 2000

Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Company currently employs three systems susceptible to Year 2000
issues, including a billing system, Custom Care and an accounting system, and
has reviewed the Year 2000 issue with respect to each system. The vendor of the
Company's billing system has indicated that an upgrade to the system that
addresses the Year 2000 issue will be available by the third quarter of the
fiscal year ended December 31, 1998, without requiring a substantial additional
license fee. The Company believes that CustomCare's displays require minor
modifications to address Year 2000 and that its employees will be able to
complete such modifications without incurring material expense by the end of
fiscal 1999. The Company expects to replace its accounting system without
incurring a material expense. Upon upgrade of such systems, management believes
that the Company and the Medical and Dental Practices will be Year 2000
compliant. Additionally, the Company is assessing the impact of the Year 2000
issue on its significant customers, suppliers and on others. Management believes
that the cost to complete its Year 2000 compliance will not be material.

42
<PAGE>
BUSINESS

The Company is the sole sponsor of, and provider of administrative services
to, four professional corporations and one Michigan taxable not-for-profit
corporation. The Company and its founders established the Medical and Dental
Practices to focus on the provision of on-site geriatric health care services
primarily to residents of nursing homes. The Company does not own the capital
stock of any of the professional corporations or the Michigan taxable
not-for-profit corporation. Each of the Medical and Dental Practices is
affiliated with the Company through an exclusive long-term Operating Agreement
pursuant to which the Company receives a fee in exchange for the services it
provides, and an Option Agreement pursuant to which the Company is entitled to
cause the sole stockholder of the Practice to sell all of the outstanding
capital stock of the Practice to a designee of the Company at any time for a
nominal price. The Company and the Medical and Dental Practices are completely
interdependent and function as a single integrated unit, with the Company being
entirely dependent on the success of the Medical and Dental Practices for its
revenues and the Medical and Dental Practices being entirely dependent on the
Company for capital and all services other than the direct provision of medical,
dental and ancillary health care services. The Company does not itself provide
health care services.

In addition to providing services to nursing home residents, the Medical and
Dental Practices also provide services to a growing number of residents of ALFs
and ILFs that are affiliated with nursing homes under Service Agreements with
one or more of the Practices. Providers travel to LTCFs where they provide a
growing range of geriatric medical and dental services. Services currently
provided by the Medical and Dental Practices include dentistry, optometry,
podiatry, audiology, and primary care. As of May 15, 1998, the Medical and
Dental Practices employed 95 Providers who were rendering services at 884 LTCFs
located in 11 states, and the Company employed an additional 106 people. The
Company, headquartered in Newton, Massachusetts, operates four regional offices
located in Massachusetts, Connecticut, Pennsylvania and Wisconsin.

The Company was founded in 1989 by Steven S. Charlap, M.D. and Alec H.
Jaret, D.M.D. to respond to the growing demand for convenient on-site dental
care services at nursing homes. Dr. Charlap and Dr. Jaret also founded three of
the Medical and Dental Practices with funds borrowed from the Company, Steven S.
Charlap, M.D., P.C., Alec H. Jaret, D.M.D., P.C. and HealthDrive Michigan
Corporation, which provides dental, optometry and podiatry services to residents
of LTCFs in Michigan. The Company, as it identified opportunities in such areas
among the LTCFs serviced by its other Practices, has also established

43
<PAGE>
an optometry practice and a podiatry practice. In each case, the Company
designated the individual Provider who would incorporate the professional
corporation, and loaned money to the Practice to cover formation and initial
operating costs. Each of the Medical and Dental Practices (other than
HealthDrive Michigan Corporation) is a Massachusetts professional corporation of
which the named physician or dentist is the sole stockholder. HealthDrive
Michigan Corporation is a Michigan not-for-profit taxable corporation of which
Dr. Charlap is the sole stockholder.

Nursing homes are required by the Omnibus Budget Reconciliation Act of 1987
to ensure that medical and dental services are made available to their
residents. In addition, while not required to do so, certain ALFs and ILFs in
the Company's markets have begun to make on-site medical and dental services
available to their residents. Historically, it has not been cost-effective for
LTCFs to use their own resources to satisfy their residents' medical and dental
service needs, and they have looked to single-specialty solo health care service
providers to meet such needs. Providing the range of geriatric medical and
dental services required by LTCF residents through Solo Providers imposes a
number of increasingly complex burdens on LTCFs which include: (i) identifying
and contracting with multiple, competent Solo Providers to provide on-site
services; (ii) allocating LTCF staff to coordinate the services of such Solo
Providers; (iii) monitoring the appropriateness of services provided and related
billings; (iv) complying with related federal and state health care regulations;
and (v) when necessary, transporting residents off-site to receive such
services.

The Balanced Budget Act of 1997 requires the Health Care Finance
Administration by July 1, 1998 to begin converting from a cost-plus
reimbursement methodology to the Prospective Payment System for nursing homes,
pursuant to which the federal government will pay a per diem rate to nursing
homes for post-hospitalization services provided to their Medicare covered
residents. The Company believes that as a result of the change to PPS, nursing
homes will need to increase their focus on the efficiency and quality of all of
their operations to maximize their profitability. PPS does not cover
physician-related services such as those provided by the Medical and Dental
Practices. However, the Company believes an increased focus on efficiency and
quality will make the use of integrated providers of multiple medical and dental
services, such as the Medical and Dental Practices, more attractive than the use
of multiple Solo Providers.

The Company and the Medical and Dental Practices offer an efficient
alternative to Solo Providers because, the Medical and Dental Practices, with
the assistance of the Company, are able to provide coordinated, comprehensive,
cost-effective on-site geriatric medical and dental services. The rendering of
such services requires: (i) multi-specialty clinical expertise; (ii) a staff of
highly qualified health care service providers; (iii) the purchase and
maintenance of specialized equipment; (iv) the development of sophisticated
management information systems; and (v) reimbursement and regulatory knowledge.
The Company and the Medical and Dental Practices have extensive experience in
providing such services. In addition, the Company has developed proprietary
procedures, systems and software necessary to overcome the logistical
complexities involved in coordinating on-site care. Specifically, the Company
has developed CustomCare, a proprietary software program that enhances the
Company's customer service capabilities by effectively integrating all facets of
the Company's services, including scheduling, billing, tracking dentures and
eyeglasses, coordinating transportation, compiling Provider productivity and
patient utilization data, monitoring payor pre-approvals, and generating
customized reports.

Pursuant to the Operating Agreements, the Company provides certain services
relating to the administration of health care provided by the Medical and Dental
Practices, licenses the use of the service mark "HealthDrive," and extends
credit to the Medical and Dental Practices. The services provided by the Company
pursuant to the Operating Agreement include ordering and purchasing of supplies,
performance of bookkeeping and accounting functions, and billing and
collections. In exchange for these services, the license of the service mark to
the Practice and the extension of credit, each Practice pays the Company a
monthly fee equal to all revenue generated by such Practice minus the expenses
incurred by such Practice (primarily compensation and benefits, bad debt
expense, insurance costs and the interest expense on the loans from the Company
to such Practice), adjusted to give effect to certain tax-related items. Under
the

44
<PAGE>
terms of the Operating Agreement, the Compensation Amount may not exceed the
fair market value of such services, the license of the service mark and the
extension of credit. Revenue is generated by the Medical and Dental Practices
pursuant to Service Agreements each of them enters into with LTCFs to provide
their respective services to residents of such LTCFs. Each of the Medical and
Dental Practices, other than HealthDrive Michigan Corporation, practices one of
the four major specialties. LTCFs enter into a separate Service Agreement with
each of the Medical and Dental Practices from which they wish to obtain services
for their residents, and generally a LTCF may choose to contract with any number
and any combination of the Medical and Dental Practices. Under the respective
Service Agreements, the LTCF is responsible for notifying its residents that the
Practice's services are available to them, as medically necessary, and the
Practice is responsible for providing its services to those residents who need
and request them. The Company then bills the patient or his or her insurance
company for the services rendered, typically Medicare, Medicaid or a commercial
insurer, and in most instances does not receive payments from the LTCFs.

In connection with the formation of the Medical and Dental Practices, and
from time to time thereafter, the Company has loaned money pursuant to the
Operating Agreements to the Medical and Dental Practices for working capital
purposes. The Medical and Dental Practices are required to pay down the
principal amount and accrued interest on these loans from time to time to the
extent possible, and the Company is entitled to demand repayment on thirty days
notice. The Demand Loans bear interest at rates determined by the Company not to
exceed a designated prime rate plus five percent, and payments are generally
made on the Demand Loans no less frequently than on a monthly basis.

The primary strategic objective of the Company and the Medical and Dental
Practices is for the Medical and Dental Practices to become, acting in concert,
a dominant provider of on-site, integrated and cost-effective geriatric medical
and dental services to residents of LTCFs. The Company and the Medical and
Dental Practices have identified three opportunities for growth: (i) obtaining
Service Agreements for the Medical and Dental Practices with additional LTCFs in
existing and contiguous markets; (ii) increasing the number of Service
Agreements with LTCFs under existing contracts with the Medical and Dental
Practices; and (iii) increasing the number of patients served by the Medical and
Dental Practices within LTCFs under existing contracts. The Company has
determined four means of capitalizing on such opportunities to achieve growth
within both existing geographic markets and new geographic markets. These
include: (i) increasing its sales and marketing initiatives; (ii) expanding its
existing customer relationships; (iii) leveraging its operational infrastructure
and its existing and planned management information systems; and (iv) the
consummation of acquisitions of other LTCF-focused medical, dental or ancillary
health care services practices or related companies. These acquisitions are
likely to take the form of a purchase by one or more Medical and Dental
Practices of existing service agreements of another LTCF-focused health care
services provider, a purchase by the Company of the non-medical assets of
another LTCF practice and entrance by the Company into an operating agreement
with such practice, or the purchase by the Company of another entity engaged in
the administration or service coordination of health care services to LTCFs.
Because the Company is entirely dependent on the activities of the Medical and
Dental Practices for its revenue, to the extent that any of these initiatives
may be successful in increasing the profitability of the Medical and Dental
Practices, the Company's profitability may be similarly affected. The Company
believes that most of the costs associated with these initiatives, such as
increased sales and marketing expenditures and recruitment and salary costs for
new employees of the Company, will be borne by the Company and not the Medical
and Dental Practices. In addition to the material expenses that will be required
to increase the Company's marketing efforts, the Company expects that enhancing
its management information systems to provide additional services and
consummating potential acquisitions will require substantial expenditures by the
Company.

45
<PAGE>
MARKET OVERVIEW

LONG-TERM CARE INDUSTRY. The long-term care industry encompasses a variety
of health care services that are provided primarily to the elderly in varying
settings including nursing homes, ALFs and ILFs. Nursing homes typically care
for those who require 24-hour skilled medical supervision and are in need of
specialized support, and rehabilitative, nutritional, respiratory and other
skilled treatments. ALFs, which are the fastest growing segment of the long-term
care industry, serve the rapidly growing elderly population who may require
housing, assistance with personal care (e.g. dressing and bathing), support
services (e.g. housekeeping and laundry) and intermittent health care services
(e.g. assistance taking medications and health monitoring) but who do not
require the skilled medical care of a nursing home. ILFs are age-restricted
communities designed for residents who require little assistance. ILFs generally
provide at least one congregative service (e.g. meals, housekeeping,
transportation, or activities). Residents in ALFs and ILFs typically do not
require continuous medical or skilled nursing care, but choose not to live
independently. Accordingly, ALF and ILF residents generally have lower acuity
levels than residents of nursing homes.

Residents of nursing homes, currently the primary consumers of the services
provided by the Medical and Dental Practices, generally have complex medical
needs which are treatable outside of acute care hospitals. In most cases,
nursing homes have the capacity to provide skilled nursing care, routine
rehabilitation therapy and other support services. However, nursing homes are
required by state and federal laws and Joint Commission for the Accreditation of
Healthcare Organizations ("JCAHO") standards to provide access to primary
medical care and specialty health care services often beyond their in-house
resources, including, but not limited to, routine dental care, eye care, foot
care, and care for the hearing impaired. In order to provide such specialty
health care services, nursing homes usually contract with outside health care
service providers.

In 1996, there were approximately 15,300 nursing homes servicing
approximately 1.7 million residents in the United States. Although the Company
is not aware of any third party collection of data that accurately demonstrates
the size of the Company's target market, residents of Massachusetts nursing
homes treated by the Medical and Dental Practices were visited in 1996 by
Providers in the fields of dentistry, optometry, podiatry and audiology an
average of 1.65 times, 1.50 times, 2.75 times and 1.00 times, respectively. By
multiplying such data by the average annual revenue received by the Company from
such visits and the total number of residents of nursing homes in the United
States, the Company estimates the total market nationwide in nursing homes alone
for the four major specialty health care services provided by the Medical and
Dental Practices to be approximately $760 million. This market size is
calculated based on internal Company data collected only with respect to nursing
homes in Massachusetts, where the Medical and Dental Practices have succeeded in
capturing the largest share of their target market. In addition, it was
estimated that in 1996 there were approximately 14,500 ALFs and ILFs nationwide.

The Company attributes the continuing growth of the U.S. market for
geriatric medical and dental care in LTCFs to three factors:

AGING POPULATION. The target market for the services provided by the
Medical and Dental Practices are persons generally aged 75 years and older, one
of the fastest growing segments of the U.S. population. According to the U.S.
Census Bureau, the portion of the U.S. population aged 75 to 85 years is
expected to increase by 27.0%, from approximately 10.0 million in 1990 to
approximately 12.7 million by the year 2010. During the same period, the portion
of the U.S. population aged 85 years and older is expected to increase by 90.0%,
from approximately 3.0 million to approximately 5.7 million.

INCREASED LIFE EXPECTANCY AND MEDICAL ACUITY. Medical technology and other
factors have helped to reduce the mortality rate in the U.S. and increase
longevity. However, longer life is accompanied by a greater chance of chronic
illness and/or disability. Disabilities and chronic illnesses which develop at a
higher rate as a person ages increase the functional dependencies of the elderly
and their need for specialty

46
<PAGE>
health care services. According to the United States General Accounting Office,
there are approximately 7.0 million Americans aged 65 years and older who
currently need assistance with activities of daily living, and this number is
expected to double by the year 2020. At the same time, cost containment
initiatives by third party payors have increased the pressure to discharge
medically complex patients from expensive acute care hospitals to less expensive
settings such as LTCFs.

LONG-TERM CARE MEDICAL AND DENTAL PROVIDER MARKET. Unlike many hospitals,
most LTCFs do not have permanent, on-site medical and dental health care service
providers. Generally, LTCFs depend on outside Solo Providers who provide
services using their own equipment and supplies. Medical and dental health care
service providers who treat residents of LTCFs typically receive a substantial
portion of their revenue through reimbursement from the Medicare and Medicaid
programs ("Government Payors"), with the balance of payments being received from
individual LTCF residents ("Private Payors") and private insurers and LTCFs
("Third Party Payors").

As a result of the increasing acuity levels of residents and the changing
regulatory environment, the sophistication and breadth of services required by
residents of LTCFs, and the administrative burdens associated with such
services, have increased dramatically in recent years. Solo Providers serving
patients at a given LTCF must independently verify patient demographic data,
including the patient's primary payor source. In addition, they must
independently pre-schedule visits, respond to emergencies, process all
paperwork, ensure compliance with all related regulatory and reimbursement
requirements, purchase, stock and transport their own equipment and supplies,
and maintain and store their own patient records off-site. Generally, Solo
Providers do not have the resources to adequately respond to these increasingly
complex burdens placed upon LTCFs.

Furthermore, contracting with multiple Solo Providers is inefficient for
LTCFs. LTCF staff and patients and their responsible parties need to contract
with, and coordinate the efforts of, each Solo Provider. Multiple Solo Providers
must be contacted independently to discuss coordination of services, treatment
plans, payment issues and other concerns. LTCFs must provide, and patients or
their responsible parties must complete, individual authorizations for each Solo
Provider. The redundancy of efforts required when utilizing several separate
Solo Providers creates inefficiencies for LTCFs. The Company and the Medical and
Dental Practices address these inefficiencies by eliminating the need to
contract with, and coordinate the efforts of, several Solo Providers. By
retaining the Medical and Dental Practices, LTCFs need only coordinate with one
party. Although the Company and the Medical and Dental Practices generally do
not displace all Solo Providers when it contracts with a LTCF, its experience
has been that in most LTCFs the Medical and Dental Practices have become the
predominant provider of their four major specialty health care services.

PROSPECTIVE PAYMENT, CONSOLIDATED BILLING AND MANAGED CARE. The Balanced
Budget Act of 1997 effected several changes to the manner in which nursing homes
are to be reimbursed for health care services that are provided to Medicare
beneficiaries. Effective July 1, 1998, HCFA will begin a three-year transition
period to PPS. Under PPS, covered nursing homes will no longer be able to
operate under a cost-plus reimbursement methodology but will instead be paid a
single federal per diem rate for all non-physician health care services provided
to Medicare beneficiaries. The federal per diem rate will be based on historical
cost reports provided by covered nursing homes and will be standardized to
reflect differences among nursing homes which are attributable to, among other
things, current expenses, geographic location, labor costs, and case-mix. The
Company believes that as a result of the change to PPS, nursing homes will need
to increase their focus on the efficiency of all of their operations to maximize
their profitability. PPS does not cover physician related services such as those
provided by the Medical and Dental Practices. However, the Company believes this
increased focus on efficiency will make single-source providers of coordinated
care across a variety of specialties, such as the Company, more attractive as a
result of the efficiencies realized.

47
<PAGE>
Effective January 1, 1999, the Balanced Budget Act of 1997 also mandates
consolidated billing for all non-physician services which are provided to
Medicare beneficiaries who reside in a covered nursing homes ("Consolidated
Billing"). Unlike PPS, there is no transition period for Consolidated Billing.
Under Consolidated Billing, covered nursing homes must submit Medicare claims,
including a procedure code for the particular service provided, for all services
received by its residents regardless of who provides the service. Covered
nursing homes will then receive payments for all such services provided in
accordance with fee schedules which will be established by HCFA. Consolidated
Billing does not cover physician related services such as those provided by the
Medical and Dental Practices. However, the Company believes that CustomCare, the
Company's proprietary management information system, could easily and
efficiently integrate and track all information required to satisfy a covered
nursing home's obligations under Consolidated Billing. Such capabilities provide
the Company and the Medical and Dental Practices with a significant advantage
over Solo Providers who do not have access to similar systems. Furthermore,
because the Medical and Dental Practices provide a range of health care
services, the Company can further integrate the billing information required
under Consolidated Billing, thereby enhancing this advantage.

In response to the rising cost of health care services, Government Payors
and Third Party Payors have implemented managed care initiatives, such as
capitated payment agreements, aimed at reducing the cost of such services. Such
initiatives have focused on eliminating the traditional fee-for-service method
of paying for health care services in favor of risk-sharing payment devices that
encourage the health care service provider to manage the care of patients in the
most cost-effective manner. Under capitated payment agreements, physicians,
dentists and other health care service providers agree to provide all required
services within their specialty to a defined group for a fixed fee. The Company
estimates that approximately one percent of the revenues of the Medical and
Dental Practices for the three months ended March 31, 1998 were derived from
capitated arrangements. However, because the Compensation Amount payable to the
Company is contingent upon the profitability of the Medical and Dental
Practices, expenses incurred by the Medical and Dental Practices in excess of
the capitated payment will reduce the Compensation Amount and, accordingly, the
Company's consolidated revenues.

Risk-sharing payment arrangements reward large practices that have (i) the
resources to offer coordinated care across a variety of specialties, (ii) low
operating costs relative to revenue, (iii) bargaining power with vendors of
supplies and services and (iv) sophisticated management information systems
which maintain outcome management programs and patient care data. While the
Medical and Dental Practices have traditionally provided health care services on
a fee for service basis, it expects that managed care, including capitated
payment agreements, may grow in importance as a means of reimbursement for
health care services provided to residents of LTCFs in the future. The Company
believes that it will have a competitive advantage in such an environment as a
result of its management information system, CustomCare, and its ability to
coordinate a spectrum of health care services involving a number of different
specialties. The Company also believes that its size generates economies of
scale and provides it with bargaining power with vendors of supplies.

STRATEGY

The Company estimates that the Medical and Dental Practices have entered
into contracts with approximately 17.8% of the nursing homes within their
existing markets. In addition, the Company estimates that the Medical and Dental
Practices service on average only 50.0% of the residents of each LTCF who
require the services offered by the Medical and Dental Practices. Furthermore,
as of May 15, 1998, the Company's Medical and Dental Practices had entered into
only 2,120 Service Agreements with the 884 LTCFs with which they had contracts
(an average of approximately 2.4 contracts per LTCF).

48
<PAGE>
The Company believes that these relatively low penetration rates indicate
significant opportunities for growth including: (i) obtaining Service Agreements
for the Medical and Dental Practices with additional LTCFs in existing and
contiguous markets; (ii) increasing the number of Service Agreements with LTCFs
under existing contracts with the Medical and Dental Practices; and (iii)
increasing the number of patients served by the Medical and Dental Practices
within LTCFs under existing Service Agreements. The Company has identified four
means of capitalizing on such opportunities to achieve growth within both
existing geographic markets and new geographic markets; these include (i)
increasing its sales and marketing initiatives, (ii) expanding its existing
customer relationships, (iii) leveraging its operational infrastructure and
existing and planned management information systems, and (iv) consummating, in
conjunction with one or more of the Medical and Dental Practices, acquisitions
of other LTCF-focused medical, dental or ancillary health care services
practices or related companies.

(I) INCREASE SALES AND MARKETING INITIATIVES

The Company plans on continuing to add to its sales staff to capitalize on
the growth opportunities stated above. The Company's sales personnel maintain
existing LTCF relationships on behalf of the Medical and Dental Practices,
expand these relationships by signing additional Service Agreements on behalf of
the Medical and Dental Practices, and enter into new relationships with other
LTCFs in their assigned markets. The Company's sales personnel work closely with
the Providers and their assigned LTCFs to increase the number of patients within
each LTCF who select the Providers as their caregivers. In addition, the Company
has commenced adding sales personnel whose sole responsibility is to expand into
new markets.

(II) EXPAND EXISTING CUSTOMER RELATIONSHIPS

The Medical and Dental Practices have secured Service Agreements with a
number of national LTCF operators to provide services to facilities managed by
such operators in certain markets. The Company plans to use these relationships
to obtain additional Service Agreements for the Medical and Dental Practices
with facilities that are managed by such LTCF operators in other markets. The
Medical and Dental Practices have developed and expect to continue to develop
quality clinical programs with consistent standards of care applicable across
many regions. As the LTCF industry continues to consolidate, the Company
believes that, acting in concert with the Medical and Dental Practices, it
offers a multi-regional program for LTCF operators who want to standardize their
operations across multiple regions by contracting with one integrated provider.
The Company has developed customized reports which provide LTCF operators with
utilization data that is useful for quality assurance purposes and possible
managed care contracting.

(III) LEVERAGE OPERATIONAL INFRASTRUCTURE AND MANAGEMENT INFORMATION
SYSTEMS.

The Company has developed operations in four regions of the country and has
demonstrated a capability to serve contiguous markets from its regional
operations. In the past, the Company has serviced the New Hampshire and Rhode
Island markets from its regional center in Massachusetts, the New York market
from its regional center in Connecticut, and the New Jersey market from its
regional center in Pennsylvania. The Company has also demonstrated its ability
to service non-contiguous states such as Florida, Michigan, and Ohio from a
centralized operations base in Massachusetts. The Company's existing regional
and central operations enable the Company and the Medical and Dental Practices
to service additional LTCFs in contiguous and non-contiguous markets with
minimal increases in operating expenses. In addition, the Company and the
Medical and Dental Practices can add new services which can be administered to
LTCFs under existing contracts and newly contracted LTCFs from existing regional
and central operations. The Company believes that its success in managing
operations from regional and central, rather than local, centers is a result of
CustomCare, its proprietary management information system. CustomCare provides
the Company with the concise and timely data it requires to effectively and

49
<PAGE>
efficiently manage multiple sites from its corporate headquarters. The Company
intends to further leverage CustomCare by offering fee-based administrative and
billing services to non-affiliated primary care physicians who treat patients at
the same LTCFs where the Medical and Dental Practices provide their services. By
compiling clinical and demographic patient information provided by the
non-affiliated providers with similar information from the Medical and Dental
Practices, CustomCare can integrate such information into one comprehensive
report available to both non-affiliated primary care physicians and the LTCF.
The Company believes that by also providing fee-based Consolidated Billing
services for LTCFs, it can create a single source, integrated database for all
non-nursing related services for each LTCF in which it operates.

The Balanced Budget Act of 1997 will require LTCFs to bill for certain
outside vendor services as of January 1, 1999. Though the services provided by
the Medical and Dental Practices are excluded from this requirement, the Company
believes it may use its existing and planned billing operations, reimbursement
expertise, management information systems, including CustomCare, and patient
demographic data bases to provide LTCFs under existing contracts with such
fee-based billing services.

(IV) ACQUIRING SINGLE SPECIALTY LTCF-FOCUSED PRACTICES AND SIMILAR ENTITIES

Although the Company has traditionally expanded through the recruitment by
the Medical and Dental Practices of health care service providers, the Company
and the Medical and Dental Practices intend to further increase their presence
in existing markets and enter into new markets through the acquisition of
LTCF-focused practices by the Company and the Medical and Dental Practices. The
Company believes that it can penetrate new markets through such acquisitions and
use the acquired practices' existing relationships with LTCFs as platforms to
market other services of the Medical and Dental Practices. In 1997, the Company
recruited a prominent dentist in Michigan with an existing LTCF practice.
Marketing the Medical and Dental Practices' other services to the dentist's
existing LTCF clients resulted in the execution of 83 new contracts for
services. The Company intends to attract prominent practices by capitalizing on
its professional reputation, growing network of LTCFs, management experience,
proprietary information systems, and logistical know-how. These acquisitions are
likely to take the form of a purchase by one or more of the Medical and Dental
Practices of existing LTCF Service Agreements from another provider, a purchase
by the Company of the non-medical assets of another LTCF practice and entrance
by the Company into an Operating Agreement with such practice, or the purchase
by the Company of another entity engaged in the promotion, administration or
coordination of health care services to LTCFs. The Company believes that
completion of the Offering will enhance the ability of the Company and the
Medical and Dental Practices to complete acquisitions. In addition to gaining
access to those of the cash proceeds of the Offering that will be available to
consummate acquisitions, the Company believes that its ability to issue
publicly-traded capital stock in connection with an acquisition, either to raise
cash to pay a portion of the purchase price or to be issued directly to the
seller as consideration, will provide it with increased resources to complete
acquisitions.

Although the Company and the Medical and Dental Practices are not currently
parties to any agreements to acquire other LTCF-focused practices, and have not
completed any acquisitions other than the recruitment of a dentist in Michigan
as described above, the Company has engaged in discussions with a number of such
practices in the past, and believes that there are significant opportunities for
acquisitions. There can be no assurance that any such acquisitions can be
consummated by the Company or the Medical and Dental Practices. However, the
Company believes that acquisitions completed in existing markets could
significantly enhance the operations of the Company and the Medical and Dental
Practices in such markets by allowing them to leverage their existing operations
to provide services to new LTCFs, and that acquisitions completed in new
geographic markets may facilitate their entrance into such markets and
accelerate the growth of operations therein.

50
<PAGE>
OPERATIONS

The Company and the Medical and Dental Practices have considerable
experience in the design and implementation of comprehensive clinical programs
for residents of LTCFs in the fields of dentistry, optometry, podiatry and
audiology. In addition, the Company has developed systems and procedures to
efficiently overcome the logistical obstacles associated with transporting
equipment, files and Providers to different LTCFs on a daily basis.

OPERATING MODELS AND TRANSPORTATION SYSTEMS. The Company has two operating
models and two transportation systems which are employed by the Company and the
Medical and Dental Practices to different degrees under each operating model
based on the size of the regional operation.

(I) REGIONAL OFFICE MODEL.

In certain markets such as Massachusetts, Connecticut, Pennsylvania and
Wisconsin, where the Medical and Dental Practices have a high number and
concentration of LTCFs under contract, the Company's operations are
decentralized with each regional office performing all functions related to the
support of patient care. Specifically, each regional office is responsible for
scheduling patient visits, maintaining and transporting medical records,
equipment and supplies to LTCFs, customer service, sales, billing, and
collections. Scheduling experts at each regional office generate patient
schedules for each LTCF and for each Provider. Pursuant to such schedules,
Providers visit a different LTCF each day.

(II) CENTRAL OFFICE MODEL.

In other markets such as Florida, Michigan and Ohio, where the Medical and
Dental Practices have a lower number and concentration of LTCFs under contract
currently, the Company's operations are more centralized. Scheduling patient
visits, customer service, billing and collections are performed out of the
Company's central office. The Company maintains local field account management
as necessary to provide quality customer service.

(III) ASSISTED TRANSPORT SYSTEM.

Under the assisted transport system, drivers who are assigned to each
Provider are responsible for ensuring that the proper equipment, supplies and
medical records are waiting for the Provider at the LTCF when the Provider
arrives. At the end of each day, the driver returns to the LTCF to retrieve the
equipment, supplies, medical records and billing forms. The driver then returns
to the regional office to deliver the medical records and billing forms for that
day's patients, and pick-up the medical records and replenish clinical supplies
for the following day's patients. This cycle repeats itself daily.

(IV) SELF TRANSPORT SYSTEM.

Providers under the self transport system are responsible for their own
transportation of equipment, and have the increased flexibility to visit more
than one facility per day. Recent advances in the miniaturization and
portability of certain equipment and innovative equipment configurations allow
easy transport of equipment by the Providers. The Company and the Medical and
Dental Practices intend to convert their operations to the self transport system
wherever feasible. The Company believes that implementation of the self
transport system will enable the Medical and Dental Practices to provide
services to residents of facilities (including many ALFs and ILFs) that have
fewer residents than the nursing homes historically served by the Company.

MANAGEMENT INFORMATION SYSTEMS. The Company has developed CustomCare, a
unique proprietary software program specifically geared towards multi-specialty
health care practice in LTCFs. CustomCare is the product of the Company's eight
years of operational experience working primarily with nursing homes. The
Company designed CustomCare to increase its efficiency in coordinating the
delivery of on-site care

51
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and to provide better customer service. The system enables the Company's
non-Provider staff in regional offices, at the Company's headquarters and at
LTCFs, to immediately access all relevant patient information. CustomCare also
effectively integrates all facets of the Company's services, including
scheduling, billing, tracking denture and eyeglass fabrication, coordinating
transportation, compiling Provider productivity and patient utilization data and
monitoring payor pre-approvals. Using CustomCare, the Company's non-Provider
staff can easily and quickly generate extensive customized clinical reports for
LTCFs and productivity and utilization data for Company management. This
management information system considerably increases the Company's ability to
respond to requests from LTCFs, physicians, responsible parties, Government
Payors and Third Party Payors. In addition to these capabilities, in early 1998
the Company began using CustomCare to generate the Quality Assurance Report.
Such report comprehensively summarizes all clinical activity at any particular
LTCF, sorted by patient, date of service, diagnosis, procedure performed, next
recall date, recommended treatment, and specialty. This report assists LTCFs in
monitoring regulatory compliance and quality of care. The Company maintains
appropriate procedures, and is provided with assurances from the Medical and
Dental Practices, with respect to the maintenance of patient privacy and
confidentiality.

SERVICE AGREEMENTS. The Medical and Dental Practices have entered into
Service Agreements with 884 LTCFs. Each of the Medical and Dental Practices,
other than HealthDrive Michigan Corporation, practices one of the four major
specialties. LTCFs enter into a separate Service Agreement with each of the
Medical and Dental Practices from which they wish to obtain services, and
generally a LTCF may choose to contract with any number and any combination of
the Medical and Dental Practices. Pursuant to the Service Agreements, each
Practice must provide all equipment and care required by the LTCF residents who
choose to use its services and bill the LTCF residents or their health insurance
for all services rendered. Payments for services are generally made by Medicare,
Medicaid and patients directly to the Medical and Dental Practices, and the
Medical and Dental Practices in most instances do not receive payments directly
from LTCFs. The fees generated by the services of the Medical and Dental
Practices range from approximately $10 to $1,000. Consistent with applicable
laws and regulations, each LTCF must provide the Medical and Dental Practices
with access to pertinent medical histories and billing information of its
residents as well as adequate space, electrical and water supplies. The Service
Agreements generally have an initial term of one year and thereafter are
terminable upon 30 days written notice. Either party may terminate at any time
if the other party fails to perform its obligations and does not correct such
failure after receiving 15 days written notice of such failure. The Service
Agreements do not obligate the LTCF to obtain the services of the Medical and
Dental Practices for any of its patients, and do not prohibit the LTCF from
obtaining similar services from other health care service providers. Although
the Service Agreements define the relationship between the Medical and Dental
Practices and LTCFs, the Company considers the working relationships of the
Company and the Medical and Dental Practices with LTCFs to be of greater
significance. During Fiscal 1997, the Medical and Dental Practices retained over
90.0% of the Service Agreements that came up for renewal.

LTCFS SERVED AND POTENTIAL MARKET

As of May 15, 1998, the Medical and Dental Practices had one or more Service
Agreements with 884 nursing homes in Massachusetts, Connecticut, Pennsylvania,
Wisconsin, Florida, Michigan, Rhode Island, New Jersey, Ohio, New Hampshire and
New York. Generally, each of the nursing homes may contract to have its
residents receive one or more of the four major specialty services provided by
the Medical and Dental Practices. On average, nursing homes contract to have
their residents receive two to three of the four specialty services provided by
the Medical and Dental Practices.

The following table indicates the number of nursing homes currently
receiving services from the Medical and Dental Practices and the estimated total
number of nursing homes in the Company's current

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markets. The Company does not have reliable information available indicating the
number of ALFs and ILFs in each of the Company's current markets. Accordingly,
such facilities are not included in this table.

<TABLE>
<CAPTION>
ESTIMATED NUMBER
OF
NUMBER OF NURSING HOMES NURSING HOMES IN SERVICE
MARKET CURRENTLY SERVED STATE PENETRATION
- ------------------------------------------------------------- ----------------------- ----------------- -------------
<S> <C> <C> <C>
Massachusetts................................................ 308 557 55.3%
Connecticut.................................................. 110 265 41.5
Pennsylvania................................................. 107 669 16.0
Wisconsin.................................................... 95 385 24.7
Florida...................................................... 69 626 11.0
Michigan..................................................... 59 421 14.0
Rhode Island................................................. 47 103 45.6
New Jersey................................................... 39 345 11.3
Ohio......................................................... 30 958 3.1
New Hampshire................................................ 19 73 26.0
New York..................................................... 1 572 *
--- ------ ---
Total........................................................ 884 4,974 17.8%
--- ------ ---
--- ------ ---
All 50 states................................................ 884 15,323 5.8%
--- ------ ---
--- ------ ---
</TABLE>

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

* Less than 1%.

Although the Company and the Medical and Dental Practices have focused to
date primarily on coordinating the provision of geriatric medical and dental
services to residents of nursing homes in certain states, they intend to further
expand into other types of LTCFs, including ALFs and ILFs, in states where they
are currently operating, and eventually into other states. The Medical and
Dental Practices currently provide medical and dental services to nine ALFs and
ILFs that are affiliated with nursing homes under current Service Agreements
with one or more of the Practices. The Company expects the number of ALFs and
ILFs in operation throughout the United States to grow considerably in the
future as a result of the growing number of elderly Americans. The Company
believes that the development of such facilities will add significantly to the
size of the potential market for the Company's Medical and Dental Practices'
services.

THE MEDICAL AND DENTAL PRACTICES

Each of the Medical and Dental Practices, other than Health Drive Michigan
Corporation, practices one of the four major specialty health care services
coordinated by the Company. Each of the Medical and Dental Practices was
established by the Company, either at the time of the Company's formation in
1989, or as the Company sought to expand the services it would be able to
promote and administer. In each case, the Company designated the individual
Provider who would incorporate the professional corporation, and loaned money to
the Practice to cover formation and initial operating costs. The Company does
not own any of the capital stock of any of the Medical and Dental Practices.

THE DENTAL PRACTICE

Alec H. Jaret, D.M.D., P.C., the Dental Practice, is a Massachusetts
professional corporation that was formed by the Company in 1989. The sole
stockholder of the Dental Practice is Alec H. Jaret, D.M.D., a director of the
Company and one of its founders. The Dental Practice is party to an Operating
Agreement with the Company and the Company, the Dental Practice and Alec H.
Jaret, D.M.D. are parties to an Option Agreement pursuant to which the Company
has the right to cause the sole stockholder of the Dental Practice to sell all
of the outstanding capital stock of the Dental Practice to a designee of the
Company at any time for a nominal purchase price.

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SERVICES PROVIDED BY THE DENTAL PRACTICE. Oral health is important to an
elderly person's quality of life. The ability to properly chew and extract
nutrients from food is often dependent on good oral health. Lack of mobility
often results in the failure to obtain appropriate preventive dentistry and
address dental problems at their inception when they are easily and
inexpensively treatable. The Dental Practice's dental program was designed to
emphasize quality and convenience. The Dental Practice delivers a fully-equipped
dental clinic to each LTCF served, alleviating the need to transport LTCF
residents off-site for routine or emergency care. The equipment includes a
dental delivery unit, x-ray unit, portable chairs, lead sheets and reline
equipment. The Dental Practice also provides equipment necessary to safeguard
patients from cross-contamination during treatment. Dentists and hygienists are
assigned to specific LTCFs, thereby providing the continuity of care for
patients associated with visiting a traditional dentist. The Dental Practice and
the Michigan Practice provide the following services on-site:

- Routine examinations and cleanings

- Examinations for oral cancer

- X-rays

- Extractions

- Fillings, crowns and bridges

- Denture relines, repair and engraving

- Coordination of denture fabrication

- Emergency care

As of May 15, 1998, the Dental Practice provided dental services to
residents of 688 LTCFs in Massachusetts, Connecticut, Pennsylvania, Wisconsin,
Florida, Rhode Island and New Jersey.

THE OPTOMETRY PRACTICE

Jeffrey Morer, O.D., P.C., the Optometry Practice, is a Massachusetts
professional corporation that was formed by the Company in 1990. The sole
stockholder of the Optometry Practice is Jeffrey L. Morer, O.D. The Optometry
Practice is party to an Operating Agreement with the Company and the Company,
the Optometry Practice and Jeffrey L. Morer, O.D., are parties to an Option
Agreement pursuant to which the Company has the right to cause the sole
stockholder of the Optometry Practice to sell all of the outstanding capital
stock of the Optometry Practice to a designee of the Company at any time for a
nominal purchase price.

SERVICES PROVIDED BY THE OPTOMETRY PRACTICE. Similar to dental problems,
ocular problems are commonly ignored by residents of LTCFs due to the
inconvenience and discomfort associated with visiting an ophthalmologist,
optometrist or optician. Cataracts, macular degeneration, diabetic retinopathy
and glaucoma are the most sight-threatening ocular disorders associated with
aging and, due to their gradual development, they can go unrecognized for some
time. The Optometry Practice strives to prevent the neglect of ocular
infirmities by providing a comprehensive eye examination clinic to residents of
LTCFs which have contracted with the Optometry Practice to receive eye care
services, including a portable microscope, an indirect opthalmoscope for viewing
the back of the eye, a trial lens set especially adapted for elderly patients, a
Tono-Pen-TM- for precision glaucoma testing and a wide selection of eyeglass
frames. With such equipment, Providers employed by the Optometry Practice have
the capacity to conduct comprehensive eye exams and determine the appropriate
prescriptions for the residents of LTCFs which

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have contracted to receive optometry services. The Optometry Practice and
HealthDrive Michigan Corporation provide the following services on-site:

- Glaucoma and overall eye health testing

- Vision testing using trial lenses especially
adapted for elderly patients

- Coordination of eyeglass fabrication, repair and
engraving

- Provision of low-vision aids for
partially-sighted individuals

- Emergency care

As of May 15, 1998, the Optometry Practice provided optometry services to
residents of 678 LTCFs in Massachusetts, Connecticut, Pennsylvania, Wisconsin,
Florida, Rhode Island, New Jersey, Ohio, New Hampshire and New York.

THE PODIATRY PRACTICE

Mary C. Manesis, D.P.M., P.C., the Podiatry Practice, is a Massachusetts
professional corporation that was formed by the Company in 1992. The sole
stockholder of the Podiatry Practice is Mary C. Manesis, D.P.M. The Podiatry
Practice is party to an Operating Agreement with the Company and the Company,
the Podiatry Practice and Mary C. Manesis, D.P.M., are parties to an Option
Agreement pursuant to which the Company has the right to cause the sole
stockholder of the Podiatry Practice to sell all of the outstanding capital
stock of the Podiatry Practice to a designee of the Company at any time for a
nominal purchase price.

SERVICES PROVIDED BY THE PODIATRY PRACTICE. Timely attention to various
conditions common to the elderly, including hammer toes, ulcers, calluses and
improperly fitted shoes, can help prevent ambulatory residents of LTCFs from
becoming wheelchair bound or bedridden. Especially for diabetic residents and
frail elderly residents, podiatric treatment is essential to prevent limb and
life-threatening consequences of untreated skin irritations. The Podiatry
Practice and HealthDrive Michigan Corporation provide the following services
on-site:

- Comprehensive evaluations

- Nail trimming, reduction, and debridement

- Treatment of corns, calluses and ulcers

- Wound care management with close follow-up

- Emergency care

As of May 15, 1998, the Podiatry Practice provided podiatry services to
residents of 325 LTCFs in Massachusetts, Connecticut, Pennsylvania, Wisconsin,
Florida, Rhode Island, New Jersey and New Hampshire.

THE AUDIOLOGY AND PRIMARY CARE PRACTICE

Steven S. Charlap, M.D., P.C., the Audiology and Primary Care Practice, is a
Massachusetts professional corporation that was formed by the Company in 1989.
The sole stockholder of the Audiology and Primary Care Practice is Steven S.
Charlap, M.D., the Chairman of the Board of Directors, Chief Executive Officer
and President of the Company and one of its founders. The Audiology and Primary
Care Practice is party to an Operating Agreement with the Company and the
Company, the Audiology and Primary Care Practice and Steven S. Charlap M.D. are
parties to an Option Agreement pursuant to which the Company has the right to
cause the sole stockholder of the Audiology and Primary Care Practice to sell

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all of the outstanding capital stock of the Audiology and Primary Care Practice
to a designee of the Company at any time for a nominal purchase price.

SERVICES PROVIDED BY THE AUDIOLOGY AND PRIMARY CARE PRACTICE. As people
age, the incidence of presbycusis, a form of hearing loss due to wear and tear
or deterioration within the ear, naturally increases, but is often overlooked or
ignored. Misunderstandings resulting from hearing loss can lead to social
isolation, may even be mistaken for dementia, and can potentially lead to
dependence on others for daily activities. An important part of the early
recognition and treatment of otologic conditions is a hearing evaluation. The
Audiology and Primary Care Practice strives to minimize the effects of hearing
loss. The Providers employed by the Audiology and Primary Care Practice utilize
the form of speech evaluation known as pure tone and speech audiometry and give
special attention to their patients' ability to hear and understand normal
conversation speech. The Audiology and Primary Care Practice provides the
following services on-site:

- Comprehensive evaluations including Audiometry and
Tympanometry

- Otoscopy

- Cerumen management

- Hearing aid fitting and dispensing

As of May 15, 1998, the Audiology and Primary Care Practice provided
audiology services to residents of 333 LTCFs in Massachusetts, Connecticut,
Pennsylvania, Wisconsin, Rhode Island, New Jersey and New Hampshire.

In December 1996, the Audiology and Primary Care Practice hired a
geriatrician who has secured five medical directorships at LTCFs under Service
Agreements with one or more of the Medical and Dental Practices, has been
contracted to serve as acting director of the nursing home program for a local
hospital system, and is currently the primary care physician for patients in
seven LTCFs.

HEALTHDRIVE MICHIGAN CORPORATION

HealthDrive Michigan Corporation is a Michigan not-for-profit taxable
corporation that was formed by the Company in 1996. The sole stockholder of
HealthDrive Michigan Corporation is Steven S. Charlap, M.D., the Chairman of the
Board of Directors, Chief Executive Officer and President of the Company and one
of its founders. HealthDrive Michigan Corporation is a party to an Operating
Agreement with the Company and the Company, HealthDrive Michigan Corporation and
Steven S. Charlap, M.D. are parties to an Option Agreement pursuant to which the
Company has the right to cause the sole stockholder of HealthDrive Michigan
Corporation to sell all of the outstanding capital stock of HealthDrive Michigan
Corporation to a designee of the Company at any time for a nominal purchase
price.

HealthDrive Michigan Corporation practices three of the four specialty
health care services coordinated by the Company. As of May 15, 1998, HealthDrive
Michigan Corporation provided dentistry, optometry, and podiatry services to
residents of 59 LTCFs in Michigan.

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HEALTH CARE SERVICE PROVIDERS AND COMPANY EMPLOYEES

As of May 15, 1998, the Medical and Dental Practices employed 95 Providers.
The following table sets forth the number of Providers by Practice and state or
region.
<TABLE>
<CAPTION>
PRACTICE(1) PROVIDERS MASSACHUSETTS(2) PENNSYLVANIA(3) CONNECTICUT(4) WISCONSIN
- ----------------------- -------------------- ------------------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Dentistry Practice Dentists............ 13 7 4 1
Dental Hygienists... 8 0 2 0
Optometry Practice Optometrists........ 9 4 4 2
Opticians........... 2 0 0 0
Podiatry Practice Podiatrists......... 8 3 4 4
Audiology/Primary Audiologists........ 6 2 1 0
Care Practice Primary Care........ 1 0 0 0
--- --- --- ---
Total.................. 47 16 15 7
--- --- --- ---
--- --- --- ---

<CAPTION>
PRACTICE(1) FLORIDA OHIO MICHIGAN TOTAL
- ----------------------- ----------- ----- ------------- -----
<S> <C> <C> <C> <C>
Dentistry Practice 1 0 1 27
0 0 0 10
Optometry Practice 2 1 2 24
0 0 0 2
Podiatry Practice 2 0 1 22
Audiology/Primary 0 0 0 9
Care Practice 0 0 0 1
--- --- --- ---
Total.................. 5 1 4 95
--- --- --- ---
--- --- --- ---
</TABLE>

- ------------------------
(1) HealthDrive Michigan Corporation employs providers specializing in three of
the Medical and Dental Practices' four major specialties -- optometry,
dentistry, and podiatry.

(2) Includes New Hampshire and Rhode Island.

(3) Includes New Jersey.

(4) Includes New York.

As of May 15, 1998, the Company employed an additional 106 employees, of
whom 5 may be characterized as executive staff, and 101 may be characterized as
non-executive administrative staff. None of the employees of the Company or the
Medical and Dental Practices are covered under a union collective bargaining
agreement. The Company considers the relationships with its employees and the
employees of the Medical and Dental Practices to be good.

NON-COMPETITION AGREEMENTS. As a condition of employment by the Company or
a Practice, all employees, including Providers, are required to enter into
Secrecy and Non-Compete Agreements (the "Non-Compete Agreements"). Generally,
the Secrecy and Non-Compete Agreements contain certain provisions with respect
to: (i) confidentiality; (ii) the assignment of inventions, discoveries, methods
or other developments made by the employee while employed by the Company or a
Practice; (iii) the ownership of customer lists and other proprietary
information; and (iv) non-competition. The covenant not to compete generally
restricts the employee's ability to compete during the term of his or her
employment and for a period of eighteen months thereafter, in the coordination
or provision of dental, medical or ancillary health care services at corporate
and institutional sites in any state in which the Medical and Dental Practices
provide services. It also restricts solicitation of employees and customers of
the Company and the Medical and Dental Practices during such period.

RELATIONSHIP BETWEEN THE COMPANY AND THE PRACTICES

OPERATING AGREEMENTS WITH THE MEDICAL AND DENTAL PRACTICES. The Company has
entered into separate long-term exclusive Operating Agreements with each of the
Medical and Dental Practices. Pursuant to the Operating Agreements, the Company
provides certain services related to the administration of the health care
services provided by the Medical and Dental Practices, licenses the use of the
service mark "HealthDrive," and extends credit to the Medical and Dental
Practices. In exchange for such services, the license of the service mark to the
Practice, and the extension of credit, the Medical and Dental Practices pay the
Company the Compensation Amount. The Compensation Amount with respect to each
Practice is equal to all revenue generated by each Practice minus the expenses
incurred by each Practice (primarily compensation and benefits, bad debt
expense, insurance costs and interest on the loans from the Company to such
Practice), adjusted to give effect to certain tax-related items. However, the
Compensation Amount may not exceed the fair market value of the services
provided by the Company, the license of the service mark, and the extension of
credit. The Medical and Dental Practices are entitled, under the terms of the
various Operating Agreements, to challenge the calculation of any Compensation
Amount within the thirty day period after the month for which it is calculated.
In the event of such a challenge, the final

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determination of the fair market value of the services is delegated to a
committee of three persons of which one is nominated by the Company, one is
nominated by the Medical and Dental Practice that is challenging the
calculation, and the final person is nominated by each of the two other persons.
The primary factors to be considered by this committee include the value of all
of the services provided by the Company to the Practice taken as a whole during
the period, the potential impact on the Practice of a discontinuation of the
services provided by the Company, and the fees charged by other similarly
situated companies to similarly situated medical or dental practices in the
Company's industry.

The Medical and Dental Practices receive the following services exclusively
from the Company under the Operating Agreements: (i) ordering and purchasing of
inventory and supplies ordinarily required by the Medical and Dental Practices;
(ii) performance of bookkeeping, accounting and payroll functions for the
Medical and Dental Practices; (iii) administration of the Medical and Dental
Practices' benefit plans; and (iv) processing of claims and collection of fees
on behalf of the Medical and Dental Practices.

The Company also extends credit to the Medical and Dental Practices to fund
working capital requirements, to the extent it deems such loans commercially
reasonable. These loans are demand loans that are payable upon thirty days
written notice, and bear interest at a rate determined by the Company not to
exceed the prime rate plus five percent. The Medical and Dental Practices are
required to use their best efforts to pay the outstanding principal balance of
the Demand Loans and accrued interest outstanding from time to time and payments
are generally made on the Demand Loans no less frequently than on a monthly
basis. Demand Loans are made to a Practice by the Company when, in the judgment
of management of the Company, funds are required by the Practice to fund
operating expenses (including the payment of Provider compensation and employee
benefits) and make necessary capital expenditures. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."

Under the Operating Agreements, the delivery of medical, dental or ancillary
health care services is supervised, directed and controlled, and all final
determinations with respect thereto are made, exclusively by the Medical and
Dental Practices and the Providers, including: (i) employment of Providers; (ii)
supervision and direction of Providers, including assignment of patients and
peer review; (iii) determination of the hospital supplying Providers when
applicable; (iv) maintenance of patient records; (v) establishment of policies
and procedures with respect to patient acceptance; and (vi) establishment of
hours of operation, scope of services provided and fees for services.

The Company expressly disclaims any control, direct or indirect, over the
delivery of medical, dental or ancillary health care services. Other obligations
of the Medical and Dental Practices under the Operating Agreements include
maintaining adequate professional liability insurance, complying with all
applicable rules and regulations and ensuring quality of care. The Medical and
Dental Practices have exclusive authority to enter into agreements relating to
the provision of medical, dental and ancillary health care services, subject to
the provision of thirty days' notice to the Company.

In order to ensure the quality of care provided by the Medical and Dental
Practices, the Operating Agreements permit the Medical and Dental Practices to
employ only fully licensed Providers and prohibit the Medical and Dental
Practices from entering into fixed term agreements with Providers. In addition,
in order to protect the economic viability of each Practice, the Operating
Agreements require each Practice to only employ Providers who have entered into
Non-Compete Agreements and to pay compensation and benefits to Providers not in
excess of the fair market value of their services. Finally, in order to ensure
compliance with state and federal regulations, the Operating Agreements provide
as follows: (i) the Medical and Dental Practices, their affiliated Providers,
and the Company have no obligation to refer patients to each other or to
affiliates of each other and none of the foregoing have an obligation to refer
participants to the LTCFs; (ii) the Medical and Dental Practices must maintain
systems and procedures necessary to prevent overutilization of services; (iii)
the Company must maintain systems and procedures necessary to prevent billing
practices that unlawfully promote maximization of revenue provided that the

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Company is not liable for billing practices by the Medical and Dental Practices
and Providers that unlawfully maximize revenues to the Medical and Dental
Practices or the Providers; (iv) the Company must provide information required
under applicable law upon request from the U.S. Department of Health and Human
Services and the U.S. Comptroller General; and (v) the Medical and Dental
Practices are prohibited from, and must use their best efforts to prevent
Providers from, rendering "designated health services" (as defined under
applicable law), or referring patients for "designated health services" to any
entity with respect to which a relationship proscribed under applicable law
exists.

The Operating Agreements have a 40-year term and may be terminated by either
party only in the event of breach by the other party or bankruptcy of the other
party. The Company has the right to terminate each Operating Agreement if the
applicable Practice at any time does not qualify as a professional corporation
or otherwise loses its authority to render medical or dental services or a
Provider's license to practice medicine or dentistry is revoked or threatened to
be revoked.

Pursuant to the Operating Agreements, the Medical and Dental Practices must
indemnify the Company for damages resulting from negligent or intentional acts
by the Medical and Dental Practices or the Providers and any breach of the
Operating Agreements by the Medical and Dental Practices.

The Operating Agreements contain provisions protecting the Company's
confidential and proprietary information, including standardized business
systems, procedures and forms provided to the Medical and Dental Practices. They
also contain non-competition and non-solicitation provisions which prevent each
Practice from competing with the Company or soliciting the employees, suppliers
or customers of the Company or the other Medical and Dental Practices. In
addition, pursuant to the Operating Agreements, each Practice must require the
Providers employed by it to execute an agreement to comply with the non-
disclosure provisions contained in the Operating Agreements and a
non-competition and non-solicitation agreement acceptable to the Company.

The Compensation Amount is determined monthly based on the financial
statements for the Medical and Dental Practices for the preceding month. The
amount payable to the Company is added to outstanding principal balance of the
Demand Loans which the Medical and Dental Practices are required to use their
best efforts to pay from time to time. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

OPTION AGREEMENTS WITH THE STOCKHOLDER OF EACH PRACTICE. The Company is
party to an Option Agreement with each of the Medical and Dental Practices and
their respective sole individual stockholders that permits the Company to cause
such stockholders to sell all of the outstanding capital stock of the Medical
and Dental Practice of which they are stockholders to a designee of the Company
for a nominal price. The options granted by the Option Agreements (the
"Options") may be exercised by the Company at any time and the Option Agreements
provide that the Company may cause the applicable Medical and Dental Practice
(and any new stockholder of such Practice to whom the capital stock is
transferred) to enter into an identical Option Agreement after an exercise of
the Option. The exercise price for each Option is equal to the fair market value
of the shares subject to the Option, not to exceed $100,000. In addition,
pursuant to each Option Agreement the holder of the capital stock of the
Practice may cause the Company to designate an individual to purchase all of the
capital stock of the Practice for an aggregate purchase price of $50.00 upon two
years advance written notice.

COMPETITION

No single entity or health care service provider competes with the Company
or the Medical and Dental Practices in all states and in all specialties.
However, Solo Providers and regional entities offering single-specialty health
care services or multiple specialty health care services compete with the
Company and the Medical and Dental Practices in specific states. SunAlliance, a
division of Sun Healthcare Group, a LTCF operator, has recently begun to provide
a number of health care services to LTCFs on-site in Connecticut and
Massachusetts. The Company believes that in connection with SunAlliance's
entrance

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into this market in 1997, 20 LTCFs operated by Sun Healthcare Group failed to
renew one or more Service Agreements that represented $437,000 of the Company's
revenue during 1996. The Company believes that SunAlliance is the primary
competitor of the Company and the Medical and Dental Practices in Massachusetts,
where 46.2% of the revenue of the Company and the Medical and Dental Practices
was generated during 1997.

GOVERNMENT REGULATION

The practice of medicine and dentistry and the delivery of ancillary health
care services are regulated at both the state and federal levels, and the
regulation of health care related companies is increasing in scope and
complexity. The Company and the Medical and Dental Practices have not received,
and the Underwriters will not be receiving in connection with the Offering, a
legal opinion from counsel or any federal or state judicial or regulatory
authority that the operations of the Company and the Medical and Dental
Practices and the relationships among the Company, the Medical and Dental
Practices, the Providers and LTCFs do not violate federal and state health care
laws and regulations. Furthermore, such laws are rapidly evolving and subject to
interpretation, and as the Company expands into new states, it will become
subject to additional laws and regulations. The ability of the Company to
operate profitably will depend in part upon the ability of the Company and the
Medical and Dental Practices to operate in compliance with applicable health
care laws and regulations at the state and federal levels.

FEDERAL REGULATION

Federal laws generally regulate reimbursement and billing practices under
Medicare and Medicaid programs. Certain provisions of the Social Security Act,
commonly referred to as the "anti-kickback provisions," prohibit, subject to
certain safe harbors, the payment, offer, solicitation or receipt of any form of
remuneration (including any kickback, bribe or rebate), direct or indirect, in
return for, or in order to induce: (i) the referral of an individual for an item
or service; (ii) the furnishing or arranging to furnish items or services; or
(iii) the purchase, lease or order or the arrangement or recommendation of a
purchase, lease or order of any item or service which is reimbursable under
Medicare or Medicaid. To comply with the Anti-kickback Amendments, the Medical
and Dental Practices do not refer patients to each other and the LTCFs receive
no remuneration from the Company or the Medical and Dental Practices.

Significant prohibitions against physician self-referrals for services
covered by Medicare were enacted, subject to certain exceptions, by Congress
under OBRA of 1993. These prohibitions, commonly known as "Stark II," amended
prior physician self-referral legislation known as "Stark I" (which applied only
to clinical laboratory referrals) by dramatically enlarging the list of services
and investment interests to which the self-referral prohibitions apply.
Effective January 1, 1995, Stark II prohibits a physician or a member of his or
her immediate family from referring Medicare or Medicaid patients to an entity
providing "designated health services" with which any such physician or an
immediate family member of any such physician has a financial relationship or
compensation arrangement or in which any such physician or an immediate family
member of any such physician has an ownership or investment interest.
"Designated health services" include, among other things, clinical laboratory
services, radiology and diagnostic services, radiation therapy services, durable
medical equipment, physical and occupational therapy services, parental and
enteral nutrients, certain equipment and supplies, prosthetics, orthotics,
outpatient prescription drugs, home health services and inpatient and outpatient
hospital services. Stark II prohibitions apply to referrals within the
physician's own group practice (unless such practice satisfies the "group
practice" definition) and referrals in connection with the physician's
employment arrangements with a practice (unless the arrangement satisfies the
employment exception). Stark II also prohibits billing the Medicare or Medicaid
programs for services rendered following prohibited referrals. Noncompliance
with, or violation of Stark II can result in exclusion from the Medicare and
Medicaid programs and civil and

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<PAGE>
criminal penalties. The Company does not believe that the Medical and Dental
Practices provide "designated health services."

Federal regulations promulgated in 1996 under OBRA of 1990 also govern
physician incentive plans associated with certain managed care organizations
that offer risk-based Medicare and Medicaid contracts. Under the federal False
Claims Act, criminal, civil and administrative penalties may be imposed on
health care providers who file or participate in the filing of false claims for
reimbursement for the delivery of health care services, including claims filed
under Medicare, Medicaid and insurance programs. Penalties that previously were
sought primarily in instances of claims filed for services not actually
provided, in whole or in part, or provided by unauthorized providers, are now
being sought in an increasingly broader range of circumstances, including
claiming reimbursement for services that do not comply with quality and other
applicable standards of care. The Medical and Dental Practices have procedures
in place to oversee quality of care, and to assure maintenance of the required
level of quality and standards of care.

The Company may also be subject to Medicare rules governing billing agents.
These rules prohibit a billing agent from receiving a fee based on a percentage
of Medicare collections and may require Medicare payments for the services of
physicians to be made directly to the physician providing the services or to a
lock box account opened in the name of the applicable practice. The Company fees
are not related to Medicare payments and Medicare and Medicaid payments are
currently deposited into a joint account in the name of the Company and the
applicable Medical and Dental Practice.

Revenues of the Medical and Dental Practices received from Government Payors
and Third Party Payors are subject to significant regulation. Some payors limit
the extent to which physicians, dentists and ancillary health care service
providers may assign their revenues from services rendered to beneficiaries.
Under these "reassignment" rules, the Company and the Medical and Dental
Practices may not be able to require physicians, dentists and ancillary health
care service providers to assign their Government Payor and Third Party Payor
revenues unless certain conditions are met, such as acceptance by physicians,
dentists or ancillary health care service providers of assignment of the payor
receivable from patients, reassignment to the Company of the sole right to
collect the receivables, and written documentation of the assignment. In
addition, governmental payment programs such as Medicare and Medicaid limit
reimbursement for services provided by ancillary service providers to those
services which were provided "incident to" a physician's or dentist's services.
Under these "incident to" rules, the Company and the Medical and Dental
Practices may not be able to receive reimbursement for services rendered by
certain ancillary health care service providers unless certain conditions are
met, such as requirements that services must be of a type commonly furnished in
a physician's or dentist's office and must be rendered under the physician's or
dentist's direct supervision and that the ancillary service providers must be
employed by the applicable Medical and Dental Practice.

Because the Medical and Dental Practices are separate legal entities, they
may be considered to be competitors subject to federal antitrust laws which
generally prohibit anti-competitive conduct involving price fixing, concerted
refusals to deal and division of market. More particularly, federal antitrust
laws have been interpreted to prohibit, among other things, joint negotiations
by competitors of price terms in absence of financial risk that is shared among
the competitors. The Company intends to comply with federal antitrust laws.

STATE REGULATION

The laws of many states, including Connecticut, Massachusetts, and
Pennsylvania, states in which the Medical and Dental Practices generated 80.5%
of their gross revenue for Fiscal 1997, prohibit business corporations, such as
the Company, from practicing medicine or dentistry and employing physicians,
dentists or ancillary health care service providers to practice medicine,
dentistry or perform ancillary health care services, respectively. Under the
Operating Agreements, the Medical and Dental Practices and Providers retain
exclusive control over the delivery of health care services. However, many
aspects of the

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Company's operations have not been subject to formal state or federal regulatory
interpretation. Furthermore, the laws and regulations governing the corporate
practice of medicine have generally been subject to limited judicial and
regulatory interpretation in most states, including Connecticut, Massachusetts,
and Pennsylvania, and are subject to change.

In addition, Massachusetts and Pennsylvania, states in which the Medical and
Dental Practices generated 61.4% of their gross revenue for Fiscal 1997, have
enacted fraud and abuse laws, and Connecticut and Massachusetts have enacted
false claims/quality of care laws. Such laws are similar to the federal fraud
and abuse and false claims/quality of care laws, and in certain cases, apply to
referrals for items or services reimbursable by any Third Party Payor, not just
Government Payors. Such laws impose substantial penalties, including civil and
criminal fines and imprisonment, on physicians, dentists and ancillary health
care service providers who fraudulently or wrongfully bill Third Party Payors
and Government Payors or pay or receive remuneration for referrals for medical
and dental services. Many states have also enacted antitrust laws analogous to
federal antitrust laws.

Massachusetts, Connecticut and Pennsylvania, states in which the Medical and
Dental Practices generated 80.5% of their gross revenue for Fiscal 1997, also
prohibit "fee-splitting" arrangements between physicians, dentists or ancillary
health care service providers and any party except other physicians, dentists or
ancillary health care service providers, respectively, within the same
professional corporation or other practice entity. The Medical and Dental
Practices' do not refer patients to each other and the Service Agreements
between the Medical and Dental Practices and the LTCFs do not provide for the
payment of remuneration to the LTCFs.

Operation Restore Trust, initiated by the U.S. Department of Health and
Human Services in 1995 and using an interdisciplinary project team of federal
and state investigators, targets Medicare and Medicaid program fraud, abuse and
misuse by nursing home providers and other providers. Activities include
financial audits by the U.S. Office of the Inspector General and other
governmental authorities, civil and criminal investigations and prosecutions,
sanctions and recovery actions, issuance of Special Fraud Alerts (most recently
relating to hospice care and nursing homes), and encouragement of voluntary
disclosure of violations. Initially affecting five states, Operation Restore
Trust now affects many more including most recently Massachusetts and other
states in which the Company operates.

In order to enhance the efforts of the Company to avoid even inadvertent
violations of antifraud and abuse, anti-kickback, and false claims laws, the
Company is in the process of adopting a formal corporate compliance program
designed to prevent violations of such laws in connection with the business of
the Company. It is expected that a full-time compliance officer will be
appointed to implement, oversee and monitor the Company's compliance program.

INSURANCE

The Company maintains general liability insurance for itself and the
Operating Agreements provide that the Medical and Dental Practices must maintain
comprehensive professional liability insurance in the amount of $1.0 million per
claim and with aggregate policy limits that are not less than $3.0 million. The
Medical and Dental Practices are responsible for all liabilities in excess of
the limits of such insurance policies. The Company also maintains key person
life insurance, under which it is the beneficiary, in the amounts of $1.5
million on Steven S. Charlap, M.D. and $500,000 on Alec H. Jaret, D.M.D.

FACILITIES

The Company's corporate headquarters are located in Newton, Massachusetts.
The lease for the Company's corporate headquarters terminates on June 30, 1998.
The Company intends to either negotiate an extension of its existing lease or
lease new space for its corporate headquarters. Although the Company believes
that there is adequate space available for its needs in close proximity to its
current headquarters and the location of its regional office in Newton,
Massachusetts, the Company believes that the terms of a

62
<PAGE>
lease of the new corporate headquarters may not be as favorable financially to
the Company. The rent for the Company's current facility is $4,412 a month and
the Company believes that a lease for new space may cost the Company up to three
times that amount in monthly rent and related costs.

The regional office located in Newton, Massachusetts services Massachusetts,
New Hampshire and Rhode Island; the regional office located in Meriden,
Connecticut services Connecticut and New York; the regional office located in
Upper Southampton Township, Pennsylvania services Pennsylvania and New Jersey;
and the regional office in Brookfield, Wisconsin services Wisconsin. A central
office located at the Company's corporate headquarters services Florida,
Michigan and Ohio.

<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE EXPIRATION DATE MONTHLY RENT
- --------------------------------------------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
Corporate Headquarters......................................... 3,651 6/30/98 $ 4,412(1)
Newton, Massachusetts.......................................... 5,300 6/30/98 6,404(1)
Meriden, Connecticut........................................... 3,200 12/5/99(2) 2,400
Upper Southampton Township, Pennsylvania....................... 1,540 9/25/99(2) 1,681(3)
Brookfield, Wisconsin.......................................... 1,600 7/31/98(2) 1,355(1)
</TABLE>

- ------------------------------
(1) Subject to increase in the event of increases in property taxes and special
assessments.
(2) Subject to Company's option to renew.
(3) Includes monthly "Base Operating Expense Charge" equal to $494.08.

LEGAL PROCEEDINGS

The Company knows of no material pending, or threatened, legal proceedings
to which it is a party or to which any of its property is the subject.

63
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, their ages and
positions as of May 15, 1998, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>

Steven S. Charlap, M.D. (1).............. 39 Chairman of the Board of Directors, Chief Executive Officer and
President (2)

Michael R. Kaplan........................ 39 Chief Financial Officer and Vice President of Finance

Alec H. Jaret, D.M.D..................... 42 Director (3)

Rory Kallfelz............................ 34 Vice President of Management Information Systems, Reimbursement
and Regulatory Affairs

Laura Sullivan........................... 32 Vice President of Operations, Mid-West/North-Atlantic Region

Robert J. Lucci.......................... 29 Vice President of Operations, Massachusetts and Connecticut

Susan S. Bailis (1)(4)................... 52 Director

Morgan Crowe (4)(5)...................... 53 Director

Robert G. Eccles, Ph.D................... 47 Director

L. Dennis Shapiro........................ 64 Director

Brian Fagan (1)(5)....................... 37 Director

James A. Pitts (1)(4)(6)................. 58 Director
</TABLE>

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

(1) Member of Compensation Committee of the Board of Directors, effective upon
the consummation of the Offering.

(2) Dr. Charlap is also the President and sole equity holder of the Audiology
and Primary Care Practice, and the President and sole stockholder of
HealthDrive Michigan Corporation.

(3) Dr. Jaret is the President and sole equity holder of the Dental Practice.

(4) Member of Audit Committee of the Board of Directors, effective upon the
consummation of the Offering.

(5) Messrs. Crowe and Fagan are citizens of the Republic of Ireland, and not
citizens of the United States.

(6) Mr. Pitts has been nominated for election to the Board of Directors
effective upon consummation of the Offering.

Certain employees of the Medical and Dental Practices significant to the
Company's business and operations, their ages and positions as of May 15, 1998
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --------- ----------------------------------------------------------------
<S> <C> <C>

Gabriel H. Brandeis, M.D................. 44 Chief Medical Officer of Steven S. Charlap, M.D., P.C.,
the Audiology and Primary Care Practice

Jeffrey L. Morer, O.D.................... 38 President and sole Director of Jeffrey Morer, O.D., P.C.,
the Optometry Practice
</TABLE>

64
<PAGE>
STEVEN S. CHARLAP, M.D. is a founder of the Company and has served as its
Chairman of the Board of Directors, Chief Executive Officer and President since
its inception in 1989. Dr. Charlap has also served as President of the Audiology
and Primary Care Practice, since its inception. Prior to founding the Company,
Dr. Charlap was Director of Corporate Development at T Cell Sciences, a
biotechnology company. Dr. Charlap holds medical licenses in Indiana,
Massachusetts, Michigan, Ohio, and Wisconsin. Dr. Charlap received a M.D. from
New York University School of Medicine, completed two years of post-graduate
training in surgery at the Beth Israel Medical Center in New York City, and
received a B.A. from Yeshiva University and a M.B.A. from Harvard Business
School.

MICHAEL R. KAPLAN has served as Chief Financial Officer and Vice President
of Finance of the Company since June 1992, and was a director of the Company
from October 1989 to May 1992. From July 1989 through June 1992, Mr. Kaplan was
a Vice President of DCC Limited, a venture and development capital investment
firm based in Dublin, Ireland. Prior to joining DCC Limited, Mr. Kaplan spent
five years in public accounting, most recently with Arthur Andersen & Co., and
is a Certified Public Accountant. Mr. Kaplan received a B.S. from University of
Rhode Island and a M.B.A. from The Wharton School.

ALEC H. JARET, D.M.D. is a founder of the Company and has served as a
director of the Company since its inception. Dr. Jaret has also served as the
President of the Dental Practice, since its inception. Dr. Jaret currently holds
licenses to practice dentistry in Florida, Massachusetts, New Jersey, New York,
Ohio, Michigan, Pennsylvania and Wisconsin. Dr. Jaret received a B.A. from
Yeshiva University and a D.M.D. from Boston University Goldman School of
Dentistry.

RORY KALLFELZ was appointed the Vice President of Management Information
Systems, Reimbursement, and Regulatory Affairs of the Company in January 1998.
Since joining the Company in 1992, Mr. Kallfelz has served the Company in
various roles related to operations, management information systems,
reimbursement and regulatory affairs. Previously, from 1985 through January
1992, Mr. Kallfelz worked for Cardio Data Services, most recently as the
Operations Manager for the New England region. Mr. Kallfelz attended Boston
University.

LAURA SULLIVAN was appointed as the Mid-West/North-Atlantic Regional Vice
President of Operations of the Company in January 1998. Since joining the
Company in November 1996, Ms. Sullivan has served the Company in various roles
related to operations. From 1982 to 1996, Ms. Sullivan worked for Apria Home
Health Care, most recently as Regional Operations Manager. Ms. Sullivan received
a B.A. from the University of Connecticut.

ROBERT J. LUCCI was appointed the Northeast Regional Vice President of
Operations of the Company in January 1998. Since joining the Company in 1992,
Mr. Lucci has served as Expansion Manager for the Pennsylvania service centers
and the Michigan, Florida and Wisconsin operations and Customer Service Manager
for the Newton service center. Mr. Lucci holds a B.S. and a M.B.A. from Bentley
College.

SUSAN S. BAILIS has served as a director of the Company since January 1993.
Since November 1997, Ms. Bailis has served as President and Chief Executive
Officer of the A.D.S. Group, a subsidiary of Genesis Health Ventures, a company
engaged in the provision of elder care services. Previously, from December 1996
through October 1997, Ms. Bailis served as Senior Vice President of The
Multicare Companies, a company also engaged in the provision of elder care
services. Ms. Bailis received a B.A. from Brandeis University and a M.S. from
Simmons College.

MORGAN CROWE has served as a director of the Company since January 1993.
Since 1979, Mr. Crowe has served as Executive Director of DCC, plc, an equity
fund publicly traded in London and Dublin. In addition, since 1996, Mr. Crowe
has served as Managing Director of DCC Healthcare Ltd. Mr. Crowe received a
certificate from Blackrock College, received a degree in mechanical engineering
from Dublin Institute of Technology and received a M.B.A. from Trinity College,
Dublin University.

65
<PAGE>
ROBERT G. ECCLES, PH.D. has served as a director of the Company since March
1990. Since July 1993, Mr. Eccles has served as President of Advisory Capital
Partners, a business consulting firm. Previously, from July 1979 through June
1993, Dr. Eccles was a professor at Harvard Business School. Dr. Eccles received
a S.B. in Mathematics and a S.B. in Humanities/Social Science from Massachusetts
Institute of Technology, and an A.M. and Ph.D. in Sociology from Harvard
University.

L. DENNIS SHAPIRO has served as a director of the Company since May 1992.
Since 1978, Mr. Shapiro has served as Chairman of Lifeline Systems Inc., a
company engaged in the business of providing personal response services to the
elderly. From 1978 to 1988, Mr. Shapiro also served as President and Chief
Executive Officer of Lifeline Systems, Inc. Mr. Shapiro received a S.B. and a
S.M. from Massachusetts Institute of Technology.

BRIAN FAGAN has served as a director of the Company since August 1996. Since
March 1998, Mr. Fagan has served as Finance Director of Fannin Limited, and
since June 1996, Mr. Fagan has served as Executive Director and Secretary of DCC
Healthcare Ltd. Previously, from March 1992 through May 1996, Mr. Fagan served
as Finance Director of Emo Oil Ltd. Mr. Fagan is a fellow of the Institute of
Chartered Accountants. Mr. Fagan received a Bachelor of Commerce degree and a
diploma in professional accounting from the National University of Ireland.

JAMES A. PITTS, a nominee for Director, has served as Vice President,
Finance and Administration, of The Boston Foundation since 1996. The Boston
Foundation is one of the largest community foundations in the United States with
over $550 million under management. From 1992 to 1995, Mr. Pitts served as
Executive Vice President and Chief Financial Officer of Clean Harbors, Inc., a
publicly-traded environmental services firm. Mr. Pitts is a Certified Public
Accountant. Mr. Pitts received a B.B.A. from Niagara University and a M.B.A.
from the University of Connecticut.

GABRIEL H. BRANDEIS, M.D. has served as the Chief Medical Officer of the
Audiology and Primary Care Practice since December 1996. From 1993 to 1996, Dr.
Brandeis was the Associate Chief of Staff for Geriatrics and Extended Care at
the Bedford Veterans Administration Medical Center, and an Assistant Professor
at Boston University School of Medicine. Dr. Brandeis is also a Certified
Nursing Home Medical Director. Dr. Brandeis received a M.D. from the Mount Sinai
School of Medicine, and completed a residency in Internal Medicine at
SUNY/Health Science Center at Syracuse, New York, and a Fellowship in Geriatric
Medicine at Harvard Medical School.

JEFFREY L. MORER, O.D., has served as the President of the Optometry
Practice since its inception. Dr. Morer holds licenses to practice optometry in
Florida, Massachusetts, Michigan, New York, Ohio, and Wisconsin. Dr. Morer
received a B.A. from Boston University and an O.D. from the New England College
of Optometry.

BOARD OF DIRECTORS AND COMMITTEES

All directors hold their positions until the annual meeting of stockholders
at which their respective successors are elected and qualified. Executive
officers of the Company are elected annually by the Board of Directors and serve
at the discretion of the Board of Directors or until their successors are duly
elected and qualified.

The business of the Company is managed under the direction of the Company's
Board of Directors. The Board of Directors is presently composed of seven
directors, with an eighth director (James A. Pitts) having been nominated for
election to the Board of Directors effective upon consummation of the Offering.
Following the Offering, the eight members of the Board of Directors will be
divided into three classes. Messrs. Fagan, Shapiro and Dr. Eccles will be in
Class I and their terms will expire at the annual meeting of stockholders to be
held in 1999. Ms. Bailis and Dr. Jaret will be in Class II and their terms will
expire at the annual meeting of stockholders to be held in 2000. Dr. Charlap,
Mr. Pitts and Mr. Crowe will be in Class III and their terms will expire at the
annual meeting of stockholders to be held in 2001.

66
<PAGE>
From and after the closing of the Offering, the Company shall maintain at
least two independent directors (directors who are not otherwise affiliated with
the Company) on the Board of Directors. Each of Ms. Susan Bailis, Dr. Robert
Eccles and Mr. L. Dennis Shapiro is currently an independent director of the
Company, and Mr. Pitts will also be an independent director of the Company.

The Board of Directors has established an Audit Committee and a Compensation
Committee, and appointed the respective members thereof, each effective upon the
closing of the Offering. The Audit Committee reviews the scope and results of
the annual audit of the Company's financial statements conducted by the
Company's independent accountants, the scope of other services provided by the
Company's independent accountants, proposed changes in the Company's financial
and accounting standards and principles, and the Company's policies and
procedures with respect to its internal accounting, auditing and financial
controls, and makes recommendations to the Board of Directors on the engagement
of the independent accountants, as well as other matters which may come before
it or as directed by the Board of Directors. The Compensation Committee
administers the Company's compensation programs, including the Stock Option
Plan, and performs such other duties as may from time to time be determined by
the Board of Directors. Dr. Charlap, Messrs. Fagan and Pitts and Ms. Bailis will
be the initial members of the Compensation Committee. The initial members of the
Audit Committee will be Messrs. Crowe and Pitts, and Ms. Bailis.

DIRECTOR COMPENSATION

Susan S. Bailis and L. Dennis Shapiro, two Directors of the Company who were
not employees or officers of the Company during its fiscal year ended December
31, 1997, received options to purchase 10,000 shares each under the Stock Option
Plan during such year. These options have a ten-year term from the date of
grant, vest in equal installments on each of the first four anniversaries of the
grant date, and are exercisable at a price of $4.00 per share, the fair market
value of a share of Common Stock on the date of grant. No other directors of the
Company received compensation for their services in such capacity during Fiscal
1997.

Under the Stock Option Plan, each member of the Board of Directors of the
Company (including any directors nominated for election by the Underwriter), who
is not an officer or employee of the Company, will receive an annual grant of
options to purchase up to 5,000 shares of Common Stock at an exercise price
equal to the fair market value of a share of Common Stock on the date of grant,
provided that no individual may receive more than five such grants and no
director who failed to attend 75.0% or more of the scheduled meetings of the
Board of Directors during the previous year will be entitled to receive these
grants. Each of these grants will become exercisable in equal installments over
four years from the date of grant, provided the director remains on the Board of
Directors of the Company, on each anniversary of the grant date during such
period. See "Management--Second Amended and Restated Stock Option Plan."

67
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by the Company to
Steven S. Charlap, M.D., the Chairman of the Board of Directors, Chief Executive
Officer and President of the Company, and each other executive officer of the
Company (including certain executive officers of one or more of the Medical and
Dental Practices) that were paid a total salary and bonus for Fiscal 1997 that
exceeded $100,000 (collectively with Dr. Charlap, the "Named Executive
Officers"), for such period:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS NUMBER OF
ANNUAL COMPENSATION ----------------- SECURITIES
--------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUS(2) COMPENSATION OPTIONS
- ------------------------------------------------------------ ---------- --------- ----------------- ---------------
<S> <C> <C> <C> <C>

Steven S. Charlap, M.D...................................... $ 221,310 $ 13,481 * --
Chairman of the Board of Directors,
Chief Executive Officer and President

Michael R. Kaplan........................................... 120,000 552 * 5,000
Chief Financial Officer and
Vice President of Finance

Gabriel H. Brandeis, M.D.................................... 147,701 -- * --
Chief Medical Officer of
the Audiology and Primary Care Practice

Alec H. Jaret, D.M.D........................................ 142,123 845 * --
President of the Dental Practice
</TABLE>

- ------------------------
* Amount insufficient to be reportable under applicable rules of the
Commission.

(1) Salary includes amounts, if any, deferred pursuant to the Company's 401(k)
Plan.

(2) Bonus amounts represent amounts that were accrued for Fiscal 1997, but in
certain cases were not paid until 1998. Does not include a bonus in the
amount of $11,006 that was paid to Dr. Charlap during Fiscal 1997 with
respect to the Company's fiscal year ended December 31, 1996.

The aggregate cash compensation received by the Named Executive Officers
during Fiscal 1997 was $646,012, of which $355,343 was received by officers of
the Company.

The following table sets forth certain information with respect to grants of
stock options under the Stock Option Plan to Michael R. Kaplan, the only one of
the Named Executive Officers granted stock options during Fiscal 1997.

OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
STOCK
PRICE
APPRECIATION
FOR
NUMBER OF PERCENT OF TOTAL OPTION
SECURITIES OPTIONS GRANTED EXERCISE TERM(2)
UNDERLYING TO EMPLOYEES IN PRICE PER EXPIRATION ---------
NAME: OPTIONS(1) FISCAL YEAR SHARE ($) DATE 5%
- ------------------------------------------------ ------------- --------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>

Michael R. Kaplan............................... 5,000 5% $ 3.00 1/1/07 $ 9,433

NAME: 10%
- ------------------------------------------------ ---------
<S> <C>
Michael R. Kaplan............................... $ 23,906
</TABLE>

- ------------------------
(1) The options reported become exercisable in four equal annual installments
beginning on the first anniversary of the grant date, and have a maximum
term of 10 years from the date of grant, subject to earlier termination in
the event of the optionee's cessation of service with the Company. The
option is exercisable during the holder's lifetime only by the holder; it is
exercisable by the holder only while the holder is an employee of the
Company and for certain limited periods of time thereafter in the event of
termination of employment.

(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed appreciation rates of five percent and ten percent in
the fair market value of shares of Common Stock from the fair market value
on the date of grant, which rates are set by the Securities and Exchange
Commission

68
<PAGE>
and compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of option exercise prices,
but do not include deductions for taxes or other expenses associated with
the exercises. Actual gains, if any, are dependent on the performance of the
Common Stock and the date on which the option is exercised. There can be no
assurance that the amounts reflected will be achieved or will otherwise be
indicative of the actual amounts received, if any.

The following table sets forth information with respect to (i) the number of
unexercised options held by Michael R. Kaplan and Gabriel H. Brandeis, M.D., the
only Named Executive Officers who held stock options as of December 31, 1997 and
(ii) the value of any such unexercised in-the-money options (options for which
the fair market value of the Common Stock exceeds the exercise price) as of
December 31, 1997.

OPTION EXERCISES IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
ACQUIRED ON REALIZED DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------- ----------------- ------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>

Michael R. Kaplan...................... -- -- 110,000/25,000(2) $ 651,000/$137,500

Gabriel H. Brandeis, M.D............... -- -- 5,000/15,000(3) 22,500/67,500
</TABLE>

- ------------------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
mid-point of the range specified on the cover of this prospectus, initial
public offering price of $7.50 per share, less the applicable exercise
price.
(2) Mr. Kaplan's options have a ten-year term from the date of grant, vest in
equal installments on each of the first four anniversaries of their
respective grant dates and are exercisable at a prices ranging from $1.38 to
$3.00, the fair market value of a share of Common Stock on the date of each
respective grant.
(3) Mr. Brandeis' options have a ten-year term from the date of grant, vest in
equal installments on each of the first four anniversaries of their
respective grant dates and are exercisable at a price of $3.00, the fair
market value of a share of Common Stock on the date of each respective
grant.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements, effective as of the
consummation of the Offering, with each of Steven S. Charlap, M.D., the Chairman
of the Board of Directors, Chief Executive Officer and President of the Company,
and Michael R. Kaplan, the Chief Financial Officer and Vice President of Finance
of the Company. The initial term of Dr. Charlap's employment agreement will
expire on July 1, 2003, but will be extended for an additional five-year term
unless either Dr. Charlap or the Company provides notice of his or its intention
not to renew the contract by July 1, 2002. Dr. Charlap's employment agreement
provides for an annual base salary of $250,000 for the first year of the
contract, with such salary to be increased by a minimum of 5.0% per year
thereafter, and a cash bonus to be determined based on objectives established by
the Compensation Committee at the beginning of the applicable year, but subject
to a minimum bonus equal to 15.0% of Dr. Charlap's annual base salary. In the
event of Dr. Charlap's termination other than by the Company for "cause" or by
Dr. Charlap's resignation without "reason" (as "cause" and "reason" are defined
in the employment agreement), Dr. Charlap will be paid a one-time severance
payment equal to a minimum of two times the sum of his then-current annual base
salary and the maximum bonus established for Dr. Charlap for such year. Under
the terms of his employment agreement, Dr. Charlap may not be terminated by the
Company other than for "cause" without the affirmative vote of two-thirds of the
members of the Company's Board of Directors.

The initial term of Michael R. Kaplan's employment agreement shall extend
through July 1, 2001, but will be extended for additional three-year terms
unless either the Company or Mr. Kaplan provides notice of its or his intention
not to renew the term of the agreement at least one year prior to the scheduled
termination. Mr. Kaplan's employment agreement provides for an initial annual
base salary of $130,000, with such salary to be increased by a minimum of 5.0%
per year thereafter, and eligibility to receive cash bonuses based on objectives
established by the Compensation Committee at the beginning of the year. In the
event of Mr. Kaplan's termination other than by the Company for "cause" or by
Mr. Kaplan's resignation without "reason" (as "cause" and "reason" are defined
in the employment agreement),

69
<PAGE>
Mr. Kaplan will be paid a one-time severance payment equal to the sum of his
then-current annual base salary and the maximum bonus established for Mr. Kaplan
for such year.

SECOND AMENDED AND RESTATED 1992 STOCK OPTION PLAN

The Stock Option Plan provides for the grant of options to purchase shares
of Common Stock to officers, employees and directors of the Company and to
certain eligible employees of the Medical and Dental Practices. Upon
consummation of the Offering, the maximum number of shares of Common Stock that
will be issued pursuant to the Stock Option Plan will be 750,000, of which
447,525 had been issued as of March 31, 1998. The Stock Option Plan was adopted
by the Board of Directors and approved by the stockholders of the Company on May
6, 1992. On December 26, 1997, the Stock Option Plan was amended and restated in
order to increase the number of shares of Common Stock available for issuance
upon the exercise of options granted thereunder to 505,916 shares. This
amendment and restatement was approved by the stockholders of the Company as of
June 25, 1997. The Stock Option Plan will be further amended upon consummation
of the Offering to increase the number of shares of Common Stock available for
issuance upon the exercise of options granted thereunder to 750,000, and to
provide for the annual formula grant of options ("Formula Grants") to purchase
5,000 shares of Common Stock to each non-employee Director of the Company (an
"Outside Director"). The Stock Option Plan will expire on May 6, 2002 and no
stock options may be granted after May 5, 2002.

Prior to the Offering, the Stock Option Plan was administered by the Board
of Directors. After the consummation of the Offering, the Stock Option Plan will
be administered by the Compensation Committee which will initially be comprised
of Dr. Charlap and Messrs. Fagan and Pitts and Ms. Bailis. The Compensation
Committee will select participants and, in a manner consistent with the terms of
the Stock Option Plan, determine the number, duration, exercise price and
vesting period of the options to be granted and the other terms and conditions
of the option agreements. The Compensation Committee has the right to modify,
revise or terminate the Stock Option Plan at any time, provided that the
approval of a majority of the shares of Common Stock outstanding shall be
required to: (i) materially increase the benefits accruing to holders of
outstanding options; (ii) change the aggregate number of shares of Common Stock
issuable under options granted pursuant to the Stock Option Plan; or (iii)
change the class of persons eligible to receive options.

The Stock Option Plan provides for grants of stock options intended to
qualify for preferential tax treatment (the "Incentive Stock Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
non-statutory stock options that do not qualify for such treatment. All
employees of the Company and certain employees of the Medical and Dental
Practices are eligible for stock options under the Plan in amounts and at prices
determined by the Compensation Committee, provided that Incentive Stock Options
may be granted only to employees of the Company, and the exercise price of each
Incentive Stock Option will not be less than the fair market value of the Common
Stock on the date of grant, or not less than 110.0% of the fair market value of
the Common Stock on the grant date if the optionee owns, directly or indirectly,
more than 10.0% of the total combined voting power of all classes of the
Company's capital stock. With respect to Incentive Stock Options, the fair
market value of the Common Stock underlying options held by any one holder which
become exercisable in one year cannot exceed $100,000. To the extent provided in
the option agreement, payment of the exercise price may be made in cash, shares
of Common Stock or by a promissory note.

Under the Stock Option Plan, the Compensation Committee may establish with
respect to each option granted such vesting provisions as it determines to be
appropriate or advisable. In general, options vest in four equal increments over
four years and have a ten-year term, provided that, if the holder owns, directly
or indirectly, more than 10.0% of the total combined voting power of all classes
of the Company's capital stock, such options have a five-year term. Other than
in the case of death or disability of the holder, or a three-month extension
contained in the option agreement, unexercised options terminate upon the
termination of a holder's relationship with the Company. Shares of Common Stock
covered by unexercised

70
<PAGE>
options which are no longer exercisable become available for issuance under new
options. Options granted under the Stock Option Plan are not transferable and
may be exercised only by the holder, his or her executors or administrators, or
any persons to whom his or her option may be transferred by will or the laws of
descent and distribution.

Commencing on February 15, 1999, each Outside Director in office on February
15 of such year will receive a Formula Grant of options to purchase 5,000 shares
of Common Stock at the fair market value of the Common Stock on the date of such
Formula Grant, provided that no individual may receive more than five such
grants, and no director who failed to attend 75.0% or more of the scheduled
meetings of the Board of Directors for the previous year will receive a Formula
Grant. Each such option shall vest in four equal annual installments on each of
the first four anniversaries of the grant date and shall expire on the tenth
anniversary of the date of grant. Options granted pursuant to Formula Grants to
Outside Directors who are not reelected or are removed from the Board of
Directors are exercisable thereafter only until the earlier of (i) the
expiration date for such options specified in the applicable option award
agreement, or (ii) ninety days after such director's term of service expires, in
the case of non-reelection, or is terminated, in the case of removal. Options
granted pursuant to Formula Grants are not intended to be Incentive Stock
Options.

The Stock Option Plan includes a provision adjusting the number of shares of
Common Stock available for grant, the number of shares of Common Stock subject
to outstanding awards thereunder and the per share exercise price thereof in the
event of any stock dividend, stock split, recapitalization or other similar
event. In the event of a merger, pursuant to which the Company is not the
surviving corporation, consolidation, liquidation or sale, holders of
outstanding options shall generally be entitled to receive, upon exercise of
outstanding options, the shares of stock or other securities to which they would
have been entitled had they exercised the option prior to such merger,
consolidation, liquidation or sale. Furthermore, the Compensation Committee may,
in its discretion, accelerate the exercisability of unexercisable options or
cancel such options upon the effective date of a merger, consolidation,
liquidation or sale.

As of May 15, 1998, subject to shareholder approval, an aggregate of 738,875
shares of Common Stock were reserved for issuance upon the exercise of stock
options that have been or may be granted under the Stock Option Plan, and
options to purchase an additional 309,250 shares were available for grant
thereunder. As of May 15, 1998, options to purchase 235,750 shares of Common
Stock granted under the Stock Option Plan were exercisable at prices ranging
from $1.00 to $3.00 per share.

CERTAIN TRANSACTIONS

The Company's Chairman of the Board, Chief Executive Officer and President,
Stephen S. Charlap, M.D., is the sole equity holder of each of the Audiology and
Primary Care Practice and HealthDrive Michigan Corporation. Alec H. Jaret,
D.M.D., a Director of the Company, is the sole equity holder of the Dental
Practice. As a result of Dr. Charlap's and Dr. Jaret's ownership of these
Medical and Dental Practices conflicts of interest in certain matters including
but not limited to matters related to the Operating Agreements between the
Company and such entities, may arise from time to time.

71
<PAGE>
The following table sets forth the aggregate fees earned by the Company for
the services provided by the Company to each of the Practices during Fiscal
1997, Fiscal 1996 and the Company's fiscal year ended December 31, 1995,
respectively.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Dental Practice............................................... $ 1,672,643 $ 1,778,885 $ 1,842,819
Optometry Practice............................................ 1,626,574 2,110,211 1,903,373
Podiatry Practice............................................. 898,730 1,252,534 1,939,358
Audiology and Primary Care Practice........................... 79,578 354,080 337,027
HealthDrive Michigan Corporation.............................. 0 1,000 266,998
</TABLE>

The Company has adopted a policy whereby all transactions between the
Company and one or more of its affiliates, or entities controlled by one or more
of its affiliates, must be approved in advance by a majority of the Company's
disinterested directors.

Pursuant to a Stock Purchase Agreement, dated as of October 3, 1989, the
Company issued and sold an aggregate of 555,000 shares of Common Stock to DCC
Limited for an aggregate consideration of $550,000. Pursuant to a Stock Purchase
Agreement, dated as of May 8, 1992, as amended (as amended, the "1992 Purchase
Agreement"), the Company sold an aggregate of 571,428 shares of its Class A
Preferred Stock to DCC Limited for an aggregate consideration of $1,000,000.

Pursuant to a Preferred Stock Purchase Agreement, dated as of April 28,
1994, as amended (the "1994 Purchase Agreement"), the Company sold an aggregate
of 181,818 shares of its Class B Preferred Stock to DCC Holdings for an
aggregate consideration of $500,000. In addition, in August 1995, DCC Limited
transferred all of its shares of Class A Preferred Stock and Common Stock, and
its rights under the 1992 Purchase Agreement, to DCC Holdings. The 1994 Purchase
Agreement grants certain registration rights to DCC Holdings with respect to its
shares of Class A Preferred Stock, Class B Preferred Stock and Common Stock.
Upon consummation of the Offering, the 571,428 shares of Class A Preferred Stock
and 181,818 shares of Class B Preferred Stock held by DCC Holdings will convert
into 571,428 shares of Common Stock and 181,818 shares of Common Stock,
respectively. See "Description of Capital Stock-- Registration Rights."

Pursuant to the 1992 Purchase Agreement the Company agreed to pay DCC
Limited an annual business development fee of $9,983, (subject to annual
increase based upon a CPI-index), and pay attendance fees to each of the members
of the Company's Boards of Directors nominated by DCC Limited and its
affiliates. In 1995, the annual business development fee was increased to
$16,638 (subject to annual increase based upon a CPI-index), and the board
attendance fees were eliminated. In 1995, the Company paid an aggregate of
$8,018 against business development fees and board attendance fees due to DCC
Holdings for the Company's fiscal years ended December 31, 1994 and December 31,
1995. The Company has not paid any amounts to DCC Holdings in respect of its
fiscal years ended December 31, 1996 and December 31, 1997. The business
development fee accrued during such periods was accrued evenly across each
fiscal year. The obligations of the Company to pay business development fees
pursuant to the 1992 Purchase Agreement (other than with respect to prior
periods) will terminate upon consummation of the Offering. The Company is
currently negotiating with DCC Holdings the amount of the business development
fee, if any, that will be due for 1998.

In connection with the original sale of the Class B Stock, DCC Limited, DCC
Holdings and the other holders of the outstanding Common Stock, including Steven
S. Charlap, M.D., the Chairman of the Board of Directors, Chief Executive
Officer and President of the Company, and Alec H. Jaret, D.M.D., a member of the
Company's Board of Directors, entered into a Stockholders Agreement, dated as of
April 28, 1994, as amended (as amended, the "Stockholders Agreement"), pursuant
to which, among other things, the holders of the outstanding Common Stock agreed
to vote their shares of Common Stock to set the number

72
<PAGE>
of members of the Company's Board of Directors at seven and elect two members
nominated by DCC Limited and DCC Holdings, and Dr. Charlap and Dr. Jaret, in
each case so long as such individual holds at least 10% of the outstanding
Common Stock (on a fully-diluted basis). The Stockholders Agreement will
terminate upon the consummation of the Offering.

Pursuant to an Amendment, Conversion and Waiver Agreement, dated as of March
30, 1998 (the "Waiver Agreement"), DCC Holdings, DCC Limited, Steven S. Charlap,
M.D., Alec H. Jaret, D.M.D. and Cheryl V. Reicin agreed, subject to the
consummation of the Offering, with respect to DCC Holdings and DCC Limited, to
(i) terminate each of the 1992 Purchase Agreement and the 1994 Purchase
Agreement, except with respect to certain registration rights granted
thereunder; (ii) waive any "Piggyback" registration rights previously granted to
DCC Holdings and DCC Limited; (iii) convert all of the Class A Preferred Stock
and Class B Preferred Stock held by DCC Holdings into Common Stock; and (iv)
waive all past instances of non-compliance by the Company, Drs. Charlap and
Jaret and Ms. Reicin with the covenants contained in the 1992 Purchase
Agreement, the 1994 Purchase Agreement and the Stockholders Agreement, and, with
respect to Drs. Charlap and Jaret and Ms. Reicin, to terminate the Stockholders
Agreement.

From time to time, the Company has loaned certain amounts to the Medical and
Dental Practices for working capital purposes. Such loans have been used by the
Medical and Dental Practices to fund their working capital requirements. The
loans are demand loans that are payable upon thirty days written notice, and
currently bear interest at a rate of ten percent per annum. The Medical and
Dental Practices are required to use their best efforts to pay the outstanding
principal balance of the demand loans and accrued interest outstanding from time
to time and payments are made on the Demand Loans no less frequently than on a
monthly basis.

The following table sets forth the outstanding balances of each of the
Demand Loans as of December 31, 1997 and March 31, 1998, and the largest
balances of such loans outstanding during Fiscal 1997:

<TABLE>
<CAPTION>
BALANCE OF DEMAND LOAN AT LARGEST BALANCE OF
--------------------------------- DEMAND LOAN DURING
DECEMBER 31, 1997 MARCH 31, 1998 FISCAL 1997
----------------- -------------- --------------------
<S> <C> <C> <C>
The Dental Practice..................................... $492,528 $770,038 $739,872
The Optometry Practice.................................. 629,000 912,706 870,312
The Podiatry Practice................................... 612,108 752,984 683,636
The Audiology and Primary Care Practice................. 209,493 252,815 252,467
HealthDrive Michigan Corporation........................ 143,521 134,041 245,293
</TABLE>

73
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 15, 1998, by: (i) each person
known to the Company to be the beneficial owner of more than 5.0% of the shares
of Common Stock; (ii) each current director of the Company; (iii) each of the
Named Executive Officers; (iv) an individual who has been elected to the Board
of Directors of the Company effective upon the consummation of the Offering; and
(v) all current directors and executive officers as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)(2)
------------------------- ---------------------
NAMES AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------------------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>

DCC International Holdings B.V. (3)................................. 1,308,246(4) 47.3% 1,308,246 29.9%

Steven S. Charlap, M.D. (5)......................................... 940,000 34.0 940,000 21.5

Alec H. Jaret, D.M.D. (6)........................................... 480,000 17.4 480,000 11.0

Michael R. Kaplan................................................... 111,250(7) 3.9 111,250(7) 2.5

Gabriel Brandeis, M.D............................................... 5,000(7) * 5,000(7) *

Morgan Crowe........................................................ 1,308,246(8) 47.3 1,308,246(8) 29.9

Brian Fagan......................................................... 1,308,246(9) 47.3 1,308,246(9) 29.9

Susan Bailis........................................................ 12,500(7) * 12,500(7) *

Robert G. Eccles, Ph.D.............................................. 12,500(7) * 12,500(7) *

L. Dennis Shapiro................................................... 12,500(10) * 12,500 10) *

James A. Pitts...................................................... -- * -- *

All current directors and executive officers as a group (13
persons).......................................................... 2,948,996(11) 99.2% 2,948,996 11) 67.6%
</TABLE>

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

* Less than 1.0%.

(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the Securities and Exchange Commission under the Exchange
Act. Shares of Common Stock issuable pursuant to options, warrants and
convertible securities, to the extent such securities are currently
exercisable or convertible within 60 days of May 15, 1998, are treated as
outstanding for computing the percentage of the person holding such
securities but are not treated as outstanding for computing the percentage
of any other person. Unless otherwise noted, each person or group identified
possesses sole voting and investment power with respect to shares, subject
to community property laws where applicable. Shares not outstanding but
deemed beneficially owned by virtue of the right of a person or group to
acquire them within 60 days are treated as outstanding only for purposes of
determining the number of and percent owned by such person or group.

(2) Assumes that the Underwriters' over-allotment option is not exercised.

(3) The address of DCC Holdings is c/o DCC plc, DCC House, Brewery Road,
Stillorgan, Blackrock Co., Dublin, Ireland.

(4) Includes 753,246 shares of Common Stock issuable upon the conversion of
571,428 outstanding shares of Series A Convertible Preferred Stock and
181,818 outstanding shares of Series B Convertible Preferred Stock into
Common Stock.

(5) The address of Dr. Charlap is 54 Clements Road, Newton, Massachusetts 02158.

(6) The address of Dr. Jaret is 182 Rawson Road, Brookline, Massachusetts 02146.

(7) Consists entirely of shares of Common Stock subject to issuance upon the
exercise of outstanding options.

(8) Consists of shares of Common Stock reported as being held by DCC Holdings.
Mr. Crowe is a director of DCC plc., of which DCC Holdings is a wholly-owned
subsidiary, and may be deemed to control the voting and disposition of such
stock and, accordingly, may be deemed to have shared voting and investment
power with respect to all of the shares held by DCC Holdings. However, Mr.
Crowe disclaims beneficial ownership of all of such shares of Common Stock.
Mr. Crowe's address is c/o DCC plc, DCC House, Brewery Road, Stillorgan,
Blackrock Co., Dublin, Ireland.

(9) Consists of shares of Common Stock reported as being held by DCC Holdings.
Mr. Fagan is a director of DCC plc., of which DCC Holdings is a wholly-owned
subsidiary, and may be deemed to control the voting and disposition of such
stock and, accordingly, may be deemed to have shared voting and investment
power with respect to all of the shares held by DCC Holdings. However, Mr.
Fagan disclaims beneficial ownership of all of such shares of Common Stock.
Mr. Fagan's address is c/o DCC plc, DCC House, Brewery Road, Stillorgan,
Blackrock Co., Dublin, Ireland.

(10) Includes 2,500 shares of Common Stock subject to issuance upon the exercise
of outstanding options.

(11) Includes 210,750 shares of Common Stock subject to issuance upon the
exercise of outstanding options.

74
<PAGE>
SELLING STOCKHOLDERS

The Selling Stockholders have granted to the Underwriters a thirty-day
option to purchase up to 240,000 additional shares of Common Stock, solely to
cover over-allotments, if any, made in connection with the sale of the Common
Stock offered hereby, on the same terms and conditions as given to the Company.
The following table sets forth the shares subject to the over-allotment option,
the number of shares owned after the consummation of the Offering and after the
over-allotment option is exercised and the percentage of shares in the Company
held after consummation of the Offering and after the over-allotment option is
exercised. Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERING
AND EXERCISE OF
SHARES OVER-ALLOTMENT
SUBJECT OPTION (1)
TO OVER- ------------------------
ALLOTMENT NUMBER OF
NAMES AND ADDRESS OF BENEFICIAL OWNER OPTION SHARES PERCENTAGE
- ----------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>

Steven S. Charlap, M.D. (2).................................................. 160,000 780,000 17.9%

Alec H. Jaret, D.M.D. (3).................................................... 80,000 400,000 9.2

All Selling Stockholders as a group.......................................... 240,000 1,180,000 27.0%
</TABLE>

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

(1) Assumes Underwriters' over-allotment option is exercised in full. Beneficial
ownership is determined in accordance with Rule 13d-3(d) promulgated by the
Securities and Exchange Commission under the Exchange Act. Shares of Common
Stock issuable pursuant to options, warrants and convertible securities, to
the extent such securities are currently exercisable or convertible within
60 days of March 15, 1998, are treated as outstanding for computing the
percentage of the person holding such securities but are not treated as
outstanding for computing the percentage of any other person. Unless
otherwise noted, each person or group identified possesses sole voting and
investment power with respect to shares, subject to community property laws
where applicable. Shares not outstanding but deemed beneficially owned by
virtue of the right of a person or group to acquire them within 60 days are
treated as outstanding only for purposes of determining the number of and
percent owned by such person or group.

(2) The address of Dr. Charlap is 54 Clements Road, Newton, Massachusetts 02158.

(3) The address of Dr. Jaret is 182 Rawson Road, Brookline, Massachusetts 02146.

75
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 7,500,000 shares of Common Stock, $.01 par value per
share, of which approximately 4,363,246 shares will be issued and outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters voted upon by shareholders, including the election of
directors. The Restated Certificate of Incorporation does not provide for
cumulative voting and, accordingly, the holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election.

The holders of the Common Stock are entitled to such dividends as may be
declared at the discretion of the Board of Directors out of funds legally
available therefore. See "Dividend Policy." Holders of Common Stock are entitled
to share ratably in the net assets of the Company upon liquidation after payment
or provision for all liabilities and any preferential liquidation rights of any
senior stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued pursuant to the Offering will be upon
payment therefore, fully paid and non-assessable.

REPRESENTATIVE'S WARRANTS

On the closing of the Offering, the Company will sell to the Representative,
individually and not as the Representative of the Underwriters, for nominal
consideration, the Representative's Warrants entitling the Representative to
purchase an aggregate of 160,000 shares of Common Stock at an initial exercise
price per share equal to 120.0% of the initial public offering price hereunder.
The Representative's Warrants will be exercisable for a period of four years
commencing on the first anniversary of the Offering and will contain certain
demand and incidental registration rights relating to the underlying Common
Stock, requiring the Company to file, at any time one year after the closing
date of the Offering upon written request by the Representative, a registration
statement with the Securities and Exchange Commission for the shares of Common
Stock represented by the Representative's Warrants, and granting "piggyback"
registration rights to the shares issuable upon exercise of the Representative's
Warrants for a period beginning one year from the closing date of the Offering
and ending seven years from such date. The Representative's Warrants cannot be
transferred, assigned or hypothecated, in whole or in part, for a period of
twelve months from the date of their issuance, except to any officer or partner
of the Representative. The Representative's Warrants will contain customary
weighted-average anti-dilution provisions providing for appropriate adjustment
of the exercise price and the number of shares issuable upon exercise thereof
upon the occurrence of certain events regarding the Common Stock as a whole.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms, effective upon consummation of the Offering. A
director may be removed only for cause and then only by the vote of a majority
of the shares entitled to vote for the election of directors. See
"Management--Board of Directors and Committees."

76
<PAGE>

The Restated Certificate of Incorporation and the By-Laws of the Company
provide that any action required or permitted to be taken by the stockholders of
the Company may be taken only at duly called annual or special meetings of the
stockholders (and not by written consent in lieu thereof), and that special
meetings may be called only by the Chairman of the Board of Directors, the
President, a majority of the Board of Directors of the Company or holders of
20.0% or more of the then outstanding shares of voting stock of the Company.
These provisions could have the effect of delaying until the next annual
stockholders meeting stockholder actions which are favored by the holders of the
outstanding voting securities of the Company, including actions to remove
directors. These provisions may also discourage another person or entity from
making a tender offer for the Common Stock, because such person or entity, even
if it acquired all or a majority of the outstanding voting securities of the
Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.

The Company has elected not to be subject to the provisions of Section 203
of the DGCL.

The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Restated Certificate of Incorporation requires the affirmative vote of the
holders of at least 75.0% of the outstanding voting stock of the Company to
amend or repeal any of the foregoing provisions, or to reduce the number of
authorized shares of Common Stock. A 75.0% vote will also be required to amend
or repeal any of the provisions of the By-Laws. The By-Laws may also be amended
or repealed by a majority vote of the Board of Directors.

The By-Laws provide that for nominations for the Board of Directors or for
other business to be properly brought by a stockholder before an annual meeting
of stockholders, the stockholder must first have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's notice
generally must be delivered not later than 90 days in advance of the anniversary
date of the release of the Company's proxy statement to stockholders in
connection with the prior year's annual meeting of stockholders. The notice must
contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting. Business transacted at a special meeting is limited to the purposes for
which the meeting is called.

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company.

The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the DGCL relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as the breach of a director's duty of
loyalty or acts or omissions that involve intentional misconduct or a knowing
violation of law. These provisions do not limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
The Company's Restated Certificate of Incorporation and By-Laws also contain
provisions indemnifying the directors and officers of the Company to the fullest
extent permitted by the DGCL. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.

REGISTRATION RIGHTS

DCC Holdings, who will hold 1,308,246 shares of Common Stock (the
"Registrable Shares") upon consummation of the Offering, has certain rights with
respect to the registration of such shares of Common Stock under the Securities
Act. In general, in the event that the Company proposes to register any shares

77
<PAGE>
of Common Stock under the Securities Act for its own account or the account of
other stockholders at any time or times, subject to certain exceptions, the
Company must, upon the written request of DCC Holdings and any other holders of
Registrable Shares, use its best efforts to cause to be registered under the
Securities Act all of the Registrable Shares requested to be registered,
provided, however, that the Company is not required to register Registrable
Securities in excess of the amount, if any, of Common Stock which the principal
underwriter of an underwritten offering shall reasonably agree to include in
such offering in addition to the shares to be sold by the Company.

Beginning 180 days after the Company's initial public offering, DCC Holdings
will also have the right, subject to certain limitations, to require the Company
to prepare and file from time to time a registration statement under the
Securities Act with respect to their Registrable Shares, provided that it may
not exercise such right within 90 days before the effectiveness of a Company
initiated registration, or in circumstances in which the Board determines that
such filing could have a material adverse effect on the Company. DCC Holdings
may not exercise these registration rights more than twice with respect to a
registration statement on a form other than Form S-3, or more than two times in
any calendar year with respect to a registration statement on Form S-3. Upon
receipt of any such request from such holders, the Company will be required to
use its best efforts to effect such registration, subject to certain conditions
and limitations. The Company will not be required to maintain such registration
statements in effect for periods in excess of nine months, in the case of
registrations on Form S-3, or 120 days, in the case of other registrations. The
rights of DCC Holdings described above may be transferred to certain affiliates
of DCC Holdings or any transferee of 49.0% or more of the Registrable Shares.
DCC Holdings has waived its rights to have any Registrable Shares included in
the Registration Statement.

The Representative's Warrants will contain certain demand and incidental
registration rights relating to the underlying Common Stock requiring the
Company to file at any time one year after the closing date of the Offering upon
written request by the Representative, a registration statement with the
Securities and Exchange Commission for the shares of Common Stock represented by
the Representative's Warrants, and granting "piggyback" registration rights to
the shares issuable upon exercise of the Representative's Warrants for a period
beginning one year from the Closing date of the Offering and ending seven years
from that date. See "Underwriting."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is expected
to be American Stock Transfer & Trust Company.

78
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
approximately 4,363,246 shares of Common Stock, assuming that the Underwriters
do not exercise their over-allotment option. After the Offering, the 1,600,000
shares of Common Stock sold in the Offering and any shares sold by the Selling
Stockholders in the event that the Underwriters' over-allotment option to
purchase up to 240,000 shares is exercised, will be freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company, which will be subject to the
limitations imposed on "affiliates" of the Company under Rule 144. The remaining
2,763,246 outstanding shares of Common Stock (2,523,246 if the Underwriters'
over-allotment option is exercised in full), are "restricted securities" within
the meaning of Rule 144 and may not be resold except pursuant to a registration
statement effective under the Securities Act or pursuant to an exemption
therefrom, including the exemption provided by Rule 144.

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, subject to certain
restrictions, sell within any three-month period a number of shares which does
not exceed the greater of (i) 1.0% of the then outstanding shares of Common
Stock; or (ii) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission as
required by Rule 144. Rule 144 also permits the sale of shares without any
volume limitation by a person who is not an affiliate of the Company and who has
satisfied a two-year holding period. The one-year holding period with respect to
2,753,246 shares of Common Stock outstanding prior to the Offering has expired.
The remaining 10,000 shares of outstanding Common Stock, which were issued to a
director of the Company in accordance with Rule 701 promulgated under the
Securities Act, will become eligible for sale subject to the other limitations
of Rule 144 ninety days after the effective date of the Registration Statement.

Shareholders holding or having the right to acquire approximately 98.8% of
the Company's outstanding Common Stock and shares of Common Stock issuable upon
the exercise of outstanding options have agreed not to offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company they currently hold,
without the prior written consent of the Representative, for a period of 180
days following the effective date of the registration statement of which this
Prospectus is a part. See "Underwriting."

On the closing of the Offering, the Company will sell to the Representative,
individually and not as Representative of the Underwriters, for nominal
consideration, the Representative's Warrants entitling the Representative to
purchase an aggregate of 160,000 shares of Common Stock at an initial exercise
price per share equal to 120.0% of the initial public offering price hereunder.
The Representative's Warrants will be exercisable for a period of four years
commencing one year after the closing date of the Offering and will contain
certain demand and incidental registration rights relating to the underlying
Common Stock. The holders of the Representative's Warrants may sell shares of
Common Stock acquired by exercise of the Representative's Warrants one year from
the date of exercise thereof without registration subject to the limitations of
Rule 144. See "Underwriting."

Prior to the Offering, there has been no market for the Common Stock. No
predictions can be made as to the effect, if any, that sales of shares of Common
Stock under Rule 144 will have on the market price of the Common Stock; sales of
Common Stock under Rule 144 in the public market could adversely affect the
market price of the Common Stock or the ability of the Company to raise money
through a public offering of its equity securities. See "Risk Factors--Potential
Adverse Impact on Market Price of Shares Eligible for Future Sale and
Registration Rights."

79
<PAGE>
UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, for whom H.C. Wainwright & Co., Inc. is acting as
Representative, and each of the Underwriters has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that, subject to the terms and conditions set
forth therein, the Underwriters are obligated to purchase all of the shares of
Common Stock being sold pursuant to the Underwriting Agreement if any of the
shares of Common Stock are purchased. Under certain circumstances, under the
Underwriting Agreement, the commitments of non-defaulting Underwriters may be
increased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
H.C. Wainwright & Co., Inc.......................................................

Total............................................................................
----------
----------
</TABLE>

The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $
per share of Common Stock on sales to certain other dealers. After the initial
public offering, but not before, the public offering price, concession and
discount may be changed.

The Company and the Selling Stockholders have granted the Underwriters an
option to purchase up to an additional 240,000 shares of Common Stock at the
initial public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. Such option, which will expire 30 days after the
date of this Prospectus, may be exercised solely to cover over-allotments, if
any, made in connection with the sale of Common Stock offered hereby. To the
extent that this option is exercised, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased
initially by that Underwriter bears to the total number of shares of Common
Stock to be purchased initially by the Underwriters. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,600,000 shares of Common Stock are being offered hereby. See
"Principal and Selling Stockholders."

The Company has agreed to pay the Representative a non-accountable expense
allowance of three percent (3.0%) of the gross proceeds of the Offering, which
will include proceeds from the over-allotment option if exercised. The
Representative's expenses in excess of the non-accountable expense allowance,
including its legal expenses, will be borne by the Representative.

At the request of the Company, the Underwriters have reserved up to 5.0% of
the shares of Common Stock offered hereby for sale to certain directors,
officers, employees and certain other persons having business relationships with
the Company, who have expressed an interest in purchasing shares of Common Stock
in the Offering. The price for such reserved shares will be the public offering
price. The number of shares available to the general public will be reduced to
the extent such persons purchase the reserved shares. Any reserved shares that
are not so purchased by such persons at the initial closing of this Offering
will be sold by the Underwriters to the general public on the same terms as the
other shares of Common Stock offered hereby.

80
<PAGE>

Representative to purchase an aggregate of 160,000 shares of Common Stock at an
initial exercise price per share equal to 120.0% of the initial public offering
price hereunder. The Representative's Warrants will be exercisable for a period
of four years commencing on the first anniversary of the Offering and will
contain certain demand and incidental registration rights relating to the
underlying Common Stock, requiring the Company to file, at any time one year
after the closing date of the Offering upon written request by the
Representative, a registration statement with the Securities and Exchange
Commission for the shares of Common Stock represented by the Representative's
Warrants, and granting "piggyback" registration rights to the shares issuable
upon exercise of the Representative's Warrants for a period beginning one year
from the closing date of the Offering and ending seven years from such date. The
Representative's Warrants cannot be transferred, assigned or hypothecated, in
whole or in part, for a period of twelve months from the date of their issuance,
except to any officer or partner of the Representative. The Representative's
Warrants will contain customary weighted-average anti-dilution provisions
providing for appropriate adjustment of the exercise price and the number of
shares issuable upon exercise thereof upon the occurrence of certain events
regarding the Common Stock as a whole.

For the life of the Representative's Warrants, their holders have, at
nominal cost, the opportunity to profit from a rise in the market price for the
Common Stock without assuming the risk of ownership, with a resulting dilution
in the interest of other security holders. As long as the Representative's
Warrants remain unexercised, the terms under which the Company could obtain
additional capital may be adversely affected. Moreover, the holders of the
Representative's Warrants might be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by the
Representative's Warrants. Additionally, if the Representative should exercise
its registration rights to effect a distribution of the underlying shares of
Common Stock, the Representative, prior to and during such distribution, would
be unable to make a market in the Common Stock. If the Representative must cease
making a market, the market and market price for the Common Stock may be
adversely affected and holders of the Common Stock may be unable to sell the
Common Stock.

The Company has, subject to certain exceptions with respect to employee and
director stock options, agreed not to, directly or indirectly, sell, offer to
sell, grant any option to purchase, or otherwise dispose of, any Common Stock or
any security convertible or exchangeable into, or exercisable for, such Common
Stock or file any registration statement with respect to any of the foregoing,
for a period of 180 days after the effective date of the Registration Statement,
without the prior written consent of the Underwriters.

Shareholders holding or having the right to acquire approximately 98.8% of
the Company's outstanding Common Stock and shares of Common Stock issuable upon
the exercise of outstanding options have agreed not to offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company they currently hold,
without the prior written consent of the Underwriters for a period of 180 days
following the date of this Prospectus.

The Company has granted H.C. Wainwright & Co., Inc. the right to act as the
Company's financial advisor on an exclusive basis until January 27, 2001 with
respect to any sale or disposition of the Company or any of its assets or the
acquisition by the Company of any securities or assets of any other business
entity. In addition, until January 27, 2001, the Company has also granted H.C.
Wainwright & Co., Inc. the right to act as a lead underwriter with respect to
any sales of equity securities by the Company. In addition, the Company has
granted to H.C. Wainwright & Co., Inc. the right to nominate one director to the
Company's Board of Directors, effective upon the closing of the Offering.

The Representative has advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered hereby to any accounts over
which they exercise discretionary authority.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock was determined by
negotiations among the Company and the Underwriters. Among the factors
considered in such negotiations, in addition to prevailing market

81
<PAGE>
conditions, were certain financial information of the Company, an assessment of
the Company's management, estimates of the business potential and earnings
prospects of the Company, the present state of the Company's development and
operations, the present state of the Company's industry in general and other
factors deemed relevant. The initial public offering price range set forth on
the cover page of this Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the Offering
at or above the initial public offering price.

In connection with the Offering, the Underwriters and certain selling group
members may engage in stabilizing, syndicate short covering transactions or
other transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. Stabilizing transactions may consist of initiating bids or
effecting purchases on the Nasdaq SmallCap Market for the purpose of preventing
or retarding a decline in the market price of the Common Stock. Bids or
purchases effected by the Underwriters or selling group members for such
purposes may be instituted at prices no higher than the initial public offering
price or the most recent independent bid, whichever is less. Such transactions
may stabilize the market price of the Common Stock at a level above that which
might otherwise prevail and, if commenced, may be discontinued at any time.

The Company has applied to include its Common Stock for quotation on the
Nasdaq SmallCap Market under the symbol HDMD.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby and certain legal
matters will be passed upon for the Company by Bingham Dana LLP, Boston,
Massachusetts. Certain legal matters will be passed upon for the Underwriters by
Goodwin, Procter & Hoar LLP, Boston, Massachusetts.

EXPERTS

The audited consolidated financial statements of the Company as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 included herein, have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in giving
said report.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement of which this Prospectus is a part under
the Securities Act, with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the content of any contract or other document are not necessarily complete, and
in each instance reference is made to a copy of such contract or other document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission, each such statement being qualified in all respects by such
reference. For further information, reference is hereby made to the Registration
Statement and to the schedules and exhibits thereto, which can be inspected and
copied at the public reference facilities of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the Commission's regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of each such

82
<PAGE>
document may be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. In addition, such material can also be
obtained from the Commission's Web site at http://www.sec.gov.
------------------------

Following this Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act, as amended, and intends to furnish to
its shareholders annual reports containing audited financial statements and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.

83
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Public Accountants................................................................... F-2

Consolidated Balance Sheets as of December 31, 1996 and 1997,
and March 31, 1998 (Unaudited and Pro Forma)............................................................. F-3

Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997,
and for the three months ended March 31, 1997 and 1998 (Unaudited)....................................... F-4

Consolidated Statements of Preferred Stock and Common Stockholders' Equity (Deficit) for the Years Ended
December 31, 1995, 1996 and 1997, and for the three months ended March 31, 1998 (Unaudited).............. F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996
and 1997, and for the three months ended March 31, 1997 and 1998 (Unaudited)............................. F-6

Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To HealthDrive Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of HealthDrive
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1996
and 1997, and the related consolidated statements of operations, preferred stock
and common stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HealthDrive
Corporation and Subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
April 8, 1998

F-2
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
NOTE 2

<CAPTION>
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................... $ 2,484 $ 15,062 $ 28,894 $ 28,894
Accounts receivable, net of allowances of approximately
$355,000, $349,000 and $574,000 in 1996, 1997 and
1998, respectively.................................... 1,435,812 1,733,099 2,253,247 2,253,247
Refundable income taxes................................. 160,000 -- -- --
Prepaid expenses and other current assets............... 216,311 221,326 205,151 205,151
------------ ------------ ----------- -----------
Total current assets................................ 1,814,607 1,969,487 2,487,292 2,487,292
------------ ------------ ----------- -----------
Property and Equipment, at cost:
Medical equipment....................................... 682,489 738,002 740,109 740,109
Furniture, fixtures and office equipment................ 639,659 643,503 648,921 648,921
Equipment under capital leases.......................... 568,595 670,236 625,955 625,955
------------ ------------ ----------- -----------
1,890,743 2,051,741 2,014,985 2,014,985
Less--Accumulated depreciation.......................... 966,823 1,308,540 1,341,567 1,341,567
------------ ------------ ----------- -----------
923,920 743,201 673,418 673,418
------------ ------------ ----------- -----------
$ 2,738,527 $ 2,712,688 $ 3,160,710 $ 3,160,710
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
<CAPTION>
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C> <C>
Current Liabilities:
Revolving line of credit loans.......................... $ 361,000 $ 325,000 $ 510,000 $ 510,000
Current portion of capital lease obligations............ 100,976 105,325 99,265 99,265
Accounts payable........................................ 142,154 125,629 111,667 111,667
Accrued expenses........................................ 690,124 684,750 811,460 811,460
Accrued income taxes.................................... 18,193 16,839 76,026 76,026
------------ ------------ ----------- -----------
Total current liabilities........................... 1,312,447 1,257,543 1,608,418 1,608,418
------------ ------------ ----------- -----------
Capital Lease Obligations, net of current portion......... 82,302 56,174 34,821 34,821
------------ ------------ ----------- -----------
Commitments (Note 8)
Preferred Stock:
Class A Convertible Preferred Stock, $.01 par value--... 1,280,000 1,340,000 1,355,000 --
Authorized, issued and outstanding--571,428 shares
stated at liquidation value, at December 31, 1996
and 1997, and March 31, 1998; none pro forma
Class B Convertible Preferred Stock, $.01 par value--... 580,000 610,000 617,500 --
Authorized, issued and outstanding--181,818 shares
stated at liquidation value, at December 31, 1996
and 1997, and March 31, 1998; none pro forma
Common Stockholders' Equity (Deficit):
Common stock, $.01 par value--
Authorized--3,259,162; issued and outstanding--
2,010,000 shares at December 31, 1996 and 1997, and
March 31, 1998; 2,763,246 shares pro forma.......... 20,100 20,100 20,100 27,632
Additional paid-in capital.............................. 208,875 118,875 96,375 1,979,571
Accumulated deficit..................................... (745,197) (690,004) (571,504) (489,732)
------------ ------------ ----------- -----------
Total common stockholders' equity (deficit)........... (516,222) (551,029) (455,029) 1,517,471
------------ ------------ ----------- -----------
$ 2,738,527 $ 2,712,688 $ 3,160,710 $ 3,160,710
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>

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

F-3
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
------------ ------------- ------------- ------------ ------------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Patient Service Revenue.............. $ 8,575,188 $ 11,005,758 $ 12,929,795 $ 3,022,954 $ 3,487,262
Direct Patient Care Costs................ 5,362,392 7,019,595 8,212,689 1,961,886 2,159,457
------------ ------------- ------------- ------------ ------------
Gross profit......................... 3,212,796 3,986,163 4,717,106 1,061,068 1,327,805
Selling, General and Administrative
Expenses............................... 3,217,730 4,879,840 4,601,990 1,137,736 1,148,859
------------ ------------- ------------- ------------ ------------
Income (loss) from operations........ (4,934) (893,677) 115,116 (76,668) 178,946
Interest Income.......................... 23,950 5,807 48 32 355
Interest Expense......................... (19,739) (31,788) (65,021) (15,175) (12,378)
Other Income............................. 892 14,461 5,050 (54) 10,764
------------ ------------- ------------- ------------ ------------
Income (loss) before provision
(benefit) for income taxes......... 169 (905,197) 55,193 (91,865) 177,687
Provision (Benefit) for Income Taxes..... -- (160,000) -- -- 59,187
------------ ------------- ------------- ------------ ------------
Net income (loss).................... 169 (745,197) 55,193 (91,865) 118,500
Accretion of Dividends on Preferred
Stock.................................. (90,000) (90,000) (90,000) (22,500) (22,500)
------------ ------------- ------------- ------------ ------------
Net income (loss) available to common
stockholders....................... $ (89,831) $ (835,197) $ (34,807) $ (114,365) $ 96,000
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
Net Income (Loss) per Common and
Potential Common Share:
Basic................................ $ (0.04) $ (0.42) $ (0.02) $ (0.06) $ 0.05
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
Diluted.............................. $ (0.04) $ (0.42) $ (0.02) $ (0.06) $ 0.03
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
Pro forma diluted.................... $ 0.02 $ 0.04
------------- ------------
------------- ------------
Weighted Average Common and Potential
Common Shares Outstanding:
Basic................................ 2,000,000 2,000,792 2,010,000 2,010,000 2,010,000
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
Diluted.............................. 2,000,000 2,000,792 2,010,000 2,010,000 2,993,725
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
Pro forma diluted.................... 2,882,773 2,993,725
------------- ------------
------------- ------------
</TABLE>

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

F-4
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
(DEFICIT)

<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------------- COMMON STOCKHOLDERS'
EQUITY (DEFICIT)
CLASS A CLASS B ------------------------
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED
STOCK STOCK COMMON STOCK
------------------------ ------------------------ ------------------------
NUMBER OF LIQUIDATION NUMBER OF LIQUIDATION NUMBER OF $.01 PAR
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994......................... 571,428 $1,160,000 181,818 $ 520,000 2,000,000 $ 20,000
Accretion of dividends on Class A and B
convertible preferred stock.................... -- 60,000 -- 30,000 -- --
Net income....................................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995......................... 571,428 1,220,000 181,818 550,000 2,000,000 20,000
Exercise of stock options........................ -- -- -- -- 10,000 100
Accretion of dividends on Class A and B
convertible preferred stock.................... -- 60,000 -- 30,000 -- --
Net loss......................................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996......................... 571,428 1,280,000 181,818 580,000 2,010,000 20,100
Accretion of dividends on Class A and B
convertible preferred stock.................... -- 60,000 -- 30,000 -- --
Net income....................................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997......................... 571,428 1,340,000 181,818 610,000 2,010,000 20,100
Accretion of dividends on Class A and B
convertible preferred stock (Unaudited)........ -- 15,000 -- 7,500 -- --
Net income (Unaudited)........................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 (Unaudited)................ 571,428 $1,355,000 181,818 $ 617,500 2,010,000 $ 20,100
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------

TOTAL
COMMON
ADDITIONAL STOCKHOLDERS'
PAID-IN ACCUMULATED EQUITY
CAPITAL DEFICIT (DEFICIT)
----------- ------------ --------------
<S> <C> <C> <C>
Balance, December 31, 1994......................... $ 373,403 $ 1,603 $ 395,006
Accretion of dividends on Class A and B
convertible preferred stock.................... (88,228) (1,772) (90,000)
Net income....................................... -- 169 169
----------- ------------ --------------
Balance, December 31, 1995......................... 285,175 -- 305,175
Exercise of stock options........................ 13,700 -- 13,800
Accretion of dividends on Class A and B
convertible preferred stock.................... (90,000) -- (90,000)
Net loss......................................... -- (745,197) (745,197)
----------- ------------ --------------
Balance, December 31, 1996......................... 208,875 (745,197) (516,222)
Accretion of dividends on Class A and B
convertible preferred stock.................... (90,000) -- (90,000)
Net income....................................... -- 55,193 55,193
----------- ------------ --------------
Balance, December 31, 1997......................... 118,875 (690,004) (551,029)
Accretion of dividends on Class A and B
convertible preferred stock (Unaudited)........ (22,500) -- (22,500)
Net income (Unaudited)........................... -- 118,500 118,500
----------- ------------ --------------
Balance, March 31, 1998 (Unaudited)................ $ 96,375 $ (571,504) $ (455,029)
----------- ------------ --------------
----------- ------------ --------------
</TABLE>

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

F-5
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
--------- --------- ---------- --------- ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)...................................... $ 169 $(745,197) $ 55,193 $ (91,865) $ 118,500
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation......................................... 230,093 280,911 341,717 85,720 75,215
Provision for bad debts.............................. 612,000 811,000 809,000 198,000 243,000
Gain on disposal of property and equipment........... -- -- -- -- (9,474)
Changes in assets and liabilities--
Accounts receivable................................ (804,730) (622,879) (1,106,287) (618,510) (763,148)
Refundable income taxes............................ -- (160,000) 160,000 160,000 --
Prepaid expenses and other current assets.......... (63,673) (9,055) (5,015) (181,407) 16,175
Accounts payable................................... 90,271 (106,054) (16,525) (79,684) (13,962)
Accrued expenses................................... (103,907) 337,073 (5,374) 38,295 126,710
Accrued income taxes............................... (480) (8,875) (1,354) 39,236 59,187
--------- --------- ---------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (40,257) (223,076) 231,355 (450,215) (147,797)
--------- --------- ---------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment.................... (279,178) (377,344) (60,198) (10,086) (7,525)
Proceeds from sale of property and equipment........... -- -- -- -- 11,567
--------- --------- ---------- --------- ---------
Net cash provided by (used in) investing
activities..................................... (279,178) (377,344) (60,198) (10,086) 4,042
--------- --------- ---------- --------- ---------
Cash Flows from Financing Activities:
Borrowings (payments) under revolving line of credit... -- 361,000 (36,000) 490,995 185,000
Exercise of stock options.............................. -- 13,800 -- -- --
Payments under capital lease obligations............... (99,387) (134,175) (122,579) (33,178) (27,413)
--------- --------- ---------- --------- ---------
Net cash provided by (used in) financing
activities..................................... (99,387) 240,625 (158,579) 457,817 157,587
--------- --------- ---------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents..... (418,822) (359,795) 12,578 (2,484) 13,832
Cash and Cash Equivalents, beginning of year............. 781,101 362,279 2,484 2,484 15,062
--------- --------- ---------- --------- ---------
Cash and Cash Equivalents, end of year................... $ 362,279 $ 2,484 $ 15,062 $ -- $ 28,894
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid for--
Interest............................................. $ 19,739 $ 31,790 $ 62,570 $ 15,175 $ 11,112
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Taxes................................................ $ 62,480 $ 6,886 $ 1,112 $ -- $ --
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Supplemental Disclosure of Noncash Investing and
Financing Transactions:
Purchase of property and equipment under capital
lease................................................ $ 75,359 $ 161,909 $ 100,800 $ 15,668 $ --
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Accretion of dividends on Class A and B Convertible
Preferred Stock...................................... $ 90,000 $ 90,000 $ 90,000 $ 22,500 $ 22,500
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>

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

F-6
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(including data applicable to unaudited periods)

(1) OPERATIONS

HealthDrive Corporation (HealthDrive) and (collectively with its
subsidiaries, the Company) is the sole sponsor of, and provider of
administrative services to, four exclusively-affiliated professional
corporations and one exclusively-affiliated taxable not-for-profit corporation:
Alec H. Jaret, D.M.D., P.C., Jeffery Morer, O.D., P.C., Mary C. Manesis, D.P.M.,
P.C., Steven S. Charlap, M.D., P.C. and HealthDrive Michigan Corporation (the
Practices). The Practices provide dentistry, optometry, podiatry, audiology and
primary care services primarily to nursing home residents at patient sites.

The Company is subject to a number of risks common to companies in similar
stages of development, including dependence on key individuals, competition from
substitute service providers, the need for adequate financing to fund future
operations and the continued successful development and marketing of its
services. (See Risk Factors included elsewhere in this Prospectus)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements reflect the application
of certain accounting policies described in this note and elsewhere in the notes
to consolidated financial statements.

(A) PRINCIPLES OF CONSOLIDATION

The Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board (FASB) recently released Issue No. 97-2: Application of FASB Statement of
Financial Accounting Standards (SFAS) No. 94, CONSOLIDATION OF ALL
MAJORITY-OWNED SUBSIDIARIES, and Accounting Principles Board (APB) Opinion No.
16, BUSINESS COMBINATIONS, to Physician Practice Management (PPM) Entities and
Certain Other Entities with Contractual Management Arrangements. The EITF
addressed the issue of whether an entity can establish controlling financial
interest, as contemplated by SFAS No. 94, in a physician practice through a
contractual management agreement without having ownership of a majority of the
outstanding voting equity instruments of the physician practice. The EITF
reached a consensus that an entity can establish a controlling financial
interest in a physician practice through contractual management arrangements
and, therefore, require the consolidation of the physician practice if certain
requirements are met. For all arrangements that existed on November 20, 1997,
the guidance provided by EITF 97-2 is effective for financial statements for
fiscal years ending after December 15, 1998. For all transactions and
modifications of existing arrangements that occur after the consensus reached in
EITF 97-2, the guidance is effective immediately.

As of November 20, 1997, the Company had exclusive operating agreements with
each of the Practices. The operating agreements all had initial terms of ten
years, and they provided significant control by HealthDrive over the Practices,
along with financial interdependence on HealthDrive by the Practices. This
controlling financial interest, along with other factors provide the historical
basis for the consolidation of HealthDrive and the Practices for financial
reporting purposes.

During May 1998, HealthDrive entered into amended operating agreements with
each of the Practices. The amended operating agreements have forty year terms,
expiring in May 2038. The Practices may only terminate the operating agreements
upon a material breach of the operating agreement by the Company or bankruptcy
of the Company. Under the operating agreements, HealthDrive provides certain
administrative and other functions. HealthDrive has exclusive authority over
decision making relating to all major ongoing operations of the underlying
Practices with the exception of the professional aspects of the medical practice
as required by state law. The delivery of medical and dental services is
supervised, directed and controlled, and all final determinations with respect
thereto are made, exclusively by the

F-7
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Practices. HealthDrive is exclusively responsible for the operation of all other
aspects of the Practices. The operating agreements also grant to the Practices a
non-exclusive license for the use of the name "HealthDrive" and provides for the
extension of credit to the Practices. As consideration for the license,
extension of credit and services provided by HealthDrive, the Practices pay a
fee equal to their net revenues, less expenses on an accrual basis as computed
for income tax purposes. As a result of the fee paid to HealthDrive, the
Practices have no taxable income. The difference between the net income of the
Practices on a GAAP basis and the fee actually payable to HealthDrive is the
result of book to tax differences which primarily consists of differences
related to the deductibility of the provision for bad debts and other accrued
expenses. Expenses of the Practices consist primarily of compensation related
costs for providers, bad debt expense, interest expense on demand loans,
workers' compensation for the providers and malpractice insurance expenses.
Under the terms of the operating agreement, the fee paid to HealthDrive from the
Practices may not exceed the fair market value of the license, extension of
credit and services provided by HealthDrive. Management does not believe that
the fair value limitation will have an impact on the fee paid to HealthDrive.

As discussed above, the operating agreements provide for the extension of
credit to the Practices to fund working capital requirements, including without
limitation amounts due to HealthDrive pursuant to the operating agreements. Such
extension of credit are demand loans which are due and payable, including the
principal balance and all accrued interest, upon 30 days written notice by
HealthDrive. The operating agreements do not limit the amount of loans to the
Practices. Interest on the unpaid principal balance is determined in good faith
by HealthDrive, but in no event shall it exceed the prime rate (8.5% at March
31, 1998), plus 5%. The loans are secured by an unperfected lien on the
Practices' accounts receivable that is subordinate to a perfected lien on the
same assets granted to a bank under the revolving line of credit (see Note 3).
The loans eliminate in consolidation.

Concurrent with the execution of the operating agreements, HealthDrive
entered into option agreements with the sole equity holder (the Nominee
Shareholder) of each of the Practices. The option agreements allow HealthDrive
at its sole discretion without cause to establish or change the Nominee
Shareholder of a Practice and HealthDrive can name anyone as a new Nominee
Shareholder. HealthDrive can at all times establish and effect a change in the
Nominee Shareholder and there is no limit to the number of times that the
Nominee Shareholder is changed. In addition, HealthDrive maintains non-compete
agreements with the Nominee Shareholder of each of the Practices. The amount to
be paid in the event of a change by HealthDrive is limited to the fair market
value of the Practice but not to exceed $100,000. Under the option agreement,
the Nominee Shareholder selected by HealthDrive would purchase all the equity of
the Practice for a purchase price equal to the fair market value of the
Practice, but in no event for an amount greater than $100,000. This will be the
same amount as the Company paid out to the outgoing Nominee Shareholder.
Therefore, there is nominal cost to the Company to effect this change. Neither
HealthDrive nor the Practices is subject to any significant adverse impact upon
a change in the Nominee Shareholder. Through the operating agreements and option
agreements, HealthDrive has a significant long-term financial interest in the
Practices, the interests in which are unilaterally salable and transferable by
HealthDrive and fluctuate based on actual performance of the operations of the
Practices. There was no consideration paid upon the execution of the amended
operating agreements and option agreements. The option agreements meet the
requirements of the nominee shareholder situation detailed in EITF 97-2;
therefore, the Practices will continue to be consolidated with HealthDrive.

F-8
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(B) REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

Revenue is recognized when services are rendered. The Company's revenue is
derived from services rendered to patients. Accounts receivable and revenue are
presented net of contractual allowances which represent the difference between
the usual and customary fees and the fees allowed by third party payors. While
the Company is not able to track revenue by payor source, for the years ended
December 31, 1995, 1996 and 1997, and for the three months ended March 31, 1998,
the Company estimates that the percentage of revenue attributable to third party
payors was approximately 68%, 72%, 72% and 69%, respectively, based on cash
receipts. The Company is, from time to time, subject to reviews and audits by
various third party payors, which can result in potential material claims
against the Company. The Company believes that it has complied with all
appropriate rules and regulations and will vigorously defend against any
determination to the contrary. If in the judgment of management the Company
believes any of these claims may result in a liability, appropriate reserves
will be recorded. To date, the Company has not recorded any material amounts for
any post-payment audits in progress. The Company does not believe that the
results of any pending or in-process audits will have a material impact on its
financial condition or results of operations.

The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Cash and cash
equivalents consist primarily of cash and money market funds at December 31,
1996 and 1997, and March 31, 1998.

(D) DEPRECIATION

Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is calculated using the straight-line method over their estimated
useful lives as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------------------------------------------------------------------------------- -----------
<S> <C>
Medical equipment........................................................................... 5 years
Furniture, fixtures and office equipment.................................................... 5 years
Equipment under capital leases.............................................................. 3 years
</TABLE>

(E) USE OF ESTIMATES

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

(F) DERIVATIVE FINANCIAL INSTRUMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, DISCLOSURE ABOUT FINANCIAL INSTRUMENTS AND FAIR VALUE
OF FINANCIAL INSTRUMENTS.

SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash and cash
equivalents, accounts receivable and a revolving line of credit. The estimated
fair value of these

F-9
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
financial instruments approximates their carrying value at December 31, 1996 and
1997, and March 31, 1998. The estimated fair values have been determined through
information obtained from market sources and management estimates. As discussed
in Note 2(a), intercompany loans to the Practices have been eliminated in
consolidation.

(G) CONCENTRATION OF CREDIT RISK

SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains its cash and cash
equivalents with established financial institutions. The Company does not
believe it has accounts receivable collection risk in excess of existing
reserves. Medicare accounted for approximately 63%, 64% and 55% of accounts
receivable at December 31, 1996 and 1997, and March 31, 1998, respectively, and
Medicaid accounted for approximately 16%, 16% and 20% of accounts receivable at
December 31, 1996 and 1997, and March 31, 1998.

The following schedule summarizes the activity of the Company's accounts
receivable reserve for the three years ended December 31, 1997, and for the
three months ended March 31, 1998:

<TABLE>
<CAPTION>
DESCRIPTION
- ----------------------------------------------------- BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
ACCOUNTS RECEIVABLE RESERVE PERIOD EXPENSES WRITE-OFFS PERIOD
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1995.................................... $ 245,000 $ 612,000 $ 595,000 $ 262,000
December 31, 1996.................................... 262,000 811,000 718,000 355,000
December 31, 1997.................................... 355,000 809,000 815,000 349,000
March 31, 1998....................................... 349,000 243,000 18,000 574,000
</TABLE>

(H) ACCRUED EXPENSES

Accrued expenses at December 31, 1996 and 1997, and March 31, 1998 consist
of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Accrued payroll and benefits....................................... $ 211,143 $ 205,069 $ 227,288
Accrued insurance.................................................. 105,565 145,203 145,203
Accrued other...................................................... 373,416 334,478 438,969
---------- ---------- ----------
$ 690,124 $ 684,750 $ 811,460
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

(I) NET INCOME (LOSS) PER SHARE

In March 1997, the Company adopted SFAS No. 128, EARNINGS PER SHARE,
effective December 15, 1997. SFAS No. 128 establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. The Company has applied the provisions
of SFAS No. 128 retroactively to all periods presented. In accordance with SEC
Staff Accounting Bulletin (SAB) No. 98, the Company has determined that there
were no nominal issuances of common stock or potential common stock in the
period prior to the Company's planned initial public offering

F-10
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(IPO). The dilutive effect of potential common shares for the three months ended
March 31, 1998, consisting of outstanding stock options and convertible
preferred stock, is determined using the treasury method and the if-converted
method, respectively, in accordance with SFAS No. 128. Diluted weighted average
shares outstanding for the years ended December 31, 1995, 1996 and 1997, and the
three months ended March 31, 1997, exclude the potential common shares from
stock options and convertible preferred stock outstanding because to do so would
have been antidilutive for the periods presented. The potential common shares
excluded for the years ended December 31, 1995, 1996 and 1997, and the three
months ended March 31, 1997, related to outstanding stock options were 71,560,
136,867, 119,527 and 108,252 shares, respectively. The potential common shares
excluded for the years ended December 31, 1995, 1996 and 1997, and the three
months ended March 31, 1997, related to convertible preferred stock were 753,246
shares for each period. Pro forma diluted net income (loss) per common and
potential common share assumes that all classes of convertible preferred stock
had been converted to common stock as of the original issuance dates. In
addition, pro forma diluted net income (loss) per common and potential common
shares has been calculated without consideration to the accretion of dividends
due to the forfeiture of such dividends upon the automatic conversion of all
classes of preferred stock to common stock.

F-11
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Calculations of basic, diluted and pro forma diluted net income (loss) per
common share and potential common share are as follows:

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income (loss)................ $ 169 $ (745,197) $ 55,193 $ (91,865) $ 118,500
Accretion of dividends on
preferred stock................ (90,000) (90,000) (90,000) (22,500) (22,500)
------------ ------------ ------------ ------------ ------------
Net income (loss) available to
common shareholders............ $ (89,831) $ (835,197) $ (34,807) $ (114,365) $ 96,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares
outstanding.................... 2,000,000 2,000,792 2,010,000 2,010,000 2,010,000
Potential common shares pursuant
to stock options............... -- -- -- -- 230,479
Potential common shares pursuant
to conversion of redeemable
convertible preferred stock.... -- -- -- -- 753,246
------------ ------------ ------------ ------------ ------------
Diluted weighted average
shares......................... 2,000,000 2,000,792 2,010,000 2,010,000 2,993,725
Pro forma potential common shares
pursuant to stock options...... 119,527 --
Pro forma conversion of
convertible preferred stock.... 753,246 --
------------ ------------
Pro forma diluted weighted
average shares outstanding..... 2,882,773 2,993,725
------------ ------------
Basic net income (loss) per
common share................... $ (0.04) $ (0.42) $ (0.02) $ (0.06) $ 0.05
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Diluted net income (loss) per
share and potential common
share.......................... $ (0.04) $ (0.42) $ (0.02) $ (0.06) $ 0.03
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma diluted net income
(loss) per common and potential
common share................... $ 0.02 $ 0.04
------------ ------------
------------ ------------
</TABLE>

(J) PRO FORMA PRESENTATION

The pro forma balance sheet as of March 31, 1998 reflects the automatic
conversion, based on a 1:1 ratio, of all outstanding shares Class A and Class B
Preferred Stock into an aggregate of 753,246 shares of common stock and the
forfeiture of $472,500 of cumulative dividends accrued, all of which will occur
upon the closing of the Company's proposed initial public offering.

F-12
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(K) UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of the Company's management, the March 31, 1997 and 1998
unaudited interim financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair presentation of results
for the respective interim period. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year or for any future period.

(L) RECENTLY ISSUED ACCOUNTING STANDARDS

In June and July 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, respectively. Both SFAS No. 130 and No. 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that the
adoption of these new accounting standards will not have a material impact on
the Company's financial statements.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 applies to all nongovernmental
entities and is effective for financial statements for fiscal years beginning
after December 15, 1998. The Company believes that the adoption of SOP 98-1 will
not have a material impact on the Company's financial statements.

(3) REVOLVING LINE OF CREDIT

In 1997, the Company amended its revolving line of credit agreement with a
bank, which is based on qualified accounts receivable, as defined, not to exceed
$1,250,000. The line of credit bears interest at prime (8.5% at March 31, 1998)
plus 1% and is collateralized by substantially all of the assets of the Company.
As of March 31, 1998 the Company had approximately $740,000 of available
borrowings. The Company's line of credit expires January 1, 1999. Under the
terms of the agreement, the Company is not allowed to pay dividends on its
common stock and the right to require dividends by the preferred stockholder
discussed in Note 6(b) is subordinate to the line of credit and is not allowed
until all amounts outstanding under the line of credit have been repaid.

In addition, the Company is subject to certain financial covenants,
including total liabilities to tangible net worth, interest coverage ratio, no
net losses and minimum current ratio. For the three-month period ended March 31,
1997, the Company failed to comply with the total liability to tangible net
worth ratio, interest coverage ratio and no net loss covenant. For the
three-month period ended June 30, 1997, the Company failed to comply with the
total liability to tangible net worth ratio. In September 1997, the Company
received a waiver of its non-compliance with such covenants for each respective
period. Beginning with the three-month period ended September 30, 1997, the
Company has complied with its financial covenants on a quarterly reporting
basis. The Company was in compliance with all covenants as of December 31, 1997
and March 31, 1998.

(4) INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, the objective of which is to recognize the amount
of current and deferred income taxes at the date of the financial statements as
a result of all differences in the tax basis and financial statement carrying
amount of assets and liabilities as measured by enacted tax laws. The Practices
are separate taxable entities.

F-13
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

The approximate income tax effect of each type of temporary difference and
carryforward, the balance of which is included in prepaid expenses and other
current assets, is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.............................................. $ 68,000 $ 53,000
Accounts receivable reserve................................................... 149,000 146,000
Non-deductible accruals....................................................... 99,000 97,000
Depreciation.................................................................. (39,000) (39,000)
Other temporary differences................................................... 11,000 7,000
----------- -----------
288,000 264,000
Valuation allowance........................................................... (263,000) (239,000)
----------- -----------
Net deferred tax asset........................................................ $ 25,000 $ 25,000
----------- -----------
----------- -----------
</TABLE>

As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $132,000. These net
operating loss carryforwards expire in 2011 and are subject to review and
possible adjustment by the Internal Revenue Service. Due to the uncertainty
surrounding the ultimate realization of the majority of the net deferred tax
asset, the Company has provided a valuation allowance against all but $25,000 of
this amount.

U.S. tax rules impose limitations on the use of net operating losses
following certain changes in ownership. If such a change were to occur, the
limitation could reduce the amount of these benefits that would be available to
offset future taxable income each year, starting with the year of ownership
change.

A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory rate........................ 34.0% (34.0)% 34.0%

Increase (decrease)in tax resulting from--
Other permanent differences, consisting primarily of state income taxes and
meals and entertainment..................................................... -- (.7) 8.6
Change in valuation allowance................................................. -- 18.7 (16.3)
Utilization of net operating losses........................................... -- -- (27.2)
Other......................................................................... (34.0) (1.7) 0.9
--------- --------- ---------
Provision (benefit) for income taxes............................................ --% (17.7)% --%
--------- --------- ---------
--------- --------- ---------
</TABLE>

The Company had no taxable income in 1995. The Company recorded a benefit
for income taxes of $160,000 in 1996 to the extent of the tax refund generated
by the carryback of the 1996 net operating losses against prior profitable
years. There was no provision for income taxes in 1997 due to the utilization of
a portion of the remaining net operating losses generated in 1996 that had not
been previously benefited.

F-14
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

The benefit for income taxes in the accompanying statements of operations
consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
--------- ----------- ---------
<S> <C> <C> <C>
Current--
Federal............................................................ $ -- $ (160,000) $ --
State.............................................................. -- -- --
--------- ----------- ---------
Total provision (benefit)........................................ $ -- $ (160,000) $ --
--------- ----------- ---------
--------- ----------- ---------
</TABLE>

(5) PREFERRED STOCK

On May 8, 1992, HealthDrive authorized and issued 571,428 shares of $.01 par
value Class A Convertible Preferred Stock (Class A Preferred Stock), and on
April 28, 1994, HealthDrive authorized and issued 181,818 shares of $.01 par
value Class B Convertible Preferred Stock (Class B Preferred Stock or
collectively, the Preferred Stock) to the preferred stockholder (the Preferred
Stockholder). The rights, privileges and preferences of the Preferred Stock are
as follows:

VOTING RIGHTS

The Preferred Stockholder is entitled to vote on all matters with the common
stockholders as if they were one class of stock. The Preferred Stockholder is
entitled to the number of votes equal to the number of shares of common stock
into which each share of the Preferred Stock is then convertible.

LIQUIDATION PREFERENCE

The Preferred Stockholder has preference in the event of a liquidation, sale
or dissolution of HealthDrive in the amount of the original purchase price, plus
any accrued but unpaid dividends (the Liquidation Value). Class A Preferred
Stock has preference in liquidation over Class B Preferred Stock.

CONVERSION

The Preferred Stock is convertible into common stock at the rate of one
share of common stock for each share of Preferred Stock, adjusted for certain
dilutive events, as defined. Conversion is at the option of the Preferred
Stockholder but becomes automatic upon the closing of an initial public offering
at a per share price of at least $7.50 and resulting in aggregate proceeds to
HealthDrive of at least $5,000,000 (a Qualified Public Offering). HealthDrive
has reserved the number of common shares issuable upon the conversion of the
Preferred Stock.

REDEMPTION

As of December 31, 1997, the Preferred Stockholder had the right to require
HealthDrive to redeem the Preferred Stock at the Liquidation Value with cash out
of HealthDrive's funds legally available therefor. As of February 5, 1998, the
Preferred Stockholder had not exercised its right to cause the redemption of the
Preferred Stock and, in accordance with the Certificate of Incorporation of
HealthDrive, the right to cause the redemption of the Preferred Stock expired.

F-15
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

DIVIDENDS

Dividends are cumulative and accrue on outstanding shares of the Preferred
Stock at an annual rate of 6%. Dividends are payable on the Preferred Stock if
and when declared by the Board of Directors. Dividends are forfeited upon
conversion of the Preferred Stock into common stock.

(6) COMMON STOCKHOLDERS' EQUITY

(A) AUTHORIZED CAPITAL STOCK

As of December 31, 1997, the Company's authorized capital stock consisted of
3,259,162 shares of common stock, $.01 par value per share, 571,428 shares of
Class A Preferred Stock, $.01 par value per share, and 181,818 shares of Class B
Preferred Stock, $.01 par value per share.

(B) RIGHT TO REQUIRE DIVIDENDS

Beginning in 1993, if the Company's revenue increases by less than 25% over
revenue in the preceding year, the Preferred Stockholder may require HealthDrive
to pay cash dividends totaling 30% of the net income of the Company for that
year to all common and preferred stockholders on a pro rata basis. The right of
the Preferred Stockholder to require such dividend payments will terminate if
the Preferred Stockholder ceases to hold at least 10% of the combined shares of
HealthDrive common and preferred stock outstanding or upon the completion of a
Qualified Public Offering of HealthDrive's common stock. Except for the required
dividends, as discussed above, all dividends payable to common stockholders are
subordinate to dividends payable to the Preferred Stockholder. The Preferred
Stockholder also has certain registration rights.

Of HealthDrive's total common stock outstanding, 1,996,200 shares were
subject to a stockholders agreement (the Stockholders Agreement). The agreement
provides the holders of 1,420,000 shares of HealthDrive's common stock (the
Principal Stockholders) and then the remaining common and preferred stockholders
with the right of first refusal to purchase, on a pro rata basis, any of the
Principal Stockholders' shares. In addition, the agreement provides all common
and preferred stockholders with the right of first refusal to purchase, on a pro
rata basis, any shares of common stock other than those shares held by the
Principal Stockholders. In the event that the common and preferred stockholders
elect to purchase less than the total number of shares offered for sale, the
right to purchase such shares will terminate.

(D) RESERVED COMMON STOCK

As of March 31, 1998, 1,248,037 shares of common stock were reserved for the
following:

<TABLE>
<S> <C>
Conversion of Class A Preferred Stock.................................... 571,428
Conversion of Class B Preferred Stock.................................... 181,818
Exercise of Stock Options................................................ 494,791
---------
1,248,037
---------
---------
</TABLE>

F-16
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(7) STOCK OPTION PLAN

In 1992, HealthDrive adopted the 1992 Stock Option Plan (the 1992 Plan). The
1992 Plan, as amended, is administered by the Board of Directors and authorizes
HealthDrive to issue options to purchase up to 505,916 shares of common stock.
Under the terms of the 1992 Plan, HealthDrive may grant incentive stock options
to employees at a price not less than the fair market value at the date of
grant, as determined by the Board of Directors. In addition, HealthDrive may
grant nonqualified options to directors and employees of the Company at a price
determined by the Board of Directors. The options generally vest over four years
and expire no more than 10 years from the date of grant. The 1992 Plan expires
in May 2002.

The following schedule summarizes the activity under the Company's stock
option plan for the three years ended December 31, 1997 and for the three months
ended March 31, 1998:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- -------------- ---------------
<S> <C> <C> <C>
Outstanding, December 31, 1994............................... 241,750 $1.00--$1.75 $ 1.43
Granted...................................................... 55,250 1.75-- 2.00 1.81
Canceled..................................................... (9,500) 1.00-- 2.00 1.33
--------- -------------- -----
Outstanding, December 31, 1995............................... 287,500 1.00-- 2.00 1.51
Granted...................................................... 70,400 2.00-- 3.00 2.91
Exercised.................................................... (10,000) 1.38 1.38
Canceled..................................................... (48,900) 1.38-- 2.00 1.84
--------- -------------- -----
Outstanding, December 31, 1996............................... 299,000 1.00-- 3.00 1.79
Granted...................................................... 131,600 3.00-- 4.00 3.15
Canceled..................................................... (25,800) 2.00-- 3.00 2.86
--------- -------------- -----
Outstanding, December 31, 1997............................... 404,800 1.00-- 4.00 2.16
Grants....................................................... 57,600 4.00 4.00
Canceled..................................................... (26,000) 1.75-- 4.00 2.78
--------- -------------- -----
Outstanding, March 31, 1998.................................. 436,400 $1.00--$4.00 $ 2.37
--------- -------------- -----
--------- -------------- -----
Exercisable, March 31, 1998.................................. 232,100 $1.00--$3.00 $ 1.60
--------- -------------- -----
--------- -------------- -----
</TABLE>

In October 1995, the FASB issued SFAS No. 123, which requires the
measurement of the fair value of stock-based compensation to be included in the
consolidated statement of operations or disclosed in the notes to the
consolidated financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under APB Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123 for
stock-based compensation awarded for the years ended December 31, 1995, 1996 and
1997, and the three months ended March 31, 1998 using the Black-Scholes option
pricing model prescribed by SFAS No. 123. In accordance with the consensus
reached in EITF 97-2, the Company accounts for options issued to employees of
the Practices as if they were employees of

F-17
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
HealthDrive. Accordingly, options issued to employees of the Practices are
accounted for under APB Opinion No. 25. The underlying assumptions used are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C> <C>
MARCH 31,
1995 1996 1997 1998
---------- ---------- ---------- ----------
Risk-free interest rate................................ 7.27% 6.05% 6.28% 5.37%
Expected dividend yield................................ -- -- -- --
Expected lives......................................... 5 years 5 years 5 years 5 years
Expected volatility.................................... 60% 60% 60% 60%
Weighted average fair value of grants.................. $1.22 $1.67 $1.69 $ 2.26
Weighted average remaining contractual life of options
outstanding.......................................... 7.4 years 7.0 years 6.9 years 6.9 years
</TABLE>

Had compensation cost for the Company's stock option plan been determined
consistent with SFAS No. 123, pro forma net loss and net loss per share would
have been:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- MARCH 31,
1995 1996 1997 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss)--
As reported.......................................... $ 169 $ (745,197) $ 55,193 $ 118,500
Accretion of dividends on preferred stock............ (90,000) (90,000) (90,000) (22,500)
---------- ----------- ---------- ----------
Available for common stockholders.................... (89,831) (835,197) (34,807) 96,000
Pro forma............................................ (102,343) (856,269) (113,327) 68,538
Net income (loss) per share, available to common
stockholders--
Basic................................................ $ (0.04) $ (0.42) $ (0.02) $ 0.05
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Diluted.............................................. $ (0.04) $ (0.42) $ (0.02) $ 0.03
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Pro forma diluted.................................... $ 0.02 $ 0.04
---------- ----------
---------- ----------
Net loss per share, pro forma--
Basic................................................ $ (0.05) $ (0.43) $ (0.06) $ 0.03
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Diluted.............................................. $ (0.05) $ (0.43) $ (0.06) $ 0.02
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Pro forma diluted.................................... $ (0.01) $ 0.03
---------- ----------
---------- ----------
</TABLE>

Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
may not be representative of that to be expected in future years.

(8) COMMITMENTS

HealthDrive leases its facilities and certain equipment under operating and
capital leases that expire through 2000. Aggregate rental expense under
operating leases was approximately $145,000, $194,000, $243,000, $52,000 and
$69,000 for the years ended December 31, 1995, 1996 and 1997, and the three
months ended March 31, 1997 and 1998, respectively.

F-18
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(8) COMMITMENTS (CONTINUED)
The future minimum commitments under these leases are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
Year ending December 31,
1998, nine months....................................................................... $ 105,000 $ 86,394
1999.................................................................................... 54,000 57,807
2000.................................................................................... -- 2,761
---------- ----------
Total............................................................................... $ 159,000 146,962
----------
----------
Less--Amount representing interest........................................................ 12,876
----------
Present value of minimum lease payments................................................... 134,086
Less--Current portion of capital lease obligations........................................ 99,265
----------
$ 34,821
----------
----------
</TABLE>

(9) HEALTHDRIVE 401(K) PLAN

The Company has a qualified 401(k) retirement savings plan (the 401(k)
Plan). Under the 401(k) Plan, participants may elect to defer a portion of their
compensation, subject to certain limitations. In addition, the Company, at the
discretion of the Board of Directors, may make contributions into the 401(k)
Plan. During 1995, 1996, 1997 and 1998, the Company made no contributions to the
401(k) Plan.

(10) OTHER EVENTS

(A) AMENDMENT, CONVERSION AND WAIVER AGREEMENT

On March 30, 1998, the Preferred Stockholder executed an Amendment,
Conversion and Waiver Agreement (the Agreement) with the Company in which the
Preferred Stockholder agreed to waive virtually all of the rights, privileges
and preferences of the preferred stock (except for certain registration rights),
to convert all shares of the preferred stock into common stock and to waive its
right to require dividends as described in Note 6 (b), effective with the
closing of the proposed initial public offering.

(B) RESTATED CERTIFICATE OF INCORPORATION

Effective upon the close of the Company's planned initial public offering
and after giving effect to the Company's Restated Certificate of Incorporation
immediately prior to the closing of the offering, the authorized capital stock
will consist of 7,500,000 shares of common stock, $0.01 par value per share.

F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 5
Use of Proceeds................................. 22
Dividend Policy................................. 23
Capitalization.................................. 24
Dilution........................................ 25
Selected Consolidated Financial Data............ 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 27
Business........................................ 43
Management...................................... 64
Certain Transactions............................ 71
Principal Stockholders.......................... 74
Selling Stockholders............................ 75
Description of Capital Stock.................... 76
Shares Eligible for Future Sale................. 79
Underwriting.................................... 80
Legal Matters................................... 82
Experts......................................... 82
Additional Information.......................... 82
Index to Financial Statements................... F-1
</TABLE>

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

UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

1,600,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

H.C. WAINWRIGHT & CO., INC.

, 1998

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount and
commissions, are estimated as follows:

<TABLE>
<S> <C>
SEC Registration Fee................................................ $
NASD Fee............................................................
Nasdaq SmallCap Market Listing Fee..................................
Printing and Engraving Expenses.....................................
Legal Fees and Expenses.............................................
Accounting Fees and Expenses........................................
Expenses of Qualification Under State Securities Laws, Including
Attorneys' Fees...................................................
Transfer Agent and Registrar's Fees.................................
Miscellaneous Costs.................................................
---------
Total......................................................... $
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.

The Amended and Restated Certificate of Incorporation and the By-Laws of the
Company, copies of which are filed herein as Exhibits 3.1 and 3.2, provide for
advancement of expenses and indemnification of officers and directors of the
Registrant and certain other persons against liabilities and expenses incurred
by any of them in certain stated proceedings and under certain stated conditions
to the fullest extent permissible under Delaware law.

Section 6 of the Underwriting Agreement between the Registrant and the
Underwriters, a copy of which is filed herewith as Exhibit 1.1, will provide for
indemnification by the Registrant of the Underwriters and each person, if any,
who controls any Underwriter, against certain liabilities and expenses, as
stated therein, which may include liabilities under the Securities Act of 1933.
The Underwriting Agreement also provides that the Underwriters shall similarly
indemnify the Registrant, its directors, officers and controlling persons, as
set forth therein.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Described below is information regarding all unregistered securities sold by
the Company within the three year period ending on the date of this Registration
Statement.

Between April 1, 1995 and April 3, 1998, the Company issued options to
purchase a total of 329,950 shares of its common stock, $.01 par value per share
("Common Stock") pursuant to the Company's 1992 Stock Option Plan. Each of these
option grants was made pursuant to a written Stock Option Agreement between the
Company and the recipient of the stock option. Each of these grants was deemed
by the Company to be a transaction exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to,
among other available exemptions, the exemption provided by Rule 701 promulgated
thereunder.

On December 3, 1996, the Company issued 10,000 shares of Common Stock to L.
Dennis Shapiro, a Director of the Company, pursuant to the exercise of a stock
option granted to Mr. Shapiro under the

II-1
<PAGE>
Company's 1992 Stock Option Plan. Mr. Shapiro paid the Company an aggregate
exercise price of $13,800. This sale of Common Stock upon the exercise of a
stock option was deemed by the Company to be a transaction exempt from the
registration requirements of the Securities Act pursuant to, among other
available exemptions, the exemption provided by Rule 701 thereunder.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant**
3.2 Form of Amended and Restated By-Laws of the Registrant**
4.1 Reference is made to exhibits 3.1 and 3.2
4.2 Specimen Certificate of Common Stock*
5.1 Form of Opinion of Bingham Dana LLP, with respect to the legality of the shares being registered*
10.1 Second Amended and Restated 1992 Stock Option Plan of the Registrant**
10.2.1 Amended and Restated Operating Agreement, dated as of May 26, 1998, between the Registrant and Steven S.
Charlap, M.D., P.C.**
10.2.2 Amended and Restated Operating Agreement, dated as of May 26, 1998, between the Registrant and Alec H.
Jaret, D.M.D., P.C.**
10.2.3 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Jeffrey
Morer, O.D., P.C.
10.2.4 Amended and Restated Operating Agreement, dated as of May 26, 1998, between the Registrant and Mary C.
Manesis, D.P.M., P.C.**
10.2.5 Operating Agreement, dated as of May 26, 1998, between the Registrant and HealthDrive Michigan
Corporation**
10.2.6 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Steven
S. Charlap, M.D., P.C.
10.2.7 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Alec H.
Jaret, D.M.D., P.C.
10.2.8 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Mary C.
Manesis, D.P.M., P.C.
10.2.9 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and
HealthDrive Michigan Corporation.
10.3 Employment Agreement, dated as of May 27, 1998, between the Registrant and Steven S. Charlap, M.D.*
10.4 Employment Agreement, dated as of May 27, 1998, between the Registrant and Michael R. Kaplan*
10.5 Employment and Non-Competition Agreement between HealthDrive Michigan Corporation and Philip R.
Shriner**
10.6 Letter Agreement between the Registrant and Michael R. Kaplan relating to stock options*
10.7 Amended and Restated Stockholders Agreement, dated as of April 28, 1994, as amended, among the
Registrant and certain of its stockholders**
10.8 Stock Purchase Agreement, dated as of May 8, 1992, between the Registrant and DCC Limited**
</TABLE>

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

* To be filed by amendment.

** Previously filed.

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
10.9 Preferred Stock Purchase Agreement, dated as of April 28, 1994, between the Registrant and DCC
International Holdings B.V., as amended**
10.10 Amendment, Waiver and Conversion Agreement, dated as of March 30, 1998, among the Registrant and certain
of its stockholders**
10.11 Lease, dated July 1, 1992, as amended, by and between the Registrant and Magnum Realty Trust, relating
to property located at 25 Needham Street, Newton, Massachusetts**
10.12 Lease, dated June 26, 1996, by and between the Registrant and Joseph Barker Enterprises, relating to
property located at 1 Prestige Drive, Meriden, Connecticut**
10.13 Lease, dated September 25, 1996, by and between the Registrant and 928 Jaymore Road Associates, L.P.,
relating to property located at 928 Jaymor Road, Upper Southampton Township, Pennsylvania**
10.14 Lease, dated July 2, 1996, by and between the Registrant and G & N Investment Company, relating to
property located at 3540 North 126 Street, Brookfield, Wisconsin**
10.15 Form of Financial Advisory Agreement between the Registrant and the Representative*
10.16 Form of Warrant Agreement between the Registrant and the Representative*
10.17 Form of Representative's Warrant*
10.18.1 Option Agreement, dated as of May 26, 1998, among the Registrant Steven S. Charlap, M.D. and Steven S.
Charlap, M.D., P.C.**
10.18.2 Option Agreement, dated as of May 26, 1998, among the Registrant, Alec H. Jaret, D.M.D. and Alec H.
Jaret, D.M.D., P.C.**
10.18.3 Option Agreement, dated as of June 12, 1998, among the Registrant, Jeffrey Morer, O.D., and Jeffrey L.
Morer, O.D., P.C.
10.18.4 Option Agreement, dated as of May 26, 1998, among the Registrant, Mary C. Manesis, and Mary C. Manesis,
D.P.M., P.C.
10.18.5 Option Agreement, dated as of May 26, 1998, among the Registrant, Steven S. Charlap, M.D. and
HealthDrive Michigan Corporation**
23.1 Consent of Bingham Dana LLP*
23.2 Consent of Arthur Andersen LLP
23.3 Consent of James A. Pitts**
24.1 Power of Attorney**
27.1 Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

** Previously filed.

(b) Financial Statement Schedules:

All financial statement schedules have been omitted because either they are
not required, are not applicable, or the information is otherwise set forth in
the Financial Statements and Notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of

II-3
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.

(2) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.

(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to registration statement on Form S-1 (Reg.
No. 333-49721) be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newton, Commonwealth of Massachusetts, on this 19th
day of June, 1998.

<TABLE>
<S> <C> <C>
HEALTHDRIVE CORPORATION

By: /s/ STEVEN S. CHARLAP, M.D.
-----------------------------------------
Steven S. Charlap, M.D.
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT
AND CHIEF EXECUTIVE OFFICER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to registration statement on Form S-1 (Reg. No. 333-49721) has been signed
below by the following persons in the capacities indicated and on this 19th day
of June, 1998.

SIGNATURE TITLE
- --------------------------------- ------------------------

Chairman of the Board of
/s/ STEVEN S. CHARLAP, M.D. Directors, President
- --------------------------------- and Chief Executive
Steven S. Charlap, M.D. Officer (Principal
Executive Officer)

Chief Financial Officer
/s/ MICHAEL R. KAPLAN and Vice President of
- --------------------------------- Finance (Principal
Michael R. Kaplan Financial and
Accounting Officer)

*
- --------------------------------- Director
Susan Bailis

*
- --------------------------------- Director
Morgan Crowe

*
- --------------------------------- Director
Robert G. Eccles

*
- --------------------------------- Director
Brian Fagan

*
- --------------------------------- Director
Alec H. Jaret

*
- --------------------------------- Director
L. Dennis Shapiro

* By: /s/ STEVEN S. CHARLAP,
M.D.
- ---------------------------------
Attorney-in-Fact

II-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>

1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant**
3.2 Form of Amended and Restated By-Laws of the Registrant**
4.1 Reference is made to exhibits 3.1 and 3.2
4.2 Specimen Certificate of Common Stock*
5.1 Form of Opinion of Bingham Dana LLP, with respect to the legality of the shares being registered*
10.1 Second Amended and Restated 1992 Stock Option Plan of the Registrant**
10.2.1 Amended and Restated Operating Agreement, dated as of May 26, 1998, between the Registrant and Steven S.
Charlap, M.D., P.C.**
10.2.2 Amended and Restated Operating Agreement, dated as of May 26, 1998, between the Registrant and Alec H.
Jaret, D.M.D., P.C.**
10.2.3 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Jeffrey
Morer, O.D., P.C.
10.2.4 Amended and Restated Operating Agreement, dated as of May 26, 1998, between the Registrant and Mary C.
Manesis, D.P.M., P.C.**
10.2.5 Operating Agreement, dated as of May 26, 1998, between the Registrant and HealthDrive Michigan
Corporation**
10.2.6 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Steven
S. Charlap, M.D., P.C.
10.2.7 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Alec H.
Jaret, D.M.D., P.C.
10.2.8 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and Mary C.
Manesis, D.P.M., P.C.
10.2.9 Amended and Restated Operating Agreement, dated as of June 19, 1998, between the Registrant and
HealthDrive Michigan Corporation.
10.3 Employment Agreement, dated as of May 27, 1998, between the Registrant and Steven S. Charlap, M.D.*
10.4 Employment Agreement, dated as of May 27, 1998, between the Registrant and Michael R. Kaplan*
10.5 Employment and Non-Competition Agreement between HealthDrive Michigan Corporation and Philip R.
Shriner**
10.6 Letter Agreement between the Registrant and Michael R. Kaplan relating to stock options*
10.7 Amended and Restated Stockholders Agreement, dated as of April 28, 1994, as amended, among the
Registrant and certain of its stockholders**
10.8 Stock Purchase Agreement, dated as of May 8, 1992, between the Registrant and DCC Limited**
10.9 Preferred Stock Purchase Agreement, dated as of April 28, 1994, between the Registrant and DCC
International Holdings B.V., as amended**
10.10 Amendment, Waiver and Conversion Agreement, dated as of March 30, 1998, among the Registrant and certain
of its stockholders**
10.11 Lease, dated July 1, 1992, as amended, by and between the Registrant and Magnum Realty Trust, relating
to property located at 25 Needham Street, Newton, Massachusetts**
10.12 Lease, dated June 26, 1996, by and between the Registrant and Joseph Barker Enterprises, relating to
property located at 1 Prestige Drive, Meriden, Connecticut**
</TABLE>

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

* To be filed by amendment.

** Previously filed.
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
10.13 Lease, dated September 25, 1996, by and between the Registrant and 928 Jaymore Road Associates, L.P.,
relating to property located at 928 Jaymor Road, Upper Southampton Township, Pennsylvania**
10.14 Lease, dated July 2, 1996, by and between the Registrant and G & N Investment Company, relating to
property located at 3540 North 126 Street, Brookfield, Wisconsin**
10.15 Form of Financial Advisory Agreement between the Registrant and the Representative*
10.16 Form of Warrant Agreement between the Registrant and the Representative*
10.17 Form of Representative's Warrant*
10.18.1 Option Agreement, dated as of May 26, 1998, among the Registrant Steven S. Charlap, M.D. and Steven S.
Charlap, M.D., P.C.**
10.18.2 Option Agreement, dated as of May 26, 1998, among the Registrant, Alec H. Jaret, D.M.D. and Alec H.
Jaret, D.M.D., P.C.**
10.18.3 Option Agreement, dated as of June 12, 1998, among the Registrant, Jeffrey Morer, O.D., and Jeffrey L.
Morer, O.D., P.C.
10.18.4 Option Agreement, dated as of May 26, 1998, among the Registrant, Mary C. Manesis, and Mary C. Manesis,
D.P.M., P.C.
10.18.5 Option Agreement, dated as of May 26, 1998, among the Registrant, Steven S. Charlap, M.D. and
HealthDrive Michigan Corporation**
23.1 Consent of Bingham Dana LLP*
23.2 Consent of Arthur Andersen LLP
23.3 Consent of James A. Pitts**
24.1 Power of Attorney**
27.1 Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

** Previously filed.

<PAGE>

Exhibit 10.2(3)

OPERATING AGREEMENT
JEFFREY MORER, O.D., P.C.
HEALTHDRIVE CORPORATION

<PAGE>

OPERATING AGREEMENT
JEFFREY MORER, O.D., P.C.
HEALTHDRIVE CORPORATION

Table of Contents

Page No.

I. BACKGROUND................................................1
II. AGREEMENT.................................................1
1. Obligations of HDC................................1
(a) General......................................1
(b) Claim Processing and Collection of Fees......2
(c) License of Service Mark......................2
(d) Extensions of Credit to P.C..................3
(e) Bank Accounts................................3
(f) Records and Financial Data...................4
2. Obligations of P.C................................5
(a) Employment of Practitioners..................5
(b) Maintenance of Insurance.....................6
(c) Compliance with Regulations..................6
(d) Quality of Care..............................6
(e) Fees.........................................6
(f) Standardized Systems.........................6
(g) Control of Optometry Practice by P.C.........7
(h) Authority to Contract........................7
(i) Exclusive Supplier...........................8
3. Prohibition on Referrals..........................8
4. Expenses of P.C...................................8
5. Compensation of HDC...............................8
6. Term of the Agreement.............................9
7. Termination of the Agreement......................9
8. Confidential and Proprietary Information.........10
9. Non-Competition and Non-Solicitation.............11
10. General..........................................11
(a) Independent Contractor......................11
(b) Exclusivity.................................12
(c) Indemnification.............................12
(d) Prior Agreements; Amendments................12
(e) Force Majeure...............................12

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(f) Assignment; Binding Effect..................12
(g) Construction of Agreement...................13
(h) Governing Law...............................13
(i) Additional Documents........................13
(j) Headings....................................13
(k) Notices.....................................13
(l) Counterparts................................14
(m) No Optometry Practice By HDC................14

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OPERATING AGREEMENT

OPERATING AGREEMENT, dated as of June 19, 1998, by and between Jeffrey
Morer, O.D., P.C., a professional corporation organized under Chapter 156A of
the Massachusetts General Laws ("P.C."), and HealthDrive Corporation, a
Delaware corporation ("HDC").

I. BACKGROUND

WHEREAS, P.C. is a duly incorporated and validly existing professional
corporation organized for the practice of optometry;

WHEREAS, HDC provides certain services and capital and licenses its
Service Mark (as hereinafter defined) to those engaged in the provision of
optometry and/or ancillary health care services at long term care facilities and
other concentrated geriatric populations ("OPTOMETRY SERVICES"); and

WHEREAS, P.C. desires to engage HDC to provide certain services and
capital to P.C. and its optometrists, opticians, and ancillary health care
personnel ("PRACTITIONERS") and to license HDC's Service Mark.

NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

II. AGREEMENT

1. OBLIGATIONS OF HDC.

(a) GENERAL. HDC shall be exclusively responsible to provide to P.C. the
following services required by P.C.:

(i) Order and purchase, as an accommodation to and on behalf of
P.C., all optometry related and office inventory, laundry, linen,
uniforms, printing, stationary, forms, laboratory items and supplies as
are ordinary and necessary for operation of the P.C. HDC shall be solely
responsible for the payment of applicable sales or use tax with respect to
such purchases and shall make such property available for use by P.C.
without any additional charge therefor.

(ii) Operate and maintain P.C.'s bookkeeping and accounting systems;

<PAGE>

(iii) Perform all payroll and payroll accounting functions for P.C.;
and

(iv) Administer all of PC's employee benefit plans.

(b) CLAIMS PROCESSING AND COLLECTION OF FEES. HDC shall, on behalf and in
the name of P.C., be exclusively responsible for processing all claims and
bills, and for collecting all moneys related thereto, for Optometry Services
rendered by P.C. In this connection, P.C. appoints HDC for the term of this
Agreement its true and lawful agent, and shall assure that such appointment is
effective for P.C.'s Practitioners for the following purposes:

(i) To bill and collect on behalf of P.C., or any of its
Practitioners, amounts owing from patients for performance of Optometry
Services, and P.C. hereby covenants to turn over, and require any of its
Practitioners to turn over, all such payments to HDC for deposit as
provided in Section 1(e) below;

(ii) To bill and collect on behalf of P.C., or any of its
Practitioners, amounts owing from Blue Shield plans, insurance companies,
Medicare, Medicaid, and any other third party payor for the performance of
Optometry Services, and P.C. hereby covenants to turn over, and require
any of its Practitioners to turn over, all such payments to HDC for
deposit as provided in Section 1(e) below;

(iii) To take possession of and cause to be deposited any notes,
checks, money orders, insurance payments, and any other instruments
received in payment of accounts receivable and to deposit same as provided
in Section 1(e) below; and

(iv) To take such other actions relative to billing and collection
of fees, and related financial matters of the P.C. as are appropriate and
consistent with the purpose of this Agreement.

In connection with its obligations under this Section 1(b), HDC shall
maintain systems and procedures reasonably necessary to prevent unlawful
maximization of revenue; PROVIDED, HOWEVER, that HDC shall not be liable for
billing practices by P.C. or its Practitioners that unlawfully maximize revenue
to P.C. or its Practitioners.

(c) LICENSE OF SERVICE MARK. HDC hereby grants to P.C. a non-exclusive,
revocable (in accordance with the provisions of this Agreement) and
non-assignable license for the term of this Agreement to use the names
"HealthDrive," "HealthDrive Corporation" or "HDC" and all designs, logos, and
marks incorporating the same (collectively, the "SERVICE MARK") in connection
with advertising and promotion of P.C., but in each instance only in the form
and manner and in combination with such

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other designs, schemes, characteristics, words and the like as may from time to
time be approved in advance by HDC. Upon the expiration or termination of this
Agreement, P.C. will forthwith discontinue the use of the Service Mark and
thereafter shall not use or otherwise seek the benefits of the Service Mark or
any name, phrase, design, logo, mark or the like sufficiently related to or
identifiable with the Service Mark as to derogate from the full and complete
ownership and enjoyment of the same by and for the benefit of HDC. Recognizing
the special and unique value of the Service Mark to HDC, P.C. agrees that P.C.
shall take no action nor permit any action to be taken which shall in any way
derogate from the high level of quality and value associated with the Service
Mark and the ownership and enjoyment of the same by HDC. Furthermore, P.C.
agrees that, without limitation, a violation by P.C. of the provisions of this
Agreement relative to the Service Mark will cause irreparable harm to HDC and
the good will associated with the Service Mark and thus HDC shall be entitled to
immediate injunctive relief (whether by way of temporary or permanent or
mandatory or prohibitive injunction) for any such violation. Notwithstanding
anything in this paragraph to the contrary, P.C. shall not make use of the
Service Mark in any way which would cause a violation of the applicable
guidelines established by pertinent professional associations or the
Massachusetts Board of Registration in Optometry, the Board of Registration in
Optometry of any other jurisdiction in which Optometry Services are provided or
other applicable laws or regulations.

(d) EXTENSIONS OF CREDIT TO P.C. HDC hereby agrees to extend credit to
P.C. to fund P.C.'s working capital requirements, including without
limitation amounts due to HDC pursuant to this Agreement, to the extent HDC
determines, in its sole discretion, that such Extensions of Credit are
commercially reasonable; PROVIDED, HOWEVER, that HDC shall not under any
circumstances be obligated to extend any credit to P.C. Such extensions of
credit shall be demand loans (each a "DEMAND LOAN") which shall be due and
payable, including the principal balance and all accrued interest, upon
thirty (30) days written notice from HDC to P.C. Interest on the unpaid
principal balance of each Demand Loan from time to time outstanding shall be
determined in good faith by HDC, but in no event shall exceed the annual rate
of interest announced from time to time by BankBoston, N.A. as its "base
rate" at its head office in Boston, Massachusetts plus five percent (5%), and
shall be added to outstanding principal balance on a monthly basis. The
outstanding principal amount of the Demand Loan, and any accrued interest,
shall be reflected from time to time on the books of HDC, and such entries
shall constitute definitive evidence of the amount of such principal amount
and accrued interest. P.C. hereby acknowledges the existence of an
outstanding principal balance and accrued interest in the amount of $______
(the "CURRENT BALANCE") due and payable to HDC and agrees to use its best
efforts to pay down the Current Balance and any additional amounts of
principal and accrued interest outstanding from time to time. During any
period that a principal balance or accrued interest remains outstanding under
a Demand Loan, P.C. shall not pay, declare or set apart a dividend or
distribution of any kind on any shares of the capital stock of P.C. or make
any other payment to any stockholder of P.C., other than in respect of
professional services provided to the P.C. by such stockholder.

(e) BANK ACCOUNTS. All funds collected by HDC pursuant to this Agreement
shall be deposited as follows:

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(i) All funds collected on behalf of P.C. as a result of billings to
agencies responsible for making Medicare or Medicaid payments shall be
deposited in one or more bank accounts established by HDC, as agent for
P.C., in the joint names of HDC and P.C.;

(ii) All funds collected on behalf of P.C. as a result of all
billings, other than those referenced in subparagraph (i) above, are
hereby assigned to HDC, and shall be deposited in one or more bank
accounts established by HDC, as agent for P.C., in the joint names of HDC
and P.C. or, in HDC's sole discretion, in the sole name of HDC;

(iii) P.C. does hereby grant a first and continuing security
interest to HDC in all P.C.'s accounts receivable to secure payment of
P.C.'s obligations hereunder, including without limitation payment of
the Compensation Amount and the Demand Loans, to the maximum extent
permitted by applicable law. In the event of any monetary default by
P.C., HDC may exercise all the remedies available to a secured creditor
under the Uniform Commercial Code and other applicable laws, including
seizure of the collateral, notification of account debtors and
obtaining a court order for reassignment of Medicare and Medicaid
receivables to the maximum extent permitted by applicable law. The P.C.
shall execute financing statements prepared by HDC. The provisions of
this Section 1(e) shall survive termination of this Agreement until all
of HDC's fees and expenses have been paid in full.

(f) RECORDS AND FINANCIAL DATA.

(i) METHOD OF ACCOUNTING; FINANCIAL STATEMENTS. HDC shall keep
complete and accurate books and records relating to the P.C. that reflect
all revenues that HDC receives as a result of billings in the name of P.C.
for Optometry Services rendered by the P.C., and all expenses incurred by
P.C. or HDC in maintaining the P.C. and providing the Optometry Services
rendered by the P.C. HDC shall allow an officer or employee designated by
P.C. to audit and inspect these books and records at appropriate and
reasonable times and at P.C.'s sole expense.

(ii) DATA FOR TAX RETURNS. HDC shall provide to P.C. the financial
data necessary to enable P.C. to prepare its annual corporate income tax
returns.

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the nature and extent of the costs incurred by P.C. pursuant to this
Agreement, and if HDC provides such services through a subcontract worth
$10,000 or more over a twelve-month period with a related organization,
the subcontract will also contain a clause permitting access by HHS, the
United States Comptroller General, and their representatives to books and
records of the related organization. HDC (and any such subcontractor) will
promptly notify P.C. as and when any such request is received, and will
provide P.C. (simultaneously with the providing of such materials to HHS)
with a copy of any materials so provided.

(iv) CONFIDENTIALITY. HDC shall preserve the confidentiality of
P.C.'s patient optometry records and use information in such records only
for the limited purposes necessary to perform its responsibilities as set
forth in this Agreement.

2. OBLIGATIONS OF P.C.

(a) EMPLOYMENT OF PRACTITIONERS. HDC shall not provide any personnel to
P.C. P.C. shall be responsible for employing Practitioners to provide Optometry
Services for P.C. P.C. acknowledges and agrees that in order to ensure the
quality of services provided by P.C. and the economic viability of P.C., it will
employ and contract with Practitioners subject to the following requirements:

(i) Every Practitioner shall be fully licensed to practice his/her
specialty under the laws of the Commonwealth of Massachusetts or such
other state in which such practitioner provides services;

(ii) As a condition to each Practitioner's employment, including
without limitation the holder of the capital stock of P.C. (the
"STOCKHOLDER"), such Practitioner shall be required by P.C. to execute a
non-competition and non-solicitation agreement in form and substance
acceptable to HDC prohibiting the Practitioner from competing with P.C. or
HDC for the term of his employment by P.C.
and a period of 18 months thereafter; and

(iii) P.C. shall fix compensation and fringe benefits for individual
Practitioners; provided, however, that compensation and benefits paid to
any such Practitioner, including without limitation the Stockholder (with
respect to compensation for services provided both to patients and P.C.),
shall not exceed the fair market value for such services. P.C. hereby
acknowledges and agrees that HDC has superior knowledge and experience
with respect to the fair market value of services provided by
Practitioners. If a dispute arises between P.C. and HDC with respect to
the fair market value of services provided by a Practitioner, P.C. hereby
agrees that HDC, in its sole discretion, shall determine fair market
value. HDC shall make such determination in

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good faith and based on its knowledge and experience and the amounts paid
to similarly qualified practitioners providing similar services for P.C.
or other professional corporations affiliated with HDC.

P.C. further acknowledges that fixed term agreements, including without
limitation employment agreements, between P.C. and Practitioners are not
necessarily in the best interests of patients and patient care and may
interfere with the quality of services provided by P.C., and, therefore, P.C.
hereby agrees that, without the express written consent of HDC, it shall not
enter into any such agreements with the Practitioners it employs, including
without limitation the Stockholder. HDC agrees that it shall make
any determinations with respect to fixed term arrangements in good faith and
based on its knowledge and experience in the industry.

(b) MAINTENANCE OF INSURANCE. P.C. covenants and agrees that until the
expiration or termination of this Agreement it will maintain, or will require
each of its Practitioners to maintain, comprehensive professional liability
insurance with limits of not less than $1,000,000 per claim and with aggregate
policy limits of not less than $3,000,000 per each Practitioner, with each of
P.C. and HDC having the right, upon request, to be added as additional insured.
P.C. shall be responsible for all such liabilities in excess of the limits of
such insurance policies. Premiums and deductibles with respect to such insurance
policies shall be an expense of P.C.

(c) COMPLIANCE WITH REGULATIONS. P.C. shall comply and shall cause each of
its Practitioners to comply with all applicable rules and regulations of
governmental bodies having jurisdiction over the P.C. or any of the
Practitioners.

(d) QUALITY OF CARE. P.C. shall at all times be solely responsible for the
quality of the Optometry Services rendered by the Practitioners, it being agreed
that HDC shall have no responsibility or liability for such services or
programs.

(e) FEES. P.C. shall be solely responsible for setting its fees. P.C.
warrants that it will set its fees in accordance with law and that such fees
will be neither inadequate nor excessive in light of the services to be
performed and the need to insure the economic viability of P.C.; PROVIDED,
HOWEVER, that the foregoing shall not affect the control of the Optometry
Practice by the P.C. pursuant to Section 2(g) of this Agreement.

(f) STANDARDIZED SYSTEMS. P.C. agrees to utilize HDC's standardized
business systems, procedures and forms (excluding clinical forms), at no charge
to P.C., which are intended to improve efficiency; PROVIDED that P.C. expressly
acknowledges and agrees that it shall have no property rights in the foregoing
systems, procedures and forms and such systems, procedures and forms shall be
deemed to constitute Confidential Information within the meaning of Section 7 of
this Agreement and subject to the restrictions on use, appropriation and
reproduction of such Confidential Information provided in Section 7 of this
Agreement; AND,

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PROVIDED FURTHER that the foregoing shall not affect the control of the
Optometry Practice by the P.C. pursuant to Section 2(g) of this Agreement.

(g) CONTROL OF OPTOMETRY PRACTICE BY P.C. Notwithstanding anything to the
contrary contained in this Agreement, the delivery of Optometry Services shall
be supervised, directed, and controlled, and all final determinations with
respect thereto shall be made, exclusively by P.C., including without
limitation, the following (collectively, "OPTOMETRY PRACTICE"):

(i) employment of all Practitioners, pursuant to Section 2(a) of
this Agreement;

(ii) supervision and direction of all Practitioners, including,
without limitation, assignment of patients to the Practitioners and
establishment and monitoring of peer review guidelines;

(iii) determination of the hospital supplying Practitioners to P.C.,
if applicable;

(iv) maintenance of patient records;

(v) establishment of policies and procedures with respect to patient
acceptance; and

(vi) establishment of the hours of operation of P.C., scope of
services provided and fees for such services.

In connection with its obligations under this Section 2(g), P.C. shall
maintain systems and procedures necessary in order to prevent overutilization of
services. HDC hereby expressly disclaims any control, direct or indirect, over
activities of P.C. constituting Optometry Practice.

(h) AUTHORITY TO CONTRACT. P.C. shall have exclusive authority to
negotiate and enter into agreements related to Optometry Practice; PROVIDED,
HOWEVER, that (i) P.C. shall give HDC thirty (30) days prior notice of P.C.'s
intent to execute any agreement obligating P.C. to engage in Optometry Practice
or otherwise creating a binding legal obligation on P.C. related to Optometry
Practice, and (ii) P.C. shall not enter into any agreement that does not relate
to Optometry Practice without HDC's prior written consent. P.C. hereby approves,
confirms and ratifies all agreements negotiated and executed by HDC on P.C.'s
behalf prior to the date hereof.

(i) EXCLUSIVE SUPPLIER. P.C. hereby appoints HDC as the exclusive supplier
of the services set forth in Section 1 of this Agreement.

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3. PROHIBITION ON REFERRALS. In order to ensure compliance with federal and
state statutes, laws, rules and regulations, including without limitation the
provisions of the Social Security Act commonly referred to as the "Anti-kickback
Amendments" and the regulations promulgated pursuant to the Omnibus Budget
Reconciliation Act of 1993 and 1997 commonly referred to as "Stark I" and "Stark
II," HDC and P.C. hereby agree as follows:

(a) HDC and P.C. and its Practitioners shall have no obligation to refer
patients to each other or to long term care facilities under
contract with P.C., and P.C. and its Practitioners shall have no
obligation to refer patients to other professional corporations or
providers of medical, dental, optometry, podiatry, or ancillary
health care services affiliated with HDC or long term care
facilities under contract with professional corporations affiliated
with HDC; and

(b) P.C. shall not, and shall use its best efforts to cause the
Practitioners not to, (i) provide "designated health services," as
such term is defined under Stark I and Stark II, without providing
no less than 30 days prior written notice to HDC, and (ii) refer
patients to entities that provide "designated health services" and
in which P.C., or any of the Practitioners, have a financial
relationship, compensation arrangement, or an ownership or
investment interest.

4. EXPENSES OF P.C. All expenses incurred in connection with the conduct of
P.C.'s business and the services of HDC shall, unless otherwise specified in
this Agreement, be expenses of P.C. (and not HDC), including without limitation
those expenses described in Sections 2(a), 2(b) and 5 of this Agreement;
PROVIDED, HOWEVER, that HDC, as agent for P.C., shall, using funds billed and
collected pursuant to Section 1(e) above, pay all such expenses. P.C. agrees to
have an annual audit of its financial statements by independent auditors of
recognized standing reasonably acceptable to HDC and to deliver such audited
financial statements to HDC as promptly as practicable.

5. COMPENSATION OF HDC. As consideration for the license of the Service Mark,
the making of the Demand Loans and the services provided by HDC, P.C. shall
pay HDC a sum equal to the Compensation Amount (as defined below); PROVIDED,
THAT in no event shall the total compensation exceed the fair market value of
the services rendered by HDC. For purposes of this Section, "Compensation
Amount" shall mean the net of (i) all revenue minus (ii) all expenses
(excluding compensation due under this Section) of P.C. recorded on an
accrual basis using tax accounting principles. The amount of compensation due
HDC under this Section shall be determined on a monthly basis by HDC and
shall be due and payable to HDC on the last day of every month. Any amount
not paid when due shall accrue interest at a reasonable rate determined by
HDC. The fact that interest may accrue on any unpaid compensation due HDC

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shall in no way diminish HDC's right to be paid such compensation when due.
HDC may withdraw its fees directly from the bank accounts established
hereunder. In the event that P.C. makes a determination that it believes that
the Compensation Amount calculated by HDC in accordance with the formula set
forth above for any particular month exceeds the fair market value of the
services provided by HDC under this Agreement for such month P.C. shall
provide HDC with notice of such determination no later than thirty days after
the end of the month for which it believes the Compensation Amount exceeds
the fair market value of the services provided. In the event that P.C. does
not deliver such a notice within such thirty day period, P.C. shall for all
purposes under this Agreement be deemed to have agreed that the Compensation
Amount calculated by HDC for such month did not exceed the fair market value
of the services provided by HDC for that month. As soon as reasonably
practicable after the receipt of such notice, HDC and P.C. shall form a
committee (the "Fee Committee") to determine the fair market value of the
services provided by HDC during such month by majority vote. The Fee
Committee shall consist of one individual designated by HDC (the "HDC
Designee"), one individual designated by P.C. (the "P.C. Designee"), and a
third party designated by the HDC Designee and the P.C. Designee. In making
its determination, the Fee Committee shall consider the value of all of the
services provided by HDC to P.C. during such month taken as a whole, the
potential impact on P.C. of a discontinuation of the services provided by
HDC, and the fees charged by other similarly situated companies to similarly
situated medical or dental practices in HDC's industry, in addition to any
other factors that it deems relevant. Each of HDC and P.C. agree to be bound
by the good faith determination of the Fee Committee. In the event that the
Fee Committee determines that the Compensation Amount exceeds the fair market
value of the services provided during such month, HDC shall promptly refund
to P.C. the difference between the Compensation Amount and the fair market
value of the services provided, as determined by the Fee Committee.

6. TERM OF AGREEMENT. This Agreement shall be in effect from the date first set
forth above through June 19, 2038; PROVIDED, HOWEVER, that the term hereof shall
be automatically extended for additional periods of twelve (12) months each,
unless either party gives written notice as provided below to the other at least
ninety (90) days prior to the expiration of the initial term or any extended
term hereof. Upon termination of this Agreement, HDC using funds billed and
collected pursuant to Section 1(d) above shall: (i) pay any expenses accrued by
P.C. through the termination date; (ii) collect all fees accrued to it through
the termination date, including without limitation the payment of the
Compensation Amount specified in Section 4 hereof; and (iii) collect the amounts
due under the Demand Loans specified in Section 1(b) hereof. All other
obligations of the parties shall cease as of the termination date unless
otherwise specifically provided in this Agreement; PROVIDED, HOWEVER, that
notwithstanding the foregoing, P.C. shall be obligated to pay amounts due
pursuant to items (ii) and (iii) above in the event that funds billed and
collected pursuant to Section 1(d) above are insufficient to pay such amounts.

7. TERMINATION OF THE AGREEMENT.

(a) Notwithstanding any of the provisions of this Agreement, if a
receiver, liquidator, or trustee of either party shall be appointed by court
order or if a petition to reorganize shall be filed against either party under
any bankruptcy, reorganization or insolvency law and shall not be dismissed
within ninety (90) days, or if either party shall file a petition in voluntary
bankruptcy or make an assignment for the benefit of creditors, then either party
forthwith may terminate this Agreement upon written notice to the other party.

(b) If P.C. or HDC shall fail to perform obligations or observe provisions
which are material to this Agreement (in either case, a "Breach"), HDC, in the
case of a Breach by P.C., and P.C., in the case of a Breach by HDC, may
terminate this Agreement by giving thirty (30) days written notice to the
breaching party detailing the nature of the Breach, provided that the breaching
party shall not have cured the Breach within such thirty (30) day period, or,
with respect to Breaches which are not curable within such thirty (30) day
period, shall not have commenced to cure such Breach within such thirty (30) day
period and thereafter shall not have prosecuted to completion the cure of the
Breach with the exercise of due diligence.

(c) HDC may terminate this Agreement upon written notice to P.C. at such
time as P.C. does not qualify for any reason as a Professional Corporation or no
longer has the necessary authorization to render Optometry Services in The
Commonwealth of Massachusetts or any other state in which Practitioners employed
or otherwise retained by P.C. provide such services.

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(d) HDC may terminate this Agreement upon written notice to P.C. if the
license to practice optometry or any ancillary health care service of any
Practitioner is revoked or threatened to be revoked by the applicable Board of
Registration of the Commonwealth of Massachusetts or such other state in which
such Practitioner provides services, provided that P.C. has not forthwith
terminated such Practitioner from his or her employment or association with the
P.C.

8. CONFIDENTIAL AND PROPRIETARY INFORMATION.

(a) P.C. acknowledges and agrees that all business information and
materials provided to P.C. and its affiliates by HDC pursuant to this Agreement
constitute "Confidential Information." P.C. further agrees (i) not to disclose,
directly or indirectly, any Confidential Information to third parties without
HDC's prior written consent, (ii) not to use any Confidential Information in any
way, directly or indirectly, detrimental to HDC, and (iii) to keep such
Confidential Information confidential and ensure that P.C.'s officers,
directors, managers, employees and other agents and affiliates comply with the
foregoing obligations; PROVIDED THAT P.C. may disclose Confidential Information
to its officers, directors, managers, employees and other agents and affiliates
who need to know Confidential Information for the purposes of this Agreement, it
being understood and agreed to by P.C. that (i) such persons will be informed of
the confidential nature of the Confidential Information, and (ii) will be
required to execute instruments of adherence in form and substance acceptable to
HDC agreeing to be bound by this Section 7. P.C. agrees to be responsible for
any breach of this Section 7 by its officers, directors, managers, employees and
other agents and affiliates. P.C. acknowledges that the disclosure of
Confidential Information to it by HDC is done in reliance upon its
representations and covenants in this Agreement.

(b) Upon expiration or termination of this Agreement by either party for
any reason whatsoever, P.C. shall immediately return and shall cause its
officers, directors, managers, employees and other agents and affiliates to
immediately return to HDC all Confidential Information, and P.C. will not, and
will cause its officers, directors, managers, employees and other agents and
affiliates not to, thereafter use, appropriate or reproduce such Confidential
Information. P.C. further acknowledges and agrees that any such use,
appropriation, or reproduction of any Confidential Information by any of the
foregoing after the expiration or termination of this Agreement will result in
irreparable injury to HDC, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, HDC, in addition to any other remedies or damages
available to it, shall be entitled to injunctive or other equitable relief.

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9. NON-COMPETITION AND NON-SOLICITATION. P.C. hereby acknowledges and agrees
that HDC will incur substantial costs in connection with its obligations
pursuant to this Agreement and that the non-competition covenants described
hereunder are necessary for the protection of HDC, and that HDC would not
have entered in to this Agreement without the following covenants.

(a) Except as specifically agreed to by HDC in writing, P.C. covenants and
agrees that during the term of this Agreement, and for a period of two (2) years
from the date this Agreement is terminated, other than termination by P.C. for
cause, or expires, P.C. shall not, directly or indirectly, own, manage, operate,
control, contract with, lend funds to, maintain an interest whatsoever in, or be
employed by, any enterprise providing capital or services to those engaged in
the provision of Optometry Services or providing any other type of services or
products to third parties substantially similar to those offered by HDC located
anywhere in the United States.

(b) P.C. agrees that during the term of this Agreement, and for a period
of two (2) years from the date this Agreement is terminated, other than
termination by P.C. for cause, or expires, P.C. shall not, (i) solicit any
employee of HDC to leave HDC or become employed by P.C. or any entity, business,
corporation or partnership with which P.C. is directly or indirectly related, or
(ii) solicit any of HDC's, or any professional corporation affiliated with
HDC's, customers, clients, buyers, distributors, or manufacturers to cease doing
business with HDC or to do business with P.C. or any entity, business,
corporation or partnership with which P.C. is either directly or indirectly
related.

10. GENERAL.

(a) INDEPENDENT CONTRACTOR. It is expressly understood and agreed by the
parties that, in providing services under this Agreement, HDC shall at all times
act as an independent contractor, not as an employee of P.C., and none of P.C.
or the Practitioners shall be employees or servants of HDC. Further, it is
expressly understood and agreed by the parties that nothing contained in this
Agreement shall be construed to create a joint venture, partnership,
association, or other affiliation or like relationship between the parties, or a
relationship of landlord and tenant, it being specifically agreed that their
relationship is and shall remain that of independent parties to a contractual
relationship as set forth in this Agreement. In no event shall either party be
liable for the debts or obligations of the other of them except as otherwise
specifically provided in this Agreement. None of P.C., or any Practitioner,
whether such Practitioner be a member, partner, employee, subcontractor, or
otherwise, of P.C., shall have any claim under this Agreement or otherwise
against HDC for vacation pay, sick leave, retirement benefits, social security,
workers' compensation, disability or unemployment benefits, incentive
compensation or employee benefits of any kind.

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<PAGE>

(b) EXCLUSIVITY. In recognition of the fact that HDC or any HDC employees
may perform services from time to time for others, including services of the
type HDC provides to P.C. under this Agreement, this Agreement shall not prevent
HDC from performing such services for others or restrict HDC from using for such
purposes any HDC employees who are performing services under or with respect to
this Agreement. The decision as to which personnel are to be employed at what
times shall be solely within HDC's discretion.

(c) INDEMNIFICATION. (i) P.C. agrees to indemnify and hold harmless
HDC, its shareholders, directors, officers, employees, and other affiliates
and their respective successors and assigns, harmless from and against any
and all liabilities, demands, claims, actions, causes of action, losses,
fines, penalties, costs, damages and expenses, including reasonable
attorneys' and expert witness fees, alleged against, sustained or incurred by
any such persons arising out of or resulting from (i) any negligent or
intentional act or omission by P.C. or any Practitioner, (ii) any breach or
default on the part of P.C. in the performance of this Agreement. P.C., upon
notice from HDC, shall resist and defend, at the expense of P.C., any such
action or proceeding with counsel reasonably satisfactory to HDC. (ii) HDC
agrees to indemnify and hold harmless P.C., its shareholders, directors,
officers, employees and other affiliates and their respective successors and
assigns, harmless from and against any and all liabilities, demands, claims,
actions, causes of action, losses, fines, penalties, costs, damages and
expenses, including reasonable attorneys' and expert witness fees, alleged
against, sustained or incurred by any such persons arising out of or
resulting from any negligent or intentional misconduct by HDC in connection
with the services it has agreed to provide pursuant to Section 1(b).

(d) PRIOR AGREEMENT; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof, including but not limited to that Management
Agreement, dated as of March 15, 1990, and the Operating Agreement, dated as
of May 26, 1998, between HDC and P.C., which are hereby terminated. This
Agreement may not be amended, altered, changed, or terminated orally. No
amendment, alteration, change, or attempted waiver of any of the provisions
hereof shall be binding without the written consent of both parties, and such
amendment, alteration, change, termination or waiver shall in no way affect
the other terms and conditions of this Agreement, which in all other respects
shall remain in full force.

(e) FORCE MAJEURE. HDC shall not be liable to P.C. for failure to perform
any of the services required under this Agreement in the event of strikes,
lockouts, calamities, acts of God, unavailability of supplies, or other events
over which HDC has no control, for so long as such event continues and for a
reasonable period of time thereafter, and in no event shall HDC be liable for
consequential, indirect or like damages.

(f) ASSIGNMENT; BINDING EFFECT. HDC shall have the right to assign or sell
its rights and obligations under this Agreement to any person, corporation,
partnership, or other legal entity. P.C. shall not assign this Agreement or its
rights and obligations under this Agreement without the written consent of HDC,
which consent may be withheld in HDC's sole discretion. Any attempted assignment
by the P.C. shall be void and of no force and effect. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties'
successors and assigns, respectively, but this provision shall not constitute a
consent by HDC to assignment by P.C. otherwise prohibited by the preceding
sentences.

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(g) CONSTRUCTION OF AGREEMENT. The failure to insist upon strict
compliance with any of the terms, covenants or conditions herein shall not be
deemed a waiver of such terms, covenants, or conditions, nor shall any waiver or
relinquishment of any right at any one or more times be deemed a waiver or
relinquishment of such right at any other time or times.

(h) GOVERNING LAW. This Agreement has been signed by the parties under
seal in Massachusetts, and the parties agree that it shall be governed and
construed in accordance with the laws of The Commonwealth of Massachusetts to
the fullest extent permitted by law, without regard to the application of
conflict of laws rules. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law.

(i) ADDITIONAL DOCUMENTS. The parties hereto shall execute such additional
documents as are reasonably required for the purpose of carrying out the intent
and purpose of this Agreement.

(j) HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.

(k) NOTICES. Any notice hereunder shall have been deemed to have been
given only if in writing and either delivered in hand or sent by registered or
certified mail, return receipt requested, postage prepaid, or by United States
Express Mail or other commercial expedited delivery service,

(i) if intended for HDC such notice having been addressed to it at:

25 Needham Street
Newton, MA 02161
Attention: Steven S. Charlap, M.D.; and

(ii) if intended for P.C. such notice having been addressed to it at:

c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: Jeffrey Morer, O.D.

Either party hereto by like notice to the other, may designate such other
address or addresses to which notice must be sent.

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<PAGE>

(l) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all which together shall
constitute one instrument.

(m) NO OPTOMETRY PRACTICE BY HDC. It is acknowledged that HDC is not
authorized or qualified to engage in any activity which may be construed or
considered to constitute the practice of optometry or any ancillary health care
service. To the extent any act or service of HDC under this Agreement is
construed or considered to constitute the practice of optometry or any ancillary
health care service, the performance of such act or service by HDC shall be
deemed waived and excused. If notwithstanding any waiver or excuse of HDC's
performance of an act or service as contemplated in the immediately preceding
sentence, any of the provisions of this Agreement (1) may be construed or
considered to be in material violation of any rules, regulations or policies of
the Board of Registration in Optometry (or such ancillary health care service)
of The Commonwealth of Massachusetts, the Board of Registration of any other
jurisdiction in which the P.C. provides Optometry Services, or the statutes,
laws, rules or regulations of the United States or any state, governmental
agency, authority, or other body having jurisdiction over the P.C. or the
Company, or (2) may be construed or considered to impose a substantial threat to
the license to practice optometry and/or any ancillary health care service of
any Practitioner, or to the authorization of P.C. to render Optometry Services,
then the parties hereto agree to use their best efforts to negotiate in good
faith an amendment to this Agreement, the purpose and substance of which shall
be modification of only those provisions giving rise to the issues set forth in
clauses (1) and (2) of this sentence so that the Agreement as modified continues
to reflect, as nearly as possible, the intent of the parties as expressed
herein. If notwithstanding negotiation in good faith as contemplated in the
immediately preceding sentence, an amendment to this Agreement cannot be agreed
to that resolves the issues set forth in clauses (1) and (2) of the preceding
sentence and continues to reflect, as nearly as possible, the intent of the
parties expressed herein, this Agreement shall terminate thirty (30) days after
the date either party hereto provides notice to the other party hereto that such
circumstances exist.

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<PAGE>

Executed as an instrument under seal as of the date first set forth above.

HEALTHDRIVE CORPORATION JEFFREY MORER, O.D., P.C.

By: ________________________________ By: _________________________
Name: Steven S. Charlap, M.D.. Name: Jeffrey Morer, O.D.
Office: Chief Executive Officer and President Office: President

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<PAGE>

OPERATING AGREEMENT
STEVEN S. CHARLAP, M.D., P.C.
HEALTHDRIVE CORPORATION

<PAGE>

OPERATING AGREEMENT
STEVEN S. CHARLAP, M.D., P.C.
HEALTHDRIVE CORPORATION

Table of Contents

I. BACKGROUND................................................1
II. AGREEMENT................................................1
1. Obligations of HDC................................1
(a) General......................................1
(b) Claim Processing and Collection of Fees......2
(c) License of Service Mark......................2
(d) Extensions of Credit to P.C..................3
(e) Bank Accounts................................3
(f) Records and Financial Data...................4
2. Obligations of P.C................................5
(a) Employment of Medical Practitioners..........5
(b) Maintenance of Insurance.....................6
(c) Compliance with Regulations..................6
(d) Quality of Care..............................6
(e) Fees.........................................6
(f) Standardized Systems.........................6
(g) Control of Medical Practice by P.C...........7
(h) Authority to Contract........................7
(i) Exclusive Supplier...........................8
3. Prohibition on Referrals..........................8
4. Expenses of P.C...................................8
5. Compensation of HDC...............................8
6. Term of the Agreement.............................9
7. Termination of the Agreement......................9
8. Confidential and Proprietary Information.........10
9. Non-Competition and Non-Solicitation.............11
10. General..........................................11
(a) Independent Contractor......................11
(b) Exclusivity.................................12
(c) Indemnification.............................12
(d) Prior Agreements; Amendments................12
(e) Force Majeure...............................12
</TABLE>

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<TABLE>

<S> <C>
(f) Assignment; Binding Effect..................12
(g) Construction of Agreement...................13
(h) Governing Law...............................13
(i) Additional Documents........................13
(j) Headings....................................13
(k) Notices.....................................13
(l) Counterparts................................14
(m) No Medical Practice By HDC..................14
</TABLE>

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OPERATING AGREEMENT

OPERATING AGREEMENT, dated as of June 19, 1998, by and between Steven
S. Charlap, M.D., P.C., a professional corporation organized under Chapter
156A of the Massachusetts General Laws ("P.C."), and HealthDrive Corporation,
a Delaware corporation ("HDC").

I. BACKGROUND

WHEREAS, P.C. is a duly incorporated and validly existing professional
corporation organized for the practice of medicine;

WHEREAS, HDC provides certain services and capital and licenses its
Service Mark (as hereinafter defined) to those engaged in the provision of
medical and/or ancillary health care services at long term care facilities and
other concentrated geriatric populations ("MEDICAL SERVICES"); and

WHEREAS, P.C. desires to engage HDC to provide certain services and
capital to P.C. and its physicians and ancillary medical personnel ("MEDICAL
PRACTITIONERS") and to license HDC's Service Mark.

II. AGREEMENT

1. OBLIGATIONS OF HDC.

(a) GENERAL. HDC shall be exclusively responsible to provide to P.C. the
following services required by P.C.:

(i) Order and purchase, as an accommodation to and on behalf of
P.C., all medical and office inventory, laundry, linen, uniforms,
printing, stationary, forms, laboratory items and supplies as are ordinary
and necessary for operation of the P.C. HDC shall be solely responsible
for the payment of applicable sales or use tax with respect to such
purchases and shall make such property available for use by P.C. without
any additional charge therefor.

(ii) Operate and maintain P.C.'s bookkeeping and accounting systems;
<PAGE>

(iii) Perform all payroll and payroll accounting functions for P.C.;
and

(iv) Administer all of P.C.'s employee benefit plans.

(b) CLAIMS PROCESSING AND COLLECTION OF FEES. HDC shall, on behalf and in
the name of P.C., be exclusively responsible for processing all claims and
bills, and for collecting all moneys related thereto, for Medical Services
rendered by P.C. In this connection, P.C. appoints HDC for the term of this
Agreement its true and lawful agent, and shall assure that such appointment is
effective for P.C.'s Medical Practitioners for the following purposes:

(i) To bill and collect on behalf of P.C., or any of its Medical
Practitioners, amounts owing from patients for performance of Medical
Services, and P.C. hereby covenants to turn over, and require any of its
Medical Practitioners to turn over, all such payments to HDC for deposit
as provided in Section 1(e) below;

(ii) To bill and collect on behalf of P.C., or any of its Medical
Practitioners, amounts owing from Blue Shield plans, insurance companies,
Medicare, Medicaid, and any other third party payor for the performance of
Medical Services, and P.C. hereby covenants to turn over, and require any
of its Medical Practitioners to turn over, all such payments to HDC for
deposit as provided in Section 1(e) below;

(iv) To take such other actions relative to billing and collection
of fees, and related financial matters of the P.C. as are appropriate and
consistent with the purpose of this Agreement.

In connection with its obligations under this Section 1(b), HDC shall
maintain systems and procedures reasonably necessary to prevent unlawful
maximization of revenue; PROVIDED, HOWEVER, that HDC shall not be liable for
billing practices by P.C. or its Medical Practitioners that unlawfully maximize
revenue to P.C. or its Medical Practitioners.

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<PAGE>

(collectively, the "SERVICE MARK") in connection with advertising and promotion
of P.C., but in each instance only in the form and manner and in combination
with such other designs, schemes, characteristics, words and the like as may
from time to time be approved in advance by HDC. Upon the expiration or
termination of this Agreement, P.C. will forthwith discontinue the use of the
Service Mark and thereafter shall not use or otherwise seek the benefits of the
Service Mark or any name, phrase, design, logo, mark or the like sufficiently
related to or identifiable with the Service Mark as to derogate from the full
and complete ownership and enjoyment of the same by and for the benefit of HDC.
Recognizing the special and unique value of the Service Mark to HDC, P.C. agrees
that P.C. shall take no action nor permit any action to be taken which shall in
any way derogate from the high level of quality and value associated with the
Service Mark and the ownership and enjoyment of the same by HDC. Furthermore,
P.C. agrees that, without limitation, a violation by P.C. of the provisions of
this Agreement relative to the Service Mark will cause irreparable harm to HDC
and the good will associated with the Service Mark and thus HDC shall be
entitled to immediate injunctive relief (whether by way of temporary or
permanent or mandatory or prohibitive injunction) for any such violation.
Notwithstanding anything in this paragraph to the contrary, P.C. shall not make
use of the Service Mark in any way which would cause a violation of the
applicable guidelines established by pertinent professional associations or the
Massachusetts Board of Registration in Medicine, the Board of Registration in
Medicine of any other jurisdiction in which Medical Services are provided or
other applicable laws or regulations.

(d) EXTENSIONS OF CREDIT TO P.C. HDC hereby agrees to extend credit to
P.C. to fund P.C.'s working capital requirements, including without
limitation amounts due to HDC pursuant to this Agreement, to the extent HDC
determines, in its sole discretion, that such Extensions of Credit are
commercially reasonable; PROVIDED, HOWEVER, that HDC shall not under any
circumstances be obligated to extend any credit to P.C. Such extensions of
credit shall be demand loans (each a "DEMAND LOAN") which shall be due and
payable, including the principal balance and all accrued interest, upon
thirty (30) days written notice from HDC to P.C. Interest on the unpaid
principal balance of each Demand Loan from time to time outstanding shall be
determined in good faith by HDC, but in no event shall exceed the annual rate
of interest announced from time to time by BankBoston, N.A. as its "base
rate" at its head office in Boston, Massachusetts plus five percent (5%), and
shall be added to outstanding principal balance on a monthly basis. The
outstanding principal amount of the Demand Loan, and any accrued interest,
shall be reflected from time to time on the books of HDC, and such entries
shall constitute definitive evidence of the amount of such principal amount
and accrued interest. P.C. hereby acknowledges the existence of an
outstanding principal balance and accrued interest in the amount of $______
(the "CURRENT BALANCE") due and payable to HDC and agrees to use its best
efforts to pay down the Current Balance and any additional amounts of
principal and accrued interest outstanding from time to time. During any
period that a principal balance or accrued interest remains outstanding
under a Demand Loan, P.C. shall not pay, declare or set apart a dividend or
distribution of any kind on any shares of the capital stock of P.C. or make
any other payment to any stockholder of P.C., other than in respect of
professional services provided to the P.C. by such stockholder.

(e) BANK ACCOUNTS. All funds collected by HDC pursuant to this Agreement
shall be deposited as follows:

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<PAGE>

(iii) P.C. does hereby grant a first and continuing security
interest to HDC in all P.C.'s accounts receivable to secure payment of
P.C.'s obligations hereunder, including without limitation payment of
the Compensation Amount and the Demand Loans, to the maximum extent
permitted by applicable law. In the event of any monetary default by
P.C., HDC may exercise all the remedies available to a secured creditor
under the Uniform Commercial Code and other applicable laws, including
seizure of the collateral, notification of account debtors and
obtaining a court order for reassignment of Medicare and Medicaid
receivables to the maximum extent permitted by applicable law. P.C.
shall execute financing statements prepared by HDC. The provisions of
this Section 1(e) shall survive termination of this Agreement until all
of HDC's fees and expenses have been paid in full.

(f) RECORDS AND FINANCIAL DATA.

(i) METHOD OF ACCOUNTING; FINANCIAL STATEMENTS. HDC shall keep
complete and accurate books and records relating to P.C. that reflect all
revenues that HDC receives as a result of billings in the name of P.C. for
Medical Services rendered by P.C., and all expenses incurred by P.C. or
HDC in maintaining P.C. and providing the Medical Services rendered by
P.C. HDC shall allow an officer or employee designated by P.C. to audit
and inspect these books and records at appropriate and reasonable times
and at P.C.'s sole expense.

(ii) DATA FOR TAX RETURNS. HDC shall provide to P.C. the financial
data necessary to enable P.C. to prepare its annual corporate income tax
returns.

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<PAGE>

Agreement and all books, records, and documents as are necessary to
certify the nature and extent of the costs incurred by P.C. pursuant to
this Agreement, and if HDC provides such services through a subcontract
worth $10,000 or more over a twelve-month period with a related
organization, the subcontract will also contain a clause permitting access
by HHS, the United States Comptroller General, and their representatives
to books and records of the related organization. HDC (and any such
subcontractor) will promptly notify P.C. as and when any such request is
received, and will provide P.C. (simultaneously with the providing of such
materials to HHS) with a copy of any materials so provided.

(iv) CONFIDENTIALITY. HDC shall preserve the confidentiality of
P.C.'s patient medical records and use information in such records only
for the limited purposes necessary to perform its responsibilities as set
forth in this Agreement.

2. OBLIGATIONS OF P.C.

(a) EMPLOYMENT OF MEDICAL PRACTITIONERS. HDC shall not provide any
personnel to P.C. P.C. shall be responsible for employing Medical Practitioners
to provide Medical Services for P.C. P.C. acknowledges and agrees that in order
to ensure the quality of services provided by P.C. and the economic viability of
P.C., it will employ and contract with Medical Practitioners subject to the
following requirements:

(i) Every Medical Practitioner shall be fully licensed to practice
his/her specialty under the laws of the Commonwealth of Massachusetts or
such other state in which such practitioner provides services;

(ii) As a condition to each Medical Practitioner's employment,
including without limitation the holder of the capital stock of P.C. (the
"STOCKHOLDER"), such Medical Practitioner shall be required by P.C. to
execute a non-competition and non-solicitation agreement in form and
substance acceptable to HDC prohibiting the Medical Practitioner from
competing with P.C. or HDC for the term of his employment by P.C. and a
period of 18 months thereafter; and

(iii) P.C. shall fix compensation and fringe benefits for individual
Medical Practitioners; provided, however, that compensation and benefits
paid to any such Medical Practitioner, including without limitation the
Stockholder (with respect to compensation for services provided both to
patients and P.C.), shall not exceed the fair market value for such
services. P.C. hereby acknowledges and agrees that HDC has superior
knowledge and experience with respect to the fair market value of services
provided by Medical

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<PAGE>

Practitioners. If a dispute arises between P.C. and HDC with respect to
the fair market value of services provided by a Medical Practitioner, P.C.
hereby agrees that HDC, in its sole discretion, shall determine fair
market value. HDC shall make such determination in good faith and based on
its knowledge and experience and the amounts paid to similarly qualified
practitioners providing similar services for P.C. or other professional
corporations affiliated with HDC.

P.C. further acknowledges that fixed term agreements, including without
limitation employment agreements, between P.C. and Medical Practitioners are
not necessarily in the best interests of patients and patient care and may
interfere with the quality of services provided by P.C., and, therefore, P.C.
hereby agrees that, without the express written consent of HDC, it shall not
enter into any such agreements with the Medical Practitioners it employs,
including without limitation the Stockholder. HDC agrees that it shall make
any determinations with respect to fixed term arrangements in good faith and
based on its knowledge and experience in the industry.

(b) MAINTENANCE OF INSURANCE. P.C. covenants and agrees that until the
expiration or termination of this Agreement it will maintain, or will require
each of its Medical Practitioners to maintain, comprehensive professional
liability insurance with limits of not less than $1,000,000 per claim and with
aggregate policy limits of not less than $3,000,000 per each Medical
Practitioner, with each of P.C. and HDC having the right, upon request, to be
added as additional insured. P.C. shall be responsible for all such liabilities
in excess of the limits of such insurance policies. Premiums and deductibles
with respect to such insurance policies shall be an expense of P.C.

(c) COMPLIANCE WITH REGULATIONS. P.C. shall comply and shall cause each of
its Medical Practitioners to comply with all applicable rules and regulations of
governmental bodies having jurisdiction over the P.C. or any of the Medical
Practitioners.

(d) QUALITY OF CARE. P.C. shall at all times be solely responsible for the
quality of the Medical Services rendered by the Medical Practitioners, it being
agreed that HDC shall have no responsibility or liability for such services or
programs.

(e) FEES. P.C. shall be solely responsible for setting its fees. P.C.
warrants that it will set its fees in accordance with law and that such fees
will be neither inadequate nor excessive in light of the services to be
performed and the need to insure the economic viability of P.C.; PROVIDED,
HOWEVER, that the foregoing shall not affect the control of the Medical Practice
by the P.C. pursuant to Section 2(g) of this Agreement.

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<PAGE>

acknowledges and agrees that it shall have no property rights in the foregoing
systems, procedures and forms and such systems, procedures and forms shall be
deemed to constitute Confidential Information within the meaning of Section 7 of
this Agreement and subject to the restrictions on use, appropriation and
reproduction of such Confidential Information provided in Section 7 of this
Agreement; AND, PROVIDED FURTHER that the foregoing shall not affect the control
of the Medical Practice by the P.C. pursuant to Section 2(g) of this Agreement.

(g) CONTROL OF MEDICAL PRACTICE BY P.C. Notwithstanding anything to the
contrary contained in this Agreement, the delivery of Medical Services shall be
supervised, directed, and controlled, and all final determinations with respect
thereto shall be made, exclusively by P.C., including without limitation, the
following (collectively, "MEDICAL PRACTICE"):

(i) employment of all Medical Practitioners, pursuant to Section
2(a) of this Agreement;

(ii) supervision and direction of all Medical Practitioners,
including, without limitation, assignment of patients to the Medical
Practitioners and establishment and monitoring of peer review guidelines;

(iii) determination of the hospital supplying Medical Practitioners
to P.C., if applicable;

(iv) maintenance of patient records;

(v) establishment of policies and procedures with respect to patient
acceptance; and

(vi) establishment of the hours of operation of P.C., scope of
services provided and fees for such services.

(h) AUTHORITY TO CONTRACT. P.C. shall have exclusive authority to
negotiate and enter into agreements related to Medical Practice; PROVIDED,
HOWEVER, that (i) P.C. shall give HDC thirty (30) days prior notice of P.C.'s
intent to execute any agreement obligating P.C. to engage in Medical Practice or
otherwise creating a binding legal obligation on P.C. related to Medical
Practice, and (ii) P.C. shall not enter into any agreement that does not relate
to Medical Practice without HDC's prior

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<PAGE>

written consent. P.C. hereby approves, confirms and ratifies all agreements
negotiated and executed by HDC on P.C.'s behalf prior to the date hereof.

(i) EXCLUSIVE SUPPLIER. P.C. hereby appoints HDC as the exclusive supplier
of the services set forth in Section 1 of this Agreement.

(a) HDC and P.C. and its Medical Practitioners shall have no obligation
to refer patients to each other or to long term care facilities
under contract with P.C., and P.C. and its Medical Practitioners
shall have no obligation to refer patients to other professional
corporations or providers of medical, dental, optometry, podiatry,
or ancillary health care services affiliated with HDC or long term
care facilities under contract with professional corporations
affiliated with HDC; and

(b) P.C. shall not, and shall use its best efforts to cause the Medical
Practitioners not to, (i) provide "designated health services," as
such term is defined under Stark I and Stark II, without providing
no less than 30 days prior written notice to HDC, and (ii) refer
patients to entities that provide "designated health services" and
in which P.C., or any of the Medical Practitioners, have a financial
relationship, compensation arrangement, or an ownership or
investment interest.

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<PAGE>

the net of (i) all revenue minus (ii) all expenses (excluding compensation
due under this Section) of P.C. recorded on an accrual basis using tax
accounting principles. The amount of compensation due HDC under this Section
shall be determined on a monthly basis by HDC and shall be due and payable to
HDC on the last day of every month. Any amount not paid when due shall accrue
interest at a reasonable rate determined by HDC. The fact that interest may
accrue on any unpaid compensation due HDC shall in no way diminish HDC's
right to be paid such compensation when due. HDC may withdraw its fees
directly from the bank accounts established hereunder. In the event that P.C.
makes a determination that it believes that the Compensation Amount
calculated by HDC in accordance with the formula set forth above for any
particular month exceeds the fair market value of the services provided by
HDC under this Agreement for such month P.C. shall provide HDC with notice of
such determination no later than thirty days after the end of the month for
which it believes the Compensation Amount exceeds the fair market value of
the services provided. In the event that P.C. does not deliver such a notice
within such thirty day period, P.C. shall for all purposes under this
Agreement be deemed to have agreed that the Compensation Amount calculated by
HDC for such month did not exceed the fair market value of the services
provided by HDC for that month. As soon as reasonably practicable after the
receipt of such notice, HDC and P.C. shall form a committee (the "Fee
Committee") to determine the fair market value of the services provided by
HDC during such month by majority vote. The Fee Committee shall consist of
one individual designated by HDC (the "HDC Designee"), one individual
designated by P.C. (the "P.C. Designee"), and a third party designated by the
HDC Designee and the P.C. Designee. In making its determination, the Fee
Committee shall consider the value of all of the services provided by HDC to
P.C. during such month taken as a whole, the potential impact on P.C. of a
discontinuation of the services provided by HDC, and the fees charged by
other similarly situated companies to similarly situated medical or dental
practices in HDC's industry, in addition to any other factors that it deems
relevant. Each of HDC and P.C. agree to be bound by the good faith
determination of the Fee Committee. In the event that the Fee Committee
determines that the Compensation Amount exceeds the fair market value of the
services provided during such month, HDC shall promptly refund to P.C. the
difference between the Compensation Amount and the fair market value of the
services provided, as determined by the Fee Committee.

6. TERM OF AGREEMENT. This Agreement shall be in effect from the date first
set forth above through June 19, 2038; PROVIDED, HOWEVER, that the term
hereof shall be automatically extended for additional periods of twelve (12)
months each, unless either party gives written notice as provided below to
the other at least ninety (90) days prior to the expiration of the initial
term or any extended term hereof. Upon termination of this Agreement, HDC
using funds billed and collected pursuant to Section 1(d) above shall: (i)
pay any expenses accrued by P.C. through the termination date; (ii) collect
all fees accrued to it through the termination date, including without
limitation the payment of the Compensation Amount specified in Section 4
hereof; and (iii) collect the amounts due under the Demand Loans specified in
Section 1(b) hereof. All other obligations of the parties shall cease as of
the termination date unless otherwise specifically provided in this
Agreement; PROVIDED, HOWEVER, that notwithstanding the foregoing, P.C. shall
be obligated to pay amounts due pursuant to items (ii) and (iii) above in the
event that funds billed and collected pursuant to Section 1(d) above are
insufficient to pay such amounts.

7. TERMINATION OF THE AGREEMENT.

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(c) HDC may terminate this Agreement upon written notice to P.C. at such
time as P.C. does not qualify for any reason as a Professional Corporation or no
longer has the necessary authorization to render Medical Services in The
Commonwealth of Massachusetts or any other state in which Medical Practitioners
employed or otherwise retained by P.C.
provide such services.

(d) HDC may terminate this Agreement upon written notice to P.C. if the
license to practice medicine or any ancillary health care service of any Medical
Practitioner is revoked or threatened to be revoked by the applicable Board of
Registration of the Commonwealth of Massachusetts or such other state in which
such Medical Practitioner provides services, provided that P.C. has not
forthwith terminated such Medical Practitioner from his or her employment or
association with the P.C.

8. CONFIDENTIAL AND PROPRIETARY INFORMATION.

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Agreement will result in irreparable injury to HDC, that the remedy at law for
the foregoing would be inadequate, and that in the event of any such use,
appropriation, or reproduction of any such Confidential Information after the
termination or expiration of this Agreement, HDC, in addition to any other
remedies or damages available to it, shall be entitled to injunctive or other
equitable relief.

(a) Except as specifically agreed to by HDC in writing, P.C. covenants and
agrees that during the term of this Agreement, and for a period of two (2) years
from the date this Agreement is terminated, other than termination by P.C. for
cause, or expires, P.C. shall not, directly or indirectly, own, manage, operate,
control, contract with, lend funds to, maintain an interest whatsoever in, or be
employed by, any enterprise providing capital or services to those engaged in
the provision of Medical Services or providing any other type of services or
products to third parties substantially similar to those offered by HDC located
anywhere in the United States.

10. GENERAL.

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relationship is and shall remain that of independent parties to a contractual
relationship as set forth in this Agreement. In no event shall either party be
liable for the debts or obligations of the other of them except as otherwise
specifically provided in this Agreement. None of P.C., or any Medical
Practitioner, whether such Medical Practitioner be a member, partner, employee,
subcontractor, or otherwise, of P.C., shall have any claim under this Agreement
or otherwise against HDC for vacation pay, sick leave, retirement benefits,
social security, workers' compensation, disability or unemployment benefits,
incentive compensation or employee benefits of any kind.

(ii) HDC agrees to indemnify and hold harmless
P.C., its shareholders, directors, officers, employees and other affiliates
and their respective successors and assigns, harmless from and against any
and all liabilities, demands, claims, actions, causes of action, losses,
fines, penalties, costs, damages and expenses, including reasonable
attorneys' and expert witness fees, alleged against, sustained or incurred by
any such persons arising out of or resulting from any negligent or
intentional misconduct by HDC in connection with the services it has agreed
to provide pursuant to Section 1(b).

(d) PRIOR AGREEMENT; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof, including but not limited to that Management
Agreement, dated as of October 3, 1989, and the Operating Agreement, dated as
of May 26, 1998, between HDC and P.C., which are hereby terminated. This
Agreement may not be amended, altered, changed, or terminated orally. No
amendment, alteration, change, or attempted waiver of any of the provisions
hereof shall be binding without the written consent of both parties, and such
amendment, alteration, change, termination or waiver shall in no way affect
the other terms and conditions of this Agreement, which in all other respects
shall remain in full force.

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(i) ADDITIONAL DOCUMENTS. The parties hereto shall execute such additional
documents as are reasonably required for the purpose of carrying out the intent
and purpose of this Agreement.

(j) HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.

(i) if intended for HDC such notice having been addressed to it at:

25 Needham Street
Newton, MA 02161
Attention: Michael R. Kaplan; and

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(ii) if intended for P.C. such notice having been addressed to it at:

25 Needham Street
Newton, MA 02161
Attention: Steven Charlap, M.D.

Either party hereto by like notice to the other, may designate such other
address or addresses to which notice must be sent.

(l) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all which together shall
constitute one instrument.

(m) NO MEDICAL PRACTICE BY HDC. It is acknowledged that HDC is not
authorized or qualified to engage in any activity which may be construed or
considered to constitute the practice of medicine or any ancillary medical
service. To the extent any act or service of HDC under this Agreement is
construed or considered to constitute the practice of medicine or any ancillary
medical service, the performance of such act or service by HDC shall be deemed
waived and excused. If notwithstanding any waiver or excuse of HDC's performance
of an act or service as contemplated in the immediately preceding sentence, any
of the provisions of this Agreement (1) may be construed or considered to be in
material violation of any rules, regulations or policies of the Board of
Registration in Medicine (or such ancillary medical service) of The Commonwealth
of Massachusetts, the Board of Registration of any other jurisdiction in which
the P.C. provides Medical Services, or the statutes, laws, rules or regulations
of the United States or any state, governmental agency, authority, or other body
having jurisdiction over the P.C. or the Company, or (2) may be construed or
considered to impose a substantial threat to the license to practice medicine
and/or any ancillary medical service of any Medical Practitioner, or to the
authorization of P.C. to render Medical Services, then the parties hereto agree
to use their best efforts to negotiate in good faith an amendment to this
Agreement, the purpose and substance of which shall be modification of only
those provisions giving rise to the issues set forth in clauses (1) and (2) of
this sentence so that the Agreement as modified continues to reflect, as nearly
as possible, the intent of the parties as expressed herein. If notwithstanding
negotiation in good faith as contemplated in the immediately preceding sentence,
an amendment to this Agreement cannot be agreed to that resolves the issues set
forth in clauses (1) and (2) of the preceding sentence and continues to reflect,
as nearly as possible, the intent of the parties expressed herein, this
Agreement shall terminate thirty (30) days after the date either party hereto
provides notice to the other party hereto that such circumstances exist.

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Executed as an instrument under seal as of the date first set forth above.

HEALTHDRIVE CORPORATION STEVEN S. CHARLAP, M.D., P.C.

By: /s/ Michael R. Kaplan By: /s/ Steven S. Charlap
------------------------------ ----------------------------
Name: Michael R. Kaplan Name: Steven S. Charlap, M.D.
Office: Vice President of Finance Office: President

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<PAGE>

OPERATING AGREEMENT
ALEC H. JARET, D.M.D., P.C.
HEALTHDRIVE CORPORATION

<PAGE>

OPERATING AGREEMENT
ALEC H. JARET D.M.D., P.C.
HEALTHDRIVE CORPORATION

Table of Contents

Page No.

I. BACKGROUND................................................1
II. AGREEMENT.................................................1
1. Obligations of HDC................................1
(a) General......................................1
(b) Claim Processing and Collection of Fees......2
(c) License of Service Mark......................2
(d) Extensions of Credit to P.C..................3
(e) Bank Accounts................................3
(f) Records and Financial Data...................4
2. Obligations of P.C................................5
(a) Employment of Dental Practitioners...........5
(b) Maintenance of Insurance.....................6
(c) Compliance with Regulations..................6
(d) Quality of Care..............................6
(e) Fees.........................................6
(f) Standardized Systems.........................6
(g) Control of Dental Practice by P.C............7
(h) Authority to Contract........................7
(i) Exclusive Supplier...........................8
3. Prohibition on Referrals..........................8
4. Expenses of P.C...................................8
5. Compensation of HDC...............................8
6. Term of the Agreement.............................9
7. Termination of the Agreement......................9
8. Confidential and Proprietary Information.........10
9. Non-Competition and Non-Solicitation.............11
10. General..........................................11
(a) Independent Contractor......................11
(b) Exclusivity.................................12
(c) Indemnification.............................12
(d) Prior Agreements; Amendments................12
(e) Force Majeure...............................12

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OPERATING AGREEMENT

OPERATING AGREEMENT, dated as of June 19, 1998, by and between Alec H.
Jaret, D.M.D., P.C., a professional corporation organized under Chapter 156A
of the Massachusetts General Laws ("P.C."), and HealthDrive Corporation, a
Delaware corporation ("HDC").

I. BACKGROUND

WHEREAS, P.C. is a duly incorporated and validly existing professional
corporation organized for the practice of dentistry;

WHEREAS, HDC provides certain services and capital and licenses its
Service Mark (as hereinafter defined) to those engaged in the provision of
dental and/or ancillary dental care services at long term care facilities and
other concentrated geriatric populations ("DENTAL SERVICES"); and

WHEREAS, P.C. desires to engage HDC to provide certain services and
capital to P.C. and its dentists, hygienists, and ancillary dental personnel
("DENTAL PRACTITIONERS") and to license HDC's Service Mark.

II. AGREEMENT

1. OBLIGATIONS OF HDC.

(a) GENERAL. HDC shall be exclusively responsible to provide to P.C. the
following services required by P.C.:

(i) Order and purchase, as an accommodation to and on behalf of
P.C., all dental and office inventory, laundry, linen, uniforms, printing,
stationary, forms, laboratory items and supplies as are ordinary and
necessary for operation of the P.C. HDC shall be solely responsible for
the payment of applicable sales or use tax with respect to such purchases
and shall make such property available for use by P.C. without any
additional charge therefor.

(ii) Operate and maintain P.C.'s bookkeeping and accounting systems;

<PAGE>

(iii) Perform all payroll and payroll accounting functions for P.C.;
and

(iv) Administer all of P.C.'s employee benefit plans.

(b) CLAIMS PROCESSING AND COLLECTION OF FEES. HDC shall, on behalf and in
the name of P.C., be exclusively responsible for processing all claims and
bills, and for collecting all moneys related thereto, for Dental Services
rendered by P.C. In this connection, P.C. appoints HDC for the term of this
Agreement its true and lawful agent, and shall assure that such appointment is
effective for P.C.'s Dental Practitioners for the following purposes:

(i) To bill and collect on behalf of P.C., or any of its Dental
Practitioners, amounts owing from patients for performance of Dental
Services, and P.C. hereby covenants to turn over, and require any of its
Dental Practitioners to turn over, all such payments to HDC for deposit as
provided in Section 1(e) below;

(ii) To bill and collect on behalf of P.C., or any of its Dental
Practitioners, amounts owing from Blue Shield plans, insurance companies,
Medicare, Medicaid, and any other third party payor for the performance of
Dental Services, and P.C. hereby covenants to turn over, and require any
of its Dental Practitioners to turn over, all such payments to HDC for
deposit as provided in Section 1(e) below;

(iv) To take such other actions relative to billing and collection
of fees, and related financial matters of the P.C. as are appropriate and
consistent with the purpose of this Agreement.

In connection with its obligations under this Section 1(b), HDC shall
maintain systems and procedures reasonably necessary to prevent unlawful
maximization of revenue; PROVIDED, HOWEVER, that HDC shall not be liable for
billing practices by P.C. or its Dental Practitioners that unlawfully maximize
revenue to P.C. or its Dental Practitioners.

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<PAGE>

(collectively, the "SERVICE MARK") in connection with advertising and promotion
of P.C., but in each instance only in the form and manner and in combination
with such other designs, schemes, characteristics, words and the like as may
from time to time be approved in advance by HDC. Upon the expiration or
termination of this Agreement, P.C. will forthwith discontinue the use of the
Service Mark and thereafter shall not use or otherwise seek the benefits of the
Service Mark or any name, phrase, design, logo, mark or the like sufficiently
related to or identifiable with the Service Mark as to derogate from the full
and complete ownership and enjoyment of the same by and for the benefit of HDC.
Recognizing the special and unique value of the Service Mark to HDC, P.C. agrees
that P.C. shall take no action nor permit any action to be taken which shall in
any way derogate from the high level of quality and value associated with the
Service Mark and the ownership and enjoyment of the same by HDC. Furthermore,
P.C. agrees that, without limitation, a violation by P.C. of the provisions of
this Agreement relative to the Service Mark will cause irreparable harm to HDC
and the good will associated with the Service Mark and thus HDC shall be
entitled to immediate injunctive relief (whether by way of temporary or
permanent or mandatory or prohibitive injunction) for any such violation.
Notwithstanding anything in this paragraph to the contrary, P.C. shall not make
use of the Service Mark in any way which would cause a violation of the
applicable guidelines established by pertinent professional associations or the
Massachusetts Board of Registration in Dentistry, the Board of Registration in
Dentistry of any other jurisdiction in which Dental Services are provided or
other applicable laws or regulations.

(e) BANK ACCOUNTS. All funds collected by HDC pursuant to this Agreement
shall be deposited as follows:

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(iii) P.C. does hereby grant a first and continuing security
interest to HDC in all P.C.'s accounts receivable to secure payment of
P.C.'s obligations hereunder, including without limitation payment of
the Compensation Amount and the Demand Loans, to the maximum extent
permitted by applicable law. In the event of any monetary default by
P.C., HDC may exercise all the remedies available to a secured creditor
under the Uniform Commercial Code and other applicable laws, including
seizure of the collateral, notification of account debtors and obtaining
a court order for reassignment of Medicare and Medicaid receivables to
the maximum extent permitted by applicable law. P.C. shall execute
financing statements prepared by HDC. The provisions of this Section 1(e)
shall survive termination of this Agreement until all of HDC's fees and
expenses have been paid in full.

(f) RECORDS AND FINANCIAL DATA.

(i) METHOD OF ACCOUNTING; FINANCIAL STATEMENTS. HDC shall keep
complete and accurate books and records relating to P.C. that reflect all
revenues that HDC receives as a result of billings in the name of P.C. for
Dental Services rendered by P.C., and all expenses incurred by P.C. or HDC
in maintaining P.C. and providing the Dental Services rendered by P.C. HDC
shall allow an officer or employee designated by P.C. to audit and inspect
these books and records at appropriate and reasonable times and at P.C.'s
sole expense.

(ii) DATA FOR TAX RETURNS. HDC shall provide to P.C. the financial
data necessary to enable P.C. to prepare its annual corporate income tax
returns.

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(iv) CONFIDENTIALITY. HDC shall preserve the confidentiality of
P.C.'s patient dental records and use information in such records only for
the limited purposes necessary to perform its responsibilities as set
forth in this Agreement.

2. OBLIGATIONS OF P.C.

(a) EMPLOYMENT OF DENTAL PRACTITIONERS. HDC shall not provide any
personnel to P.C. P.C. shall be responsible for employing Dental Practitioners
to provide Dental Services for P.C. P.C. acknowledges and agrees that in order
to ensure the quality of services provided by P.C. and the economic viability of
P.C., it will employ and contract with Dental Practitioners subject to the
following requirements:

(i) Every Dental Practitioner shall be fully licensed to practice
his/her specialty under the laws of the Commonwealth of Massachusetts or
such other state in which such practitioner provides services;

(ii) As a condition to each Dental Practitioner's employment,
including without limitation the holder of the capital stock of P.C. (the
"STOCKHOLDER"), such Dental Practitioner shall be required by P.C. to
execute a non-competition and non-solicitation agreement in form and
substance acceptable to HDC prohibiting the Dental Practitioner from
competing with P.C. or HDC for the term of his employment by P.C. and a
period of 18 months thereafter; and

(iii) P.C. shall fix compensation and fringe benefits for individual
Dental Practitioners; provided, however, that compensation and benefits
paid to any such Dental Practitioner, including without limitation the
Stockholder (with respect to compensation for services provided both to
patients and P.C.), shall not exceed the fair market value for such
services. P.C. hereby acknowledges and agrees that HDC has superior
knowledge and experience with respect to the fair market value of services
provided by Dental

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Practitioners. If a dispute arises between P.C. and HDC with respect to
the fair market value of services provided by a Dental Practitioner, P.C.
hereby agrees that HDC, in its sole discretion, shall determine fair
market value. HDC shall make such determination in good faith and based on
its knowledge and experience and the amounts paid to similarly qualified
practitioners providing similar services for P.C. or other professional
corporations affiliated with HDC.

P.C. further acknowledges that fixed term agreements, including without
limitation employment agreements, between P.C. and Dental Practitioners are
not necessarily in the best interests of patients and patient care and may
interfere with the quality of services provided by P.C., and, therefore, P.C.
hereby agrees that, without the express written consent of HDC, it shall not
enter into any such agreements with the Dental Practitioners it employs. HDC
agrees that it shall make any determinations with respect to fixed term
arrangements in good faith and based on its knowledge and experience in the
industry.

(b) MAINTENANCE OF INSURANCE. P.C. covenants and agrees that until the
expiration or termination of this Agreement it will maintain, or will require
each of its Dental Practitioners to maintain, comprehensive professional
liability insurance with limits of not less than $1,000,000 per claim and with
aggregate policy limits of not less than $3,000,000 per each Dental
Practitioner, with each of P.C. and HDC having the right, upon request, to be
added as additional insured. P.C. shall be responsible for all such liabilities
in excess of the limits of such insurance policies. Premiums and deductibles
with respect to such insurance policies shall be an expense of P.C.

(c) COMPLIANCE WITH REGULATIONS. P.C. shall comply and shall cause each of
its Dental Practitioners to comply with all applicable rules and regulations of
governmental bodies having jurisdiction over the P.C. or any of the Dental
Practitioners.

(d) QUALITY OF CARE. P.C. shall at all times be solely responsible for the
quality of the Dental Services rendered by the Dental Practitioners, it being
agreed that HDC shall have no responsibility or liability for such services or
programs.

(e) FEES. P.C. shall be solely responsible for setting its fees. P.C.
warrants that it will set its fees in accordance with law and that such fees
will be neither inadequate nor excessive in light of the services to be
performed and the need to insure the economic viability of P.C.; PROVIDED,
HOWEVER, that the foregoing shall not affect the control of the Dental Practice
by the P.C. pursuant to Section 2(g) of this Agreement.

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<PAGE>

acknowledges and agrees that it shall have no property rights in the foregoing
systems, procedures and forms and such systems, procedures and forms shall be
deemed to constitute Confidential Information within the meaning of Section 7 of
this Agreement and subject to the restrictions on use, appropriation and
reproduction of such Confidential Information provided in Section 7 of this
Agreement; AND, PROVIDED FURTHER that the foregoing shall not affect the control
of the Dental Practice by the P.C. pursuant to Section 2(g) of this Agreement.

(g) CONTROL OF DENTAL PRACTICE BY P.C. Notwithstanding anything to the
contrary contained in this Agreement, the delivery of Dental Services shall be
supervised, directed, and controlled, and all final determinations with respect
thereto shall be made, exclusively by P.C., including without limitation, the
following (collectively, "DENTAL PRACTICE"):

(i) employment of all Dental Practitioners, pursuant to Section 2(a)
of this Agreement;

(ii) supervision and direction of all Dental Practitioners,
including, without limitation, assignment of patients to the Dental
Practitioners and establishment and monitoring of peer review guidelines;

(iii) determination of the hospital supplying Dental Practitioners
to P.C., if applicable;

(iv) maintenance of patient records;

(v) establishment of policies and procedures with respect to patient
acceptance; and

(vi) establishment of the hours of operation of P.C., scope of
services provided and fees for such services.

(h) AUTHORITY TO CONTRACT. P.C. shall have exclusive authority to
negotiate and enter into agreements related to Dental Practice; PROVIDED,
HOWEVER, that (i) P.C. shall give HDC thirty (30) days prior notice of P.C.'s
intent to execute any agreement obligating P.C. to engage in Dental Practice or
otherwise creating a binding legal obligation on P.C. related to Dental
Practice, and (ii) P.C. shall not enter into any agreement that does not relate
to Dental Practice without HDC's prior written

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<PAGE>

consent. P.C. hereby approves, confirms and ratifies all agreements negotiated
and executed by HDC on P.C.'s behalf prior to the date hereof.

(i) EXCLUSIVE SUPPLIER. P.C. hereby appoints HDC as the exclusive supplier
of the services set forth in Section 1 of this Agreement.

(a) HDC and P.C. and its Dental Practitioners shall have no obligation
to refer patients to each other or to long term care facilities
under contract with P.C., and P.C. and its Dental Practitioners
shall have no obligation to refer patients to other professional
corporations or providers of medical, dental, optometry, podiatry or
ancillary health care services affiliated with HDC or long term care
facilities under contract with professional corporations affiliated
with HDC; and

(b) P.C. shall not, and shall use its best efforts to cause the Dental
Practitioners not to, (i) provide "designated health services," as
such term is defined under Stark I and Stark II, without providing
no less than 30 days prior written notice to HDC, and (ii) refer
patients to entities that provide "designated health services" and
in which P.C., or any of the Dental Practitioners, have a financial
relationship, compensation arrangement, or an ownership or
investment interest.

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7. TERMINATION OF THE AGREEMENT.

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<PAGE>

(c) HDC may terminate this Agreement upon written notice to P.C. at such
time as P.C. does not qualify for any reason as a Professional Corporation or no
longer has the necessary authorization to render Dental Services in The
Commonwealth of Massachusetts or any other state in which Dental Practitioners
employed or otherwise retained by P.C.
provide such services.

(d) HDC may terminate this Agreement upon written notice to P.C. if the
license to practice dentistry or any ancillary health care service of any Dental
Practitioner is revoked or threatened to be revoked by the applicable Board of
Registration of the Commonwealth of Massachusetts or such other state in which
such Dental Practitioner provides services, provided that P.C. has not forthwith
terminated such Dental Practitioner from his or her employment or association
with the P.C.

8. CONFIDENTIAL AND PROPRIETARY INFORMATION.

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(a) Except as specifically agreed to by HDC in writing, P.C. covenants and
agrees that during the term of this Agreement, and for a period of two (2) years
from the date this Agreement is terminated, other than termination by P.C. for
cause, or expires, P.C. shall not, directly or indirectly, own, manage, operate,
control, contract with, lend funds to, maintain an interest whatsoever in, or be
employed by, any enterprise providing capital or services to those engaged in
the provision of Dental Services or providing any other type of services or
products to third parties substantially similar to those offered by HDC located
anywhere in the United States.

10. GENERAL.

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Practitioner, whether such Dental Practitioner be a member, partner, employee,
subcontractor, or otherwise, of P.C., shall have any claim under this Agreement
or otherwise against HDC for vacation pay, sick leave, retirement benefits,
social security, workers' compensation, disability or unemployment benefits,
incentive compensation or employee benefits of any kind.

(d) PRIOR AGREEMENT; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof, including but not limited to that Management
Agreement, dated as of October 3, 1989, and the Operating Agreement, dated as
of May 26, 1998, between HDC and P.C., which are hereby terminated. This
Agreement may not be amended, altered, changed, or terminated orally. No
amendment, alteration, change, or attempted waiver of any of the provisions
hereof shall be binding without the written consent of both parties, and such
amendment, alteration, change, termination or waiver shall in no way affect
the other terms and conditions of this Agreement, which in all other respects
shall remain in full force.

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consent may be withheld in HDC's sole discretion. Any attempted assignment by
the P.C. shall be void and of no force and effect. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties'
successors and assigns, respectively, but this provision shall not constitute a
consent by HDC to assignment by P.C. otherwise prohibited by the preceding
sentences.

(i) ADDITIONAL DOCUMENTS. The parties hereto shall execute such additional
documents as are reasonably required for the purpose of carrying out the intent
and purpose of this Agreement.

(j) HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.

(i) if intended for HDC such notice having been addressed to it at:

25 Needham Street
Newton, MA 02161
Attention: Steven S. Charlap, M.D.; and

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(ii) if intended for P.C. such notice having been addressed to it at:

c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: Alec H. Jaret, D.M.D.

Either party hereto by like notice to the other, may designate such other
address or addresses to which notice must be sent.

(l) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all which together shall
constitute one instrument.

(m) NO DENTAL PRACTICE BY HDC. It is acknowledged that HDC is not
authorized or qualified to engage in any activity which may be construed or
considered to constitute the practice of dentistry or any ancillary health care
service. To the extent any act or service of HDC under this Agreement is
construed or considered to constitute the practice of dentistry or any ancillary
health care service, the performance of such act or service by HDC shall be
deemed waived and excused. If notwithstanding any waiver or excuse of HDC's
performance of an act or service as contemplated in the immediately preceding
sentence, any of the provisions of this Agreement (1) may be construed or
considered to be in material violation of any rules, regulations or policies of
the Board of Registration in Dentistry (or such ancillary health care service)
of The Commonwealth of Massachusetts, the Board of Registration of any other
jurisdiction in which the P.C. provides Dental Services, or the statutes, laws,
rules or regulations of the United States or any state, governmental agency,
authority, or other body having jurisdiction over the P.C. or the Company, or
(2) may be construed or considered to impose a substantial threat to the license
to practice dentistry and/or any ancillary health care service of any Dental
Practitioner, or to the authorization of P.C. to render Dental Services, then
the parties hereto agree to use their best efforts to negotiate in good faith an
amendment to this Agreement, the purpose and substance of which shall be
modification of only those provisions giving rise to the issues set forth in
clauses (1) and (2) of this sentence so that the Agreement as modified continues
to reflect, as nearly as possible, the intent of the parties as expressed
herein. If notwithstanding negotiation in good faith as contemplated in the
immediately preceding sentence, an amendment to this Agreement cannot be agreed
to that resolves the issues set forth in clauses (1) and (2) of the preceding
sentence and continues to reflect, as nearly as possible, the intent of the
parties expressed herein, this Agreement shall terminate thirty (30) days after
the date either party hereto provides notice to the other party hereto that such
circumstances exist.

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<PAGE>

Executed as an instrument under seal as of the date first set forth above.

HEALTHDRIVE CORPORATION ALEC H. JARET, D.M.D., P.C.

By: /s/ Steven S. Charlap By: /s/ Alec H. Jaret
------------------------------ ----------------------------
Name: Steven S. Charlap, M.D. Name: Alec H. Jaret, D.M.D.
Office: Chief Executive Officer and President Office: President

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<PAGE>

OPERATING AGREEMENT
MARY C. MANESIS, D.P.M., P.C.
HEALTHDRIVE CORPORATION

<PAGE>

OPERATING AGREEMENT
MARY C. MANESIS, D.P.M., P.C.
HEALTHDRIVE CORPORATION

Table of Contents

Page No.

I. BACKGROUND................................................1
II. AGREEMENT.................................................1
1. Obligations of HDC................................1
(a) General......................................1
(b) Claim Processing and Collection of Fees......2
(c) License of Service Mark......................2
(d) Extensions of Credit to P.C..................3
(e) Bank Accounts................................3
(f) Records and Financial Data...................4
2. Obligations of P.C................................5
(a) Employment of Practitioners..................5
(b) Maintenance of Insurance.....................6
(c) Compliance with Regulations..................6
(d) Quality of Care..............................6
(e) Fees.........................................6
(f) Standardized Systems.........................6
(g) Control of Podiatry Practice by P.C..........7
(h) Authority to Contract........................7
(i) Exclusive Supplier...........................8
3. Prohibition on Referrals..........................8
4. Expenses of P.C...................................8
5. Compensation of HDC...............................8
6. Term of the Agreement.............................9
7. Termination of the Agreement......................9
8. Confidential and Proprietary Information.........10
9. Non-Competition and Non-Solicitation.............11
10. General..........................................11
(a) Independent Contractor......................11
(b) Exclusivity.................................12
(c) Indemnification.............................12
(d) Prior Agreements; Amendments................12
(e) Force Majeure...............................12

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<PAGE>

OPERATING AGREEMENT

OPERATING AGREEMENT, dated as of June 19, 1998, by and between Mary C.
Manesis, D.P.M., P.C., a professional corporation organized under Chapter
156A of the Massachusetts General Laws ("P.C."), and HealthDrive Corporation,
a Delaware corporation ("HDC").

I. BACKGROUND

WHEREAS, P.C. is a duly incorporated and validly existing professional
corporation organized for the practice of podiatry;

WHEREAS, HDC provides certain services and capital and licenses its
Service Mark (as hereinafter defined) to those engaged in the provision of
podiatry and/or ancillary health care services at long term care facilities
and other concentrated geriatric populations ("PODIATRY SERVICES"); and

WHEREAS, P.C. desires to engage HDC to provide certain services and
capital to P.C. and its podiatrists and ancillary health care personnel
("PRACTITIONERS") and to license HDC's Service Mark.

NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

II. AGREEMENT

1. OBLIGATIONS OF HDC.

(a) GENERAL. HDC shall be exclusively responsible to provide to P.C. the
following services required by P.C.:

(i) Order and purchase, as an accommodation to and on behalf of
P.C., all podiatry related and office inventory, laundry, linen, uniforms,
printing, stationary, forms, laboratory items and supplies as are ordinary
and necessary for operation of the P.C. HDC shall be solely responsible
for the payment of applicable sales or use tax with respect to such
purchases and shall make such property available for use by P.C. without
any additional charge therefor.

(ii) Operate and maintain P.C.'s bookkeeping and accounting systems;

<PAGE>

(iii) Perform all payroll and payroll accounting functions for P.C.;
and

(iv) Administer all of PC's employee benefit plans.

(b) CLAIMS PROCESSING AND COLLECTION OF FEES. HDC shall, on behalf and in
the name of P.C., be exclusively responsible for processing all claims and
bills, and for collecting all moneys related thereto, for Podiatry Services
rendered by P.C. In this connection, P.C. appoints HDC for the term of this
Agreement its true and lawful agent, and shall assure that such appointment is
effective for P.C.'s Practitioners for the following purposes:

(i) To bill and collect on behalf of P.C., or any of its
Practitioners, amounts owing from patients for performance of Podiatry
Services, and P.C. hereby covenants to turn over, and require any of its
Practitioners to turn over, all such payments to HDC for deposit as
provided in Section 1(e) below;

(ii) To bill and collect on behalf of P.C., or any of its
Practitioners, amounts owing from Blue Shield plans, insurance companies,
Medicare, Medicaid, and any other third party payor for the performance of
Podiatry Services, and P.C. hereby covenants to turn over, and require any
of its Practitioners to turn over, all such payments to HDC for deposit as
provided in Section 1(e) below;

(iv) To take such other actions relative to billing and collection
of fees, and related financial matters of the P.C. as are appropriate and
consistent with the purpose of this Agreement.

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<PAGE>

other designs, schemes, characteristics, words and the like as may from time to
time be approved in advance by HDC. Upon the expiration or termination of this
Agreement, P.C. will forthwith discontinue the use of the Service Mark and
thereafter shall not use or otherwise seek the benefits of the Service Mark or
any name, phrase, design, logo, mark or the like sufficiently related to or
identifiable with the Service Mark as to derogate from the full and complete
ownership and enjoyment of the same by and for the benefit of HDC. Recognizing
the special and unique value of the Service Mark to HDC, P.C. agrees that P.C.
shall take no action nor permit any action to be taken which shall in any way
derogate from the high level of quality and value associated with the Service
Mark and the ownership and enjoyment of the same by HDC. Furthermore, P.C.
agrees that, without limitation, a violation by P.C. of the provisions of this
Agreement relative to the Service Mark will cause irreparable harm to HDC and
the good will associated with the Service Mark and thus HDC shall be entitled to
immediate injunctive relief (whether by way of temporary or permanent or
mandatory or prohibitive injunction) for any such violation. Notwithstanding
anything in this paragraph to the contrary, P.C. shall not make use of the
Service Mark in any way which would cause a violation of the applicable
guidelines established by pertinent professional associations or the
Massachusetts Board of Registration in Podiatry, the Board of Registration in
Podiatry of any other jurisdiction in which Podiatry Services are provided or
other applicable laws or regulations.

(e) BANK ACCOUNTS. All funds collected by HDC pursuant to this Agreement
shall be deposited as follows:

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(iii) P.C. does hereby grant a first and continuing security
interest to HDC in all P.C.'s accounts receivable to secure payment of
P.C.'s obligations hereunder, including without limitation payment of
the Compensation Amount and the Demand Loans, to the maximum extent
permitted by applicable law. In the event of any monetary default by
P.C., HDC may exercise all the remedies available to a secured creditor
under the Uniform Commercial Code and other applicable laws, including
seizure of the collateral, notification of account debtors and obtaining
a court order for reassignment of Medicare and Medicaid receivables to
the maximum extent permitted by applicable law. The P.C. shall execute
financing statements prepared by HDC. The provisions of this Section 1(e)
shall survive termination of this Agreement until all of HDC's fees and
expenses have been paid in full.

(f) RECORDS AND FINANCIAL DATA.

(i) METHOD OF ACCOUNTING; FINANCIAL STATEMENTS. HDC shall keep
complete and accurate books and records relating to the P.C. that reflect
all revenues that HDC receives as a result of billings in the name of P.C.
for Podiatry Services rendered by the P.C., and all expenses incurred by
P.C. or HDC in maintaining the P.C. and providing the Podiatry Services
rendered by the P.C. HDC shall allow an officer or employee designated by
P.C. to audit and inspect these books and records at appropriate and
reasonable times and at P.C.'s sole expense.

(ii) DATA FOR TAX RETURNS. HDC shall provide to P.C. the financial
data necessary to enable P.C. to prepare its annual corporate income tax
returns.

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<PAGE>

(iv) CONFIDENTIALITY. HDC shall preserve the confidentiality of
P.C.'s patient podiatry records and use information in such records only
for the limited purposes necessary to perform its responsibilities as set
forth in this Agreement.

2. OBLIGATIONS OF P.C.

(a) EMPLOYMENT OF PRACTITIONERS. HDC shall not provide any personnel to
P.C. P.C. shall be responsible for employing Practitioners to provide Podiatry
Services for P.C. P.C. acknowledges and agrees that in order to ensure the
quality of services provided by P.C. and the economic viability of P.C., it will
employ and contract with Practitioners subject to the following requirements:

(i) Every Practitioner shall be fully licensed to practice his/her
specialty under the laws of the Commonwealth of Massachusetts or such
other state in which such practitioner provides services;

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<PAGE>

(d) QUALITY OF CARE. P.C. shall at all times be solely responsible for the
quality of the Podiatry Services rendered by the Practitioners, it being agreed
that HDC shall have no responsibility or liability for such services or
programs.

(e) FEES. P.C. shall be solely responsible for setting its fees. P.C.
warrants that it will set its fees in accordance with law and that such fees
will be neither inadequate nor excessive in light of the services to be
performed and the need to insure the economic viability of P.C.; PROVIDED,
HOWEVER, that the foregoing shall not affect the control of the Podiatry
Practice by the P.C. pursuant to Section 2(g) of this Agreement.

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<PAGE>

PROVIDED FURTHER that the foregoing shall not affect the control of the Podiatry
Practice by the P.C. pursuant to Section 2(g) of this Agreement.

(g) CONTROL OF PODIATRY PRACTICE BY P.C. Notwithstanding anything to the
contrary contained in this Agreement, the delivery of Podiatry Services shall be
supervised, directed, and controlled, and all final determinations with respect
thereto shall be made, exclusively by P.C., including without limitation, the
following (collectively, "PODIATRY PRACTICE"):

(i) employment of all Practitioners, pursuant to Section 2(a) of
this Agreement;

(ii) supervision and direction of all Practitioners, including,
without limitation, assignment of patients to the Practitioners and
establishment and monitoring of peer review guidelines;

(iii) determination of the hospital supplying Practitioners to P.C.,
if applicable;

(iv) maintenance of patient records;

(v) establishment of policies and procedures with respect to patient
acceptance; and

(vi) establishment of the hours of operation of P.C., scope of
services provided and fees for such services.

(h) AUTHORITY TO CONTRACT. P.C. shall have exclusive authority to
negotiate and enter into agreements related to Podiatry Practice; PROVIDED,
HOWEVER, that (i) P.C. shall give HDC thirty (30) days prior notice of P.C.'s
intent to execute any agreement obligating P.C. to engage in Podiatry Practice
or otherwise creating a binding legal obligation on P.C. related to Podiatry
Practice, and (ii) P.C. shall not enter into any agreement that does not relate
to Podiatry Practice without HDC's prior written consent. P.C. hereby approves,
confirms and ratifies all agreements negotiated and executed by HDC on P.C.'s
behalf prior to the date hereof.

(i) EXCLUSIVE SUPPLIER. P.C. hereby appoints HDC as the exclusive supplier
of the services set forth in Section 1 of this Agreement.

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<PAGE>

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<PAGE>

shall in no way diminish HDC's right to be paid such compensation when due. HDC
may withdraw its fees directly from the bank accounts established hereunder.
In the event that P.C. makes a determination that it believes that the
Compensation Amount calculated by HDC in accordance with the formula set
forth above for any particular month exceeds the fair market value of the
services provided by HDC under this Agreement for such month P.C. shall
provide HDC with notice of such determination no later than thirty days after
the end of the month for which it believes the Compensation Amount exceeds
the fair market value of the services provided. In the event that P.C. does
not deliver such a notice within such thirty day period, P.C. shall for all
purposes under this Agreement be deemed to have agreed that the Compensation
Amount calculated by HDC for such month did not exceed the fair market value
of the services provided by HDC for that month. As soon as reasonably
practicable after the receipt of such notice, HDC and P.C. shall form a
committee (the "Fee Committee") to determine the fair market value of the
services provided by HDC during such month by majority vote. The Fee
Committee shall consist of one individual designated by HDC (the "HDC
Designee"), one individual designated by P.C. (the "P.C. Designee"), and a
third party designated by the HDC Designee and the P.C. Designee. In making
its determination, the Fee Committee shall consider the value of all of the
services provided by HDC to P.C. during such month taken as a whole, the
potential impact on P.C. of a discontinuation of the services provided by
HDC, and the fees charged by other similarly situated companies to similarly
situated medical or dental practices in HDC's industry, in addition to any
other factors that it deems relevant. Each of HDC and P.C. agree to be bound
by the good faith determination of the Fee Committee. In the event that the
Fee Committee determines that the Compensation Amount exceeds the fair market
value of the services provided during such month, HDC shall promptly refund
to P.C. the difference between the Compensation Amount and the fair market
value of the services provided, as determined by the Fee Committee.

6. TERM OF AGREEMENT. This Agreement shall be in effect from the date first
set forth above through June 19, 2038; PROVIDED, HOWEVER, that the term
hereof shall be automatically extended for additional periods of twelve (12)
months each, unless either party gives written notice as provided below to
the other at least ninety (90) days prior to the expiration of the initial
term or any extended term hereof. Upon termination of this Agreement, HDC
using funds billed and collected pursuant to Section 1(d) above shall: (i)
pay any expenses accrued by P.C. through the termination date; (ii) collect
all fees accrued to it through the termination date, including without
limitation the payment of the Compensation Amount specified in Section 4
hereof; and (iii) collect the amounts due under the Demand Loans specified in
Section 1(b) hereof. All other obligations of the parties shall cease as of
the termination date unless otherwise specifically provided in this
Agreement; PROVIDED, HOWEVER, that notwithstanding the foregoing, P.C. shall
be obligated to pay amounts due pursuant to items (ii) and (iii) above in the
event that funds billed and collected pursuant to Section 1(d) above are
insufficient to pay such amounts.

7. TERMINATION OF THE AGREEMENT.

(c) HDC may terminate this Agreement upon written notice to P.C. at such
time as P.C. does not qualify for any reason as a Professional Corporation or no
longer has the necessary authorization to render Podiatry Services in The
Commonwealth of Massachusetts or any other state in which Practitioners employed
or otherwise retained by P.C. provide such services.

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<PAGE>

(d) HDC may terminate this Agreement upon written notice to P.C. if the
license to practice podiatry or any ancillary health care service of any
Practitioner is revoked or threatened to be revoked by the applicable Board of
Registration of the Commonwealth of Massachusetts or such other state in which
such Practitioner provides services, provided that P.C. has not forthwith
terminated such Practitioner from his or her employment or association with the
P.C.

8. CONFIDENTIAL AND PROPRIETARY INFORMATION.

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<PAGE>

(a) Except as specifically agreed to by HDC in writing, P.C. covenants and
agrees that during the term of this Agreement, and for a period of two (2) years
from the date this Agreement is terminated, other than termination by P.C. for
cause, or expires, P.C. shall not, directly or indirectly, own, manage, operate,
control, contract with, lend funds to, maintain an interest whatsoever in, or be
employed by, any enterprise providing capital or services to those engaged in
the provision of Podiatry Services or providing any other type of services or
products to third parties substantially similar to those offered by HDC located
anywhere in the United States.

10. GENERAL.

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<PAGE>

(b) EXCLUSIVITY. In recognition of the fact that HDC or any HDC
employees may perform services from time to time for others, including
services of the type HDC provides to P.C. under this Agreement, this
Agreement shall not prevent HDC from performing such services for others or
restrict HDC from using for such purposes any HDC employees who are
performing services under or with respect to this Agreement. The decision as
to which personnel are to be employed at what times shall be solely within
HDC's discretion.

(d) PRIOR AGREEMENT; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof, including but not limited to that Management
Agreement, dated as of May 22, 1992, and the Operating Agreement dated as of
May 26, 1998, between HDC and P.C., which are hereby terminated. This
Agreement may not be amended, altered, changed, or terminated orally. No
amendment, alteration, change, or attempted waiver of any of the provisions
hereof shall be binding without the written consent of both parties, and such
amendment, alteration, change, termination or waiver shall in no way affect
the other terms and conditions of this Agreement, which in all other respects
shall remain in full force.

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<PAGE>

(i) ADDITIONAL DOCUMENTS. The parties hereto shall execute such additional
documents as are reasonably required for the purpose of carrying out the intent
and purpose of this Agreement.

(j) HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.

(i) if intended for HDC such notice having been addressed to it at:

25 Needham Street
Newton, MA 02161
Attention: Steven S. Charlap, M.D.; and

(ii) if intended for P.C. such notice having been addressed to it at:

c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: Mary C. Manesis, D.P.M.

Either party hereto by like notice to the other, may designate such other
address or addresses to which notice must be sent.

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<PAGE>

(l) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all which together shall
constitute one instrument.

(m) NO PODIATRY PRACTICE BY HDC. It is acknowledged that HDC is not
authorized or qualified to engage in any activity which may be construed or
considered to constitute the practice of podiatry or any ancillary health care
service. To the extent any act or service of HDC under this Agreement is
construed or considered to constitute the practice of podiatry or any ancillary
health care service, the performance of such act or service by HDC shall be
deemed waived and excused. If notwithstanding any waiver or excuse of HDC's
performance of an act or service as contemplated in the immediately preceding
sentence, any of the provisions of this Agreement (1) may be construed or
considered to be in material violation of any rules, regulations or policies of
the Board of Registration in Podiatry (or such ancillary health care service) of
The Commonwealth of Massachusetts, the Board of Registration of any other
jurisdiction in which the P.C. provides Podiatry Services, or the statutes,
laws, rules or regulations of the United States or any state, governmental
agency, authority, or other body having jurisdiction over the P.C. or the
Company, or (2) may be construed or considered to impose a substantial threat to
the license to practice podiatry and/or any ancillary health care service of any
Practitioner, or to the authorization of P.C. to render Podiatry Services, then
the parties hereto agree to use their best efforts to negotiate in good faith an
amendment to this Agreement, the purpose and substance of which shall be
modification of only those provisions giving rise to the issues set forth in
clauses (1) and (2) of this sentence so that the Agreement as modified continues
to reflect, as nearly as possible, the intent of the parties as expressed
herein. If notwithstanding negotiation in good faith as contemplated in the
immediately preceding sentence, an amendment to this Agreement cannot be agreed
to that resolves the issues set forth in clauses (1) and (2) of the preceding
sentence and continues to reflect, as nearly as possible, the intent of the
parties expressed herein, this Agreement shall terminate thirty (30) days after
the date either party hereto provides notice to the other party hereto that such
circumstances exist.

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<PAGE>

Executed as an instrument under seal as of the date first set forth above.

HEALTHDRIVE CORPORATION MARY C. MANESIS, D.P.M., P.C.

By: /s/ Steven S. Charlap By: /s/ Mary C. Manesis
---------------------------- -------------------------
Name: Steven S. Charlap, M.D. Name: Mary C. Manesis, D.P.M.
Office: Chief Executive Officer and President Office: President

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<PAGE>

OPERATING AGREEMENT
HEALTHDRIVE MICHIGAN CORPORATION
HEALTHDRIVE CORPORATION
<PAGE>

OPERATING AGREEMENT
HEALTHDRIVE MICHIGAN CORPORATION
HEALTHDRIVE CORPORATION

Table of Contents

Page No.

I. BACKGROUND................................................1
II. AGREEMENT................................................1
1. Obligations of HDC................................1
(a) General......................................1
(b) Claim Processing and Collection of Fees......2
(c) License of Service Mark......................2
(d) Extensions of Credit to H M Corp.............3
(e) Bank Accounts................................3
(f) Records and Financial Data...................4
2. Obligations of H M Corp...........................5
(a) Employment of Health Care Practitioners......5
(b) Maintenance of Insurance.....................6
(c) Compliance with Regulations..................6
(d) Quality of Care..............................6
(e) Fees.........................................6
(f) Standardized Systems.........................6
(g) Control of Podiatry Practice by H M Corp.....7
(h) Authority to Contract........................7
(i) Exclusive Supplier...........................8
3. Prohibition on Referrals..........................8
4. Expenses of H M Corp..............................8
5. Compensation of HDC...............................8
6. Term of the Agreement.............................9
7. Termination of the Agreement......................9
8. Confidential and Proprietary Information.........10
9. Non-Competition and Non-Solicitation.............11
10. General..........................................11
(a) Independent Contractor......................11
(b) Exclusivity.................................12
(c) Indemnification.............................12
(d) Prior Agreements; Amendments................12
(e) Force Majeure...............................12

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OPERATING AGREEMENT

OPERATING AGREEMENT, dated as of June 19, 1998, by and between
HealthDrive Michigan Corporation, a Michigan not-for-profit taxable
corporation ("HMCorp"), and HealthDrive Corporation, a Delaware corporation
("HDC").

I. BACKGROUND

WHEREAS, HMCorp is a duly incorporated and validly existing Michigan
not-for-profit taxable corporation organized for the practice of dentistry,
optometry and podiatry;

WHEREAS, HDC provides certain services and capital and licenses its
Service Mark (as hereinafter defined) to those engaged in the provision of
dental, optometry and podiatry services and/or ancillary health care services at
long term care facilities and other concentrated geriatric populations ("HEALTH
CARE SERVICES") and

WHEREAS, HMCorp desires to engage HDC to provide certain services and
capital to HMCorp and its dental, optometry, podiatry and ancillary health care
personnel ("HEALTH CARE PRACTITIONERS") and to license HDC's Service Mark.

II. AGREEMENT

1. OBLIGATIONS OF HDC.

(a) GENERAL. HDC shall be exclusively responsible to provide to HMCorp the
following services required by HMCorp:

(i) Order and purchase, as an accommodation to and on behalf of
HMCorp, all dental, optometry and podiatry related and office inventory,
laundry, linen, uniforms, printing, stationary, forms, laboratory items
and supplies as are ordinary and necessary for operation of the HMCorp HDC
shall be solely responsible for the payment of applicable sales or use tax
with respect to such purchases and shall make such property available for
use by HMCorp without any additional charge therefor.
<PAGE>

(ii) Operate and maintain HMCorp's bookkeeping and accounting
systems;

(iii) Perform all payroll and payroll accounting functions for
HMCorp; and

(iv) Administer all of HMCorp's employee benefit plans.

(b) CLAIMS PROCESSING AND COLLECTION OF FEES. HDC shall, on behalf and in
the name of HMCorp, be exclusively responsible for processing all claims and
bills, and for collecting all moneys related thereto, for Health Care Services
rendered by HMCorp In this connection, HMCorp appoints HDC for the term of this
Agreement its true and lawful agent, and shall assure that such appointment is
effective for HMCorp's Health Care Practitioners for the following purposes:

(i) To bill and collect on behalf of HMCorp, or any of its Health
Care Practitioners, amounts owing from patients for performance of Health
Care Services, and HMCorp hereby covenants to turn over, and require any
of its Health Care Practitioners to turn over, all such payments to HDC
for deposit as provided in Section 1(e) below;

(ii) To bill and collect on behalf of HMCorp, or any of its Health
Care Practitioners, amounts owing from Blue Shield plans, insurance
companies, Medicare, Medicaid, and any other third party payor for the
performance of Health Care Services, and HMCorp hereby covenants to turn
over, and require any of its Health Care Practitioners to turn over, all
such payments to HDC for deposit as provided in Section 1(e) below;

(iv) To take such other actions relative to billing and collection
of fees, and related financial matters of the HMCorp as are appropriate
and consistent with the purpose of this Agreement.

In connection with its obligations under this Section 1(b), HDC shall
maintain systems and procedures reasonably necessary to prevent unlawful
maximization of revenue; PROVIDED, HOWEVER, that HDC shall not be liable for
billing practices by HMCorp or its Health Care Practitioners that unlawfully
maximize revenue to HMCorp or its Health Care Practitioners.

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(c) LICENSE OF SERVICE MARK. HDC hereby grants to HMCorp a non-exclusive,
revocable (in accordance with the provisions of this Agreement) and
non-assignable license for the term of this Agreement to use the names
"HealthDrive," "HealthDrive Corporation" or "HDC" and all designs, logos, and
marks incorporating the same (collectively, the "SERVICE MARK") in connection
with advertising and promotion of HMCorp, but in each instance only in the form
and manner and in combination with such other designs, schemes, characteristics,
words and the like as may from time to time be approved in advance by HDC. Upon
the expiration or termination of this Agreement, HMCorp will forthwith
discontinue the use of the Service Mark and thereafter shall not use or
otherwise seek the benefits of the Service Mark or any name, phrase, design,
logo, mark or the like sufficiently related to or identifiable with the Service
Mark as to derogate from the full and complete ownership and enjoyment of the
same by and for the benefit of HDC. Recognizing the special and unique value of
the Service Mark to HDC, HMCorp agrees that HMCorp shall take no action nor
permit any action to be taken which shall in any way derogate from the high
level of quality and value associated with the Service Mark and the ownership
and enjoyment of the same by HDC. Furthermore, HMCorp agrees that, without
limitation, a violation by HMCorp of the provisions of this Agreement relative
to the Service Mark will cause irreparable harm to HDC and the good will
associated with the Service Mark and thus HDC shall be entitled to immediate
injunctive relief (whether by way of temporary or permanent or mandatory or
prohibitive injunction) for any such violation. Notwithstanding anything in this
paragraph to the contrary, HMCorp shall not make use of the Service Mark in any
way which would cause a violation of the applicable guidelines established by
pertinent professional associations or the Michigan Boards of Registration in
Dentistry, Optometry and Podiatry, the Boards of Registration in Dentistry,
Optometry and Podiatry of any other jurisdiction in which Health Care Services
are provided or other applicable laws or regulations.

(d) EXTENSIONS OF CREDIT TO HMCORP. HDC hereby agrees to extend credit
to HMCorp to fund HMCorp's working capital requirements, including without
limitation amounts due to HDC pursuant to this Agreement, to the extent HDC
determines, in its sole discretion, that such Extensions of Credit are
commercially reasonable; PROVIDED, HOWEVER, that HDC shall not under any
circumstances be obligated to extend any credit to HMCorp. Such extensions of
credit shall be demand loans (each a "DEMAND LOAN") which shall be due and
payable, including the principal balance and all accrued interest, upon
thirty (30) days written notice from HDC to HMCorp. Interest on the unpaid
principal balance of each Demand Loan from time to time outstanding shall be
determined in good faith by HDC, but in no event shall exceed the annual rate
of interest announced from time to time by BankBoston, N.A. as its "base
rate" at its head office in Boston, Massachusetts plus five percent (5%), and
shall be added to outstanding principal balance on a monthly basis. The
outstanding principal amount of the Demand Loan, and any accrued interest,
shall be reflected from time to time on the books of HDC, and such entries
shall constitute definitive evidence of the amount of such principal amount
and accrued interest. HMCorp. hereby acknowledges the existence of an
outstanding principal balance and accrued interest in the amount of $_______
(the "CURRENT BALANCE") due

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and payable to HDC and agrees to use its best efforts to pay down the Current
Balance and any additional amounts of principal and accrued interest
outstanding from time to time. During any period that a principal balance or
accrued interest remains outstanding under a Demand Loan, P.C. shall not pay,
declare or set apart a dividend or distribution of any kind on any shares of
the capital stock of P.C. or make any other payment to any stockholder of
P.C., other than in respect of professional services provided to the P.C. by
such stockholder.

(e) BANK ACCOUNTS. All funds collected by HDC pursuant to this Agreement
shall be deposited as follows:

(i) All funds collected on behalf of HMCorp as a result of billings
to agencies responsible for making Medicare or Medicaid payments shall be
deposited in one or more bank accounts established by HDC, as agent for
HMCorp, in the joint names of HDC and HMCorp;

(ii) All funds collected on behalf of HMCorp as a result of all
billings, other than those referenced in subparagraph (i) above, are
hereby assigned to HDC, and shall be deposited in one or more bank
accounts established by HDC, as agent for HMCorp, in the joint names of
HDC and HMCorp or, in HDC's sole discretion, in the sole name of HDC;

(iii) HMCorp does hereby grant a first and continuing security
interest to HDC in all HMCorp's accounts receivable to secure payment of
HMCorp's obligations hereunder, including without limitation payment of
the Compensation Amount and the Demand Loans, to the maximum extent
permitted by applicable law. In the event of any monetary default by
HMCorp, HDC may exercise all the remedies available to a secured
creditor under the Uniform Commercial Code and other applicable laws,
including seizure of the collateral, notification of account debtors and
obtaining a court order for reassignment of Medicare and Medicaid
receivables to the maximum extent permitted by applicable law. HMCorp
shall execute financing statements prepared by HDC. The provisions of
this Section 1(e) shall survive termination of this Agreement until all
of HDC's fees and expenses have been paid in full.

(f) RECORDS AND FINANCIAL DATA.

(i) METHOD OF ACCOUNTING; FINANCIAL STATEMENTS. HDC shall keep
complete and accurate books and records relating to HMCorp that reflect
all revenues that HDC receives as a result of billings in the name of
HMCorp for Health Care Services rendered by HMCorp, and all expenses
incurred by HMCorp or HDC in maintaining the HMCorp and providing the
Health Care Services rendered by HMCorp. HDC shall allow an officer or
employee designated by HMCorp to audit and inspect these books and records
at appropriate and reasonable times and at HMCorp's sole expense.

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(ii) DATA FOR TAX RETURNS. HDC shall provide to HMCorp the financial
data necessary to enable HMCorp to prepare its annual corporate income tax
returns.

(iii) DISCLOSURE. If and to the extent required by applicable laws
and regulations, until the expiration of four (4) years after the
termination of this Agreement, HDC will make available upon a written
request from the United States Department of Health and Human Services
("HHS"), the United States Comptroller General, and their duly authorized
representatives, a copy of this Agreement and all books, records, and
documents as are necessary to certify the nature and extent of the costs
incurred by HMCorp pursuant to this Agreement, and if HDC provides such
services through a subcontract worth $10,000 or more over a twelve-month
period with a related organization, the subcontract will also contain a
clause permitting access by HHS, the United States Comptroller General,
and their representatives to books and records of the related
organization. HDC (and any such subcontractor) will promptly notify HMCorp
as and when any such request is received, and will provide HMCorp
(simultaneously with the providing of such materials to HHS) with a copy
of any materials so provided.

(iv) CONFIDENTIALITY. HDC shall preserve the confidentiality of
HMCorp's patient dental, optometry and podiatry records and use
information in such records only for the limited purposes necessary to
perform its responsibilities as set forth in this Agreement.

2. OBLIGATIONS OF HMCORP

(a) EMPLOYMENT OF HEALTH CARE PRACTITIONERS. HDC shall not provide any
personnel to HMCorp. HMCorp shall be responsible for employing Health Care
Practitioners to provide Health Care Services for HMCorp. HMCorp acknowledges
and agrees that in order to ensure the quality of services provided by HMCorp
and the economic viability of HMCorp, it will employ and contract with Health
Care Practitioners subject to the following requirements:

(i) Every Health Care Practitioner shall be fully licensed to
practice his/her specialty under the laws of the State of Michigan or such
other state in which such practitioner provides services;

(ii) As a condition to each Health Care Practitioner's employment,
including without limitation the holder of the capital stock of HMCorp
(the "STOCKHOLDER"), such Health Care Practitioner shall be required by
HMCorp to execute a non-competition and non-solicitation agreement in form
and substance acceptable to HDC prohibiting the Health Care Practitioner
from

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competing with HMCorp or HDC for the term of his employment by HMCorp and
a period of 18 months thereafter; and

(iii) HMCorp shall fix compensation and fringe benefits for
individual Health Care Practitioners; provided, however, that compensation
and benefits paid to any such Health Care Practitioner, including without
limitation the Stockholder (with respect to compensation for services
provided both to patients and HMCorp), shall not exceed the fair market
value for such services. HMCorp hereby acknowledges and agrees that HDC
has superior knowledge and experience with respect to the fair market
value of services provided by Health Care Practitioners. If a dispute
arises between HMCorp and HDC with respect to the fair market value of
services provided by a Health Care Practitioner. HMCorp hereby agrees that
HDC, in its sole discretion, shall determine fair market value. HDC shall
make such determination in good faith and based on its knowledge and
experience and the amounts paid to similarly qualified practitioners
providing similar services for HMCorp or other professional corporations
affiliated with HDC.

HMCorp further acknowledges that fixed term agreements, including
without limitation employment agreements, between HMCorp and Health Care
Practitioners are not necessarily in the best interests of patients and
patient care and may interfere with the quality of services provided by
HMCorp, and, therefore, HMCorp hereby agrees that, without the express
written consent of HDC, it shall not enter into any such agreements with the
Health Care Practitioners it employs, including without limitation the
Stockholder. HDC agrees that it shall make any determinations with respect to
fixed term arrangements in good faith and based on its knowledge and
experience in the industry.

(b) MAINTENANCE OF INSURANCE. HMCorp covenants and agrees that until the
expiration or termination of this Agreement it will maintain, or will require
each of its Health Care Practitioners to maintain, comprehensive professional
liability insurance with limits of not less than $1,000.000 per claim and with
aggregate policy limits of not less than $3,000.000 per each Health Care
Practitioner, with each of HMCorp and HDC having the right, upon request, to be
added as additional insured. HMCorp shall be responsible for all such
liabilities in excess of the limits of such insurance policies. Premiums and
deductibles with respect to such insurance policies shall be an expense of
HMCorp.

(c) COMPLIANCE WITH REGULATIONS. HMCorp shall comply and shall cause each
of its Health Care Practitioners to comply with all applicable rules and
regulations of governmental bodies having jurisdiction over the HMCorp or any of
the Health Care Practitioners.

(d) QUALITY OF CARE. HMCorp shall at all times be solely responsible for
the quality of the Health Care Services rendered by the Health Care
Practitioners, it being agreed that HDC shall have no responsibility or
liability for such services or programs.

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<PAGE>

(e) FEES. HMCorp shall be solely responsible for setting its fees. HMCorp
warrants that it will set its fees in accordance with law and that such fees
will be neither inadequate nor excessive in light of the services to be
performed and the need to insure the economic viability of HMCorp; PROVIDED,
HOWEVER, that the foregoing shall not affect the control of the Health Care
Practice by HMCorp pursuant to Section 2(g) of this Agreement.

(f) STANDARDIZED SYSTEMS. HMCorp agrees to utilize HDC's standardized
business systems, procedures and forms (excluding clinical forms), at no charge
to HMCorp, which are intended to improve efficiency; PROVIDED that HMCorp
expressly acknowledges and agrees that it shall have no property rights in the
foregoing systems, procedures and forms and such systems, procedures and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 7 of this Agreement and subject to the restrictions on use,
appropriation and reproduction of such Confidential Information provided in
Section 7 of this Agreement; AND, PROVIDED FURTHER that the foregoing shall not
affect the control of the Health Care Practice by the HMCorp pursuant to Section
2(g) of this Agreement.

(g) CONTROL OF HEALTH CARE PRACTICE BY HMCORP. Notwithstanding
anything to the contrary contained in this Agreement, the delivery of Health
Care Services shall be supervised, directed, and controlled, and all final
determinations with respect thereto shall be made, exclusively by HMCorp,
including without limitation, the following (collectively, "HEALTH CARE
PRACTICE"):

(i) employment of all Health Care Practitioners, pursuant to Section
2(a) of this Agreement;

(ii) supervision and direction of all Health Care Practitioners,
including, without limitation, assignment of patients to the Health Care
Practitioners and establishment and monitoring of peer review guidelines;

(iii) determination of the hospital supplying Health Care
Practitioners to HMCorp, if applicable;

(iv) maintenance of patient records;

(v) establishment of policies and procedures with respect to patient
acceptance; and

(vi) establishment of the hours of operation of HMCorp, scope of
services provided and fees for such services.

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In connection with its obligations under this Section 2(g), HMCorp shall
maintain systems and procedures necessary in order to prevent overutilization of
services. HDC hereby expressly disclaims any control, direct or indirect, over
activities of HMCorp constituting Health Care Practice.

(h) AUTHORITY TO CONTRACT. HMCorp shall have exclusive authority to
negotiate and enter into agreements related to Health Care Practice; PROVIDED,
HOWEVER, that (i) HMCorp shall give HDC thirty (30) days prior notice of
HMCorp's intent to execute any agreement obligating HMCorp to engage in Health
Care Practice or otherwise creating a binding legal obligation on HMCorp related
to Health Care Practice, and (ii) HMCorp shall not enter into any agreement that
does not relate to Health Care Practice without HDC's prior written consent.
HMCorp hereby approves, confirms and ratifies all agreements negotiated and
executed by HDC on HMCorp's behalf prior to the date hereof.

(i) EXCLUSIVE SUPPLIER. HMCorp hereby appoints HDC as the exclusive
supplier of the services set forth in Section 1 of this Agreement.

(a) HDC and HMCorp and its Health Care Practitioners shall have no
obligation to refer patients to each other or to long term care
facilities under contract with HMCorp, and HMCorp and its Health
Care Practitioners shall have no obligation to refer patients to
other professional corporations or providers of medical, dental,
optometry, podiatry, or ancillary health care services affiliated
with HDC or long term care facilities under contract with
professional corporations affiliated with HDC; and

(b) HMCorp shall not, and shall use its best efforts to cause the Health
Care Practitioners not to, (i) provide "designated health services,"
as such term is defined under Stark I and Stark II, without
providing no less than 30 days prior written notice to HDC, and (ii)
refer patients to entities that provide "designated health services"
and in which HMCorp, or any of the Health Care Practitioners, have a
financial relationship, compensation arrangement, or an ownership or
investment interest.

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<PAGE>

4. EXPENSES OF HMCORP. All expenses incurred in connection with the conduct of
HMCorp's business and the services of HDC shall, unless otherwise specified in
this Agreement, be expenses of HMCorp (and not HDC), including without
limitation those expenses described in Sections 2(a), 2(b) and 5 of this
Agreement; PROVIDED, HOWEVER, that HDC, as agent for HMCorp, shall, using funds
billed and collected pursuant to Section 1(e) above, pay all such expenses.
HMCorp agrees to have an annual audit of its financial statements by independent
auditors of recognized standing reasonably acceptable to HDC and to deliver such
audited financial statements to HDC as promptly as practicable.

5. COMPENSATION OF HDC. As consideration for the license of the Service
Mark, the making of the Demand Loans and the services provided by HDC, HMCorp
shall pay HDC a sum equal to the Compensation Amount (as defined below);
PROVIDED, THAT in no event shall the total compensation exceed the fair
market value of the services rendered by HDC. For purposes of this Section,
"Compensation Amount" shall mean the net of (i) all revenue minus (ii) all
expenses (excluding compensation due under this Section) of HMCorp recorded
on an accrual basis using tax accounting principles. The amount of
compensation due HDC under this Section shall be determined on a monthly
basis by HDC and shall be due and payable to HDC on the last day of every
month. Any amount not paid when due shall accrue interest at a reasonable
rate determined by HDC. The fact that interest may accrue on any unpaid
compensation due HDC shall in no way diminish HDC's right to be paid such
compensation when due. HDC may withdraw its fees directly from the bank
accounts established hereunder. In the event that P.C. makes a determination
that it believes that the Compensation Amount calculated by HDC in accordance
with the formula set forth above for any particular month exceeds the fair
market value of the services provided by HDC under this Agreement for such
month P.C. shall provide HDC with notice of such determination no later than
thirty days after the end of the month for which it believes the Compensation
Amount exceeds the fair market value of the services provided. In the event
that P.C. does not deliver such a notice within such thirty day period, P.C.
shall for all purposes under this Agreement be deemed to have agreed that the
Compensation Amount calculated by HDC for such month did not exceed the fair
market value of the services provided by HDC for that month. As soon as
reasonably practicable after the receipt of such notice, HDC and P.C. shall
form a committee (the "Fee Committee") to determine the fair market value of
the services provided by HDC during such month by majority vote. The Fee
Committee shall consist of one individual designated by HDC (the "HDC
Designee"), one individual designated by P.C. (the "P.C. Designee"), and a
third party designated by the HDC Designee and the P.C. Designee. In making
its determination, the Fee Committee shall consider the value of all of the
services provided by HDC to P.C. during such month taken as a whole, the
potential impact on P.C. of a discontinuation of the services provided by
HDC, and the fees charged by other similarly situated companies to similarly
situated medical or dental practices in HDC's industry, in addition to any
other factors that it deems relevant. Each of HDC and P.C. agree to be bound
by the good faith determination of the Fee Committee. In the event that the
Fee Committee determines that the Compensation Amount exceeds the fair market
value of the services provided during such month, HDC shall promptly refund
to P.C. the difference between the Compensation Amount and the fair market
value of the services provided, as determined by the Fee Committee.

6. TERM OF AGREEMENT. This Agreement shall be in effect from the date first set
forth above through June 19, 2038; PROVIDED, HOWEVER, that the term hereof shall
be automatically extended for additional periods of twelve (12) months each,
unless either party gives written notice as provided below to the other at least
ninety (90) days prior to the expiration of the initial term or any extended
term hereof. Upon termination of this Agreement, HDC using funds billed and
collected pursuant to Section 1(d) above shall: (i) pay any expenses accrued by
HMCorp through the termination date; (ii) collect all fees accrued to it through
the termination date, including without limitation the payment of the
Compensation Amount specified in Section 4 hereof; and (iii) collect the amounts
due under the Demand Loans specified in Section 1(b) hereof. All other
obligations of the parties shall cease as of the termination date unless
otherwise specifically provided in this Agreement; PROVIDED, HOWEVER, that
notwithstanding the foregoing, HMCorp shall be obligated to pay amounts due
pursuant to items (ii) and (iii) above in the event that funds billed and
collected pursuant to Section 1(d) above are insufficient to pay such amounts.

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<PAGE>

7. TERMINATION OF THE AGREEMENT.

(b) If HMCorp or HDC shall fail to perform obligations or observe
provisions which are material to this Agreement (in either case, a "Breach"),
HDC, in the case of a Breach by HMCorp, and HMCorp, in the case of a Breach by
HDC, may terminate this Agreement by giving thirty (30) days written notice to
the breaching party detailing the nature of the Breach, provided that the
breaching party shall not have cured the Breach within such thirty (30) day
period, or, with respect to Breaches which are not curable within such thirty
(30) day period, shall not have commenced to cure such Breach within such thirty
(30) day period and thereafter shall not have prosecuted to completion the cure
of the Breach with the exercise of due diligence.

(c) HDC may terminate this Agreement upon written notice to HMCorp at such
time as HMCorp does not qualify for any reason as a Michigan not-for-profit
taxable corporation or no longer has the necessary authorization to render
Health Care Services in the State of Michigan or any other state in which Health
Care Practitioners employed or otherwise retained by HMCorp provide such
services.

(d) HDC may terminate this Agreement upon written notice to HMCorp if the
license to practice dentistry, optometry, podiatry or any ancillary health care
service of any Health Care Practitioner is revoked or threatened to be revoked
by the applicable Board of Registration of the State of Michigan or such other
state in which such Health Care Practitioner provides services, provided that
HMCorp has not forthwith terminated such Health Care Practitioner from his or
her employment or association with the HMCorp

8. CONFIDENTIAL AND PROPRIETARY INFORMATION.

(a) HMCorp acknowledges and agrees that all business information and
materials provided to HMCorp and its affiliates by HDC pursuant to this
Agreement constitute "Confidential Information." HMCorp further agrees (i) not
to disclose, directly or indirectly, any Confidential Information to third
parties without HDC's prior written consent, (ii) not to use any Confidential
Information in any way, directly or indirectly, detrimental to HDC, and (iii) to
keep such Confidential Information confidential and ensure that HMCorp's
officers, directors, managers,

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<PAGE>

employees and other agents and affiliates comply with the foregoing obligations;
PROVIDED THAT HMCorp may disclose Confidential Information to its officers,
directors, managers, employees and other agents and affiliates who need to know
Confidential Information for the purposes of this Agreement, it being understood
and agreed to by HMCorp that (i) such persons will be informed of the
confidential nature of the Confidential Information, and (ii) will be required
to execute instruments of adherence in form and substance acceptable to HDC
agreeing to be bound by this Section 7. HMCorp agrees to be responsible for any
breach of this Section 7 by its officers, directors, managers, employees and
other agents and affiliates. HMCorp acknowledges that the disclosure of
Confidential Information to it by HDC is done in reliance upon its
representations and covenants in this Agreement.

(b) Upon expiration or termination of this Agreement by either party for
any reason whatsoever, HMCorp shall immediately return and shall cause its
officers, directors, managers, employees and other agents and affiliates to
immediately return to HDC all Confidential Information, and HMCorp will not, and
will cause its officers, directors, managers, employees and other agents and
affiliates not to, thereafter use, appropriate or reproduce such Confidential
Information. HMCorp further acknowledges and agrees that any such use,
appropriation, or reproduction of any Confidential Information by any of the
foregoing after the expiration or termination of this Agreement will result in
irreparable injury to HDC, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, HDC, in addition to any other remedies or damages
available to it, shall be entitled to injunctive or other equitable relief.

9. NON-COMPETITION AND NON-SOLICITATION. HMCorp hereby acknowledges and
agrees that HDC will incur substantial costs in connection with its
obligations pursuant to this Agreement and that the non-competition covenants
described hereunder are necessary for the protection of HDC, and that HDC
would not have entered in to this Agreement without the following covenants.

(a) Except as specifically agreed to by HDC in writing, HMCorp covenants
and agrees that during the term of this Agreement, and for a period of two (2)
years from the date this Agreement is terminated, other than termination by
HMCorp for cause, or expires, HMCorp shall not, directly or indirectly, own,
manage, operate, control, contract with, lend funds to, maintain an interest
whatsoever in, or be employed by, any enterprise providing capital or services
to those engaged in the provision of Health Care Services or providing any other
type of services or products to third parties substantially similar to those
offered by HDC located anywhere in the United States.

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<PAGE>

(b) HMCorp agrees that during the term of this Agreement, and for a period
of two (2) years from the date this Agreement is terminated, other than
termination by HMCorp for cause, or expires, HMCorp shall not, (i) solicit any
employee of HDC to leave HDC or become employed by HMCorp or any entity,
business, corporation or partnership with which HMCorp is directly or indirectly
related, or (ii) solicit any of HDC's, or any professional corporation
affiliated with HDC's, customers, clients, buyers, distributors, or
manufacturers to cease doing business with HDC or to do business with HMCorp or
any entity, business, corporation or partnership with which HMCorp is either
directly or indirectly related.

10. GENERAL.

(a) INDEPENDENT CONTRACTOR. It is expressly understood and agreed by the
parties that, in providing services under this Agreement, HDC shall at all times
act as an independent contractor, not as an employee of HMCorp, and none of
HMCorp or the Health Care Practitioners shall be employees or servants of HDC.
Notwithstanding the foregoing, Dr. Charlap may serve as the Chief Executive
Officer and/or any other executive position of HDC; provided that in such
capacity he not assume any responsibilities that would constitute the practice
of dentistry, optometry, podiatry or any ancillary health care service. Further,
it is expressly understood and agreed by the parties that nothing contained in
this Agreement shall be construed to create a joint venture, partnership,
association, or other affiliation or like relationship between the parties, or a
relationship of landlord and tenant, it being specifically agreed that their
relationship is and shall remain that of independent parties to a contractual
relationship as set forth in this Agreement. In no event shall either party be
liable for the debts or obligations of the other of them except as otherwise
specifically provided in this Agreement. None of HMCorp, or any Medical
Practitioner, whether such Medical Practitioner be a member, partner, employee,
subcontractor, or otherwise, of HMCorp, shall have any claim under this
Agreement or otherwise against HDC for vacation pay, sick leave, retirement
benefits, social security, workers' compensation, disability or unemployment
benefits, incentive compensation or employee benefits of any kind.

(b) EXCLUSIVITY. In recognition of the fact that HDC or any HDC
employees may perform services from time to time for others, including
services of the type HDC provides to HMCorp under this Agreement, this
Agreement shall not prevent HDC from performing such services for others or
restrict HDC from using for such purposes any HDC employees who are
performing services under or with respect to this Agreement. The decision as
to which personnel are to be employed at what times shall be solely within
HDC's discretion.

(c) INDEMNIFICATION. (i) HMCorp agrees to indemnify and hold harmless
HDC, its shareholders, directors, officers, employees, and other affiliates
and their respective successors and assigns, harmless from and against any
and all liabilities,

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demands, claims, actions, causes of action, losses, fines, penalties, costs,
damages and expenses, including reasonable attorneys' and expert witness
fees, alleged against, sustained or incurred by any such persons arising out
of or resulting from (i) any negligent or intentional act or omission by
HMCorp or any Health Care Practitioner, (ii) any breach or default on the
part of HMCorp in the performance of this Agreement. HMCorp, upon notice from
HDC, shall resist and defend, at the expense of HMCorp, any such action or
proceeding with counsel reasonably satisfactory to HDC.

(d) PRIOR AGREEMENT; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof, including but not limited to that Management
Agreement, dated as of December 12, 1996, and the Operating Agreement, dated
as of May 26, 1998, between HDC and P.C., which are hereby terminated. This
Agreement may not be amended, altered, changed, or terminated orally. No
amendment, alteration, change, or attempted waiver of any of the provisions
hereof shall be binding without the written consent of both parties, and such
amendment, alteration, change, termination or waiver shall in no way affect
the other terms and conditions of this Agreement, which in all other respects
shall remain in full force.

(e) FORCE MAJEURE. HDC shall not be liable to HMCorp for failure to
perform any of the services required under this Agreement in the event of
strikes, lockouts, calamities, acts of God, unavailability of supplies, or other
events over which HDC has no control, for so long as such event continues and
for a reasonable period of time thereafter, and in no event shall HDC be liable
for consequential, indirect or like damages.

(f) ASSIGNMENT; BINDING EFFECT. HDC shall have the right to assign or sell
its rights and obligations under this Agreement to any person, corporation,
partnership, or other legal entity. HMCorp shall not assign this Agreement or
its rights and obligations under this Agreement without the written consent of
HDC, which consent may be withheld in HDC's sole discretion. Any attempted
assignment by the HMCorp shall be void and of no force and effect. The
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties' successors and assigns, respectively, but this provision
shall not constitute a consent by HDC to assignment by HMCorp otherwise
prohibited by the preceding sentences.

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<PAGE>

any portion of the provisions hereof shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the application of such
portion or provisions in circumstances other than those in which it is held
invalid or unenforceable, shall not be affected thereby, and each portion or
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law.

(i) ADDITIONAL DOCUMENTS. The parties hereto shall execute such additional
documents as are reasonably required for the purpose of carrying out the intent
and purpose of this Agreement.

(j) HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.

(i) if intended for HDC such notice having been addressed to it at:

25 Needham Street
Newton, MA 02161
Attention: Michael R. Kaplan; and

(ii) if intended for HMCorp such notice having been addressed to it at:

25 Needham Street
Newton, MA 02161
Attention: Steven S. Charlap, M.D.

Either party hereto by like notice to the other, may designate such other
address or addresses to which notice must be sent.

(l) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all which together shall
constitute one instrument.

(m) NO HEALTH CARE PRACTICE BY HDC. It is acknowledged that HDC is not
authorized or qualified to engage in any activity which may be construed or
considered to constitute the practice of dentistry, optometry, podiatry or any
ancillary health care service To the extent any act or service of HDC under this
Agreement is construed or considered to constitute the practice of dentistry,
optometry, podiatry or any ancillary health care service, the performance of
such act or service by HDC

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<PAGE>

shall be deemed waived and excused. If notwithstanding any waiver or excuse of
HDC's performance of an act or service as contemplated in the immediately
preceding sentence, any of the provisions of this Agreement (1) may be construed
or considered to be in material violation of any rules, regulations or policies
of the Board of Registration in Dentistry, Optometry or Podiatry (or such
ancillary health care service) of the State of Michigan, the Board of
Registration of any other jurisdiction in which the HMCorp provides Health Care
Services, or the statutes, laws, rules or regulations of the United States or
any state, governmental agency, authority, or other body having jurisdiction
over the HMCorp or the Company, or (2) may be construed or considered to impose
a substantial threat to the license to practice dentistry, optometry, podiatry,
or any ancillary health care service of any Health Care Practitioner, or to the
authorization of HMCorp to render Health Care Services, then the parties hereto
agree to use their best efforts to negotiate in good faith an amendment to this
Agreement, the purpose and substance of which shall be modification of only
those provisions giving rise to the issues set forth in clauses (1) and 2) of
this sentence so that the Agreement as modified continues to reflect, as nearly
as possible, the intent of the parties as expressed herein. If notwithstanding
negotiation in good faith as contemplated in the immediately preceding sentence,
an amendment to this Agreement cannot be agreed to that resolves the issues set
forth in clauses (1) and (2) of the preceding sentence and continues to reflect,
as nearly as possible, the intent of the parties expressed herein, this
Agreement shall terminate thirty (30) days after the date either party hereto
provides notice to the other party hereto that such circumstances exist.

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Executed as an instrument under seal as of the date first set forth
above.

HEALTHDRIVE CORPORATION HEALTHDRIVE MICHIGAN CORPORATION

By: /s/ Michael R. Kaplan By: /s/ Steven S. Charlap
---------------------------- -----------------------------
Name: Michael R. Kaplan Name: Steven S. Charlap, M.D.
Office: Vice President of Finance Office: President

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<PAGE>

OPTION AGREEMENT

OPTION AGREEMENT (this "Agreement") dated as of June 12, 1998 among
Jeffrey Morer, O.D. (the "Stockholder"), Jeffrey Morer, O.D., P.C. (the
"Practice") and HealthDrive Corporation, a Delaware corporation (the
"Company").

WHEREAS, the Stockholder holds 100 shares, no stated par value per share,
of the Practice (the "Common Stock"), such shares being all of the issued and
outstanding capital stock of the Practice;

WHEREAS, the Practice is a professional corporation organized under the
laws of the Commonwealth of Massachusetts engaged in the practice of optometry;

WHEREAS, the Company and the Practice are entering into an Operating
Agreement, dated as of the date hereof (the "Operating Agreement"), pursuant to
which, among other things, the Company will provide the Practice certain
services, capital and a license to the use of the name "HealthDrive";

WHEREAS, the Company is unwilling to enter into the Operating Agreement
unless the Stockholder and the Practice enter into this Agreement;

WHEREAS, the Stockholder will receive substantial value from the entrance
by the Company into the Operating Agreement with the Practice by virtue of its
status as the holder of all of the outstanding Common Stock; and

WHEREAS, in order to induce the Company to enter into the Operating
Agreement, the Stockholder is willing to grant to the Company, on the terms and
subject to the conditions set forth herein, an option to purchase from the
Stockholder all of the outstanding shares of the Common Stock, and the Company
is willing to enter into this Agreement and grant the Stockholder an option to
cause the Company to purchase all of the outstanding shares of Common Stock at a
nominal purchase price, and be bound by the terms, provisions, covenants and
conditions set forth herein;

NOW, THEREFORE, the parties hereto mutually covenant and agree as follows:

1. Company Stock Option. Subject to the terms and conditions set forth in
this Agreement, the Stockholder hereby grants to the Company an option (the
"Company Option") to purchase from the Stockholder at any time, from and after
the date hereof, all of the shares (the "Shares") of Common Stock then
outstanding at an aggregate purchase price equal to the fair market value of the
Shares as determined by agreement between the Company and the Stockholder, but
in no event an amount greater than $100,000 (the "Company Exercise Price"). The
Stockholder hereby acknowledges and agrees that the Company has superior
knowledge and experience with respect to the fair market value of the equity of
medical practices which have entered into operating agreements similar to the
Operating Agreement. In the event that the Company and the Stockholder are,
after good

<PAGE>

-2-

faith negotiation, unable to agree upon the fair market value of the Shares, the
Stockholder hereby agrees that the Company, in its sole discretion, shall
determine fair market value. The Company shall make such determination in good
faith and based on its knowledge and experience.

2. Stockholder Option. Subject to the terms and conditions set forth in
this Agreement, the Company hereby grants to the Stockholder an option (the
"Stockholder Option") to cause the Company to purchase from the Stockholder at
any time, from and after the date hereof, all of the Shares at an aggregate
purchase price equal to $50.00 (the "Stockholder Exercise Price").

3. Exercise and Payment; Designation of Purchaser; Termination.

(a) The Company shall, at its sole discretion, have the right to appoint a
designated purchaser (the "Company Designee") to purchase the Shares from the
Stockholder in accordance with the terms hereof upon the exercise of either the
Company Option or the Stockholder Option.

(b) The Company Option may be exercised by the Company by delivering to
the Stockholder, on a date (the "Company Notice Date") no less than five (5)
days prior to the date on which the Company wishes to exercise the Option (the
"Company Exercise Date"), written notice which shall specify that the Company
elects to exercise the Option and the identity of the Company Designee.

(c) The Stockholder Option may be exercised by the Stockholder by
delivering to the Company, on a date (the "Stockholder Notice Date"), no less
than two years prior to the date on which the Stockholder wishes to exercise the
Stockholder Option (the "Stockholder Exercise Date"), written notice which shall
specify that the Stockholder elects to exercise the Stockholder Option.

(d) On the applicable Exercise Date, the Company or the Company Designee
shall deliver to the Stockholder the applicable Exercise Price for the Shares to
be purchased in the form of cash, check, bank draft or postal or express money
order payable to the order of the Stockholder in United States dollars.
Immediately following receipt of the applicable Exercise Price, the Stockholder
shall cause the Practice to, and the Practice shall, issue and promptly deliver
to the Company or the Company Designee, if any, a certificate or certificates
for such number of Shares registered in the name of the Company or such Company
Designee, which certificate shall bear a legend substantially in the form of
that set forth in Section 7. In addition, the Practice shall cancel a
certificate or certificates for such number of Shares registered in the name of
the Stockholder as of such date.

(e) As soon as reasonably practicable after the applicable Exercise Date,
the Company Designee shall cause the Practice to change its name to the name of
the Company Designee.

<PAGE>

-3-

4. Additional Agreements of Practice. Without limiting the Company's right
to waive such restrictions created hereby prior to the earlier of expiration of
the Company Option or the termination of this Agreement, the Practice shall not,
without the consent of the Company, (i) authorize, issue, sell, redeem or
repurchase any class of capital stock of the Practice, including without
limitation Common Stock, or grant any options, warrants or other rights to
purchase any class of capital stock of the Practice, including without
limitation Common Stock, or (ii) be a party to any merger, consolidation, sale
of all or substantially all, or a material portion, of the Practice's assets,
liquidation or recapitalization in which the previously outstanding shares of
capital stock of the Practice shall be changed into or exchanged for different
securities of the Practice or securities of another corporation or interests in
a noncorporate entity other property (including cash). In the event that the
Shares are transferred to a Company Designee pursuant to the exercise of the
Company Option or the Stockholder Option, the Practice shall enter into an
Option Agreement, in substantially the form of this Agreement, with the Company
and such Company Designee.

5. Practice and Stockholder Representations. Each of the Practice and the
Stockholder hereby represents and warrants to the Company as follows: this
Agreement has been duly executed and delivered by each of the Practice and the
Stockholder and constitutes a legal, valid and binding obligation of each of the
Practice and the Stockholder enforceable against each of the Practice and the
Stockholder in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, violate any provision of the Charter or By-laws of the Practice, any
agreement to which either or both of the Practice or the Stockholder is a party
or by which either or both the Practice or the Stockholder is bound and will not
violate any other restriction of any kind or character to which either or both
of the Practice or the Stockholder is subject.

6. Rights as Shareholder. Neither the Company nor any Company Designee
shall have any rights as a shareholder with respect to any Shares covered by the
Company Option until the date of tender of the Exercise Price.

7. Segregation of Shares. The Stockholder shall cause the Practice to, and
the Practice shall, issue, in the Stockholder's name, a new certificate
representing all of the Shares outstanding on the date hereof, which certificate
shall be held, together with an appropriate stock power in favor of Company and
executed by the Stockholder, by the Secretary of the Practice or another
mutually agreed-upon party. The new certificates representing such Shares, and
any other certificates issued prior to the earlier of the exercise of the
Company Option or the Stockholder Option or the termination of this Agreement,
that represent any Shares, shall bear a legend in substantially the following
form:

PURSUANT TO AN OPTION AGREEMENT, AMONG HEALTHDRIVE CORPORATION, THE ISSUER
OF THE SECURITIES REPRESENTED HEREBY AND THE HOLDER HEREOF, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE ASSIGNED, TRANSFERRED OR
OTHERWISE

<PAGE>

-4-

DISPOSED OF WITHOUT THE EXPLICIT WRITTEN CONSENT OF THE COMPANY UNTIL THE
OPTION GRANTED TO THE COMPANY BY SUCH OPTION AGREEMENT HAS BEEN EXERCISED
OR SUCH OPTION AGREEMENT HAS BEEN TERMINATED.

8. Restrictions on Transfer. The Stockholder shall not assign, transfer or
otherwise dispose of the Shares unless and until the Company Option has been
exercised or this Agreement has been terminated. The Practice agrees that,
unless and until the Company Option has been exercised or this Agreement has
been terminated, the Practice will not recognize any purported assignment or
transfer of any of the Shares.

9. Compliance with Law. The Stockholder shall cause the Practice, and the
Practice shall be obligated, to take any and all actions as are necessary or
desirable in order to cause the issuance and delivery of stock certificates to
the Company Designee upon exercise of the Company Option or the Stockholder's
Option to comply with all applicable laws and regulations of any governmental
authority.

10. Notices. Any notice which either party hereto may be required or
permitted to give to the other shall be in writing and may be delivered
personally or by mail, postage prepaid addressed as follows:

If to the Company, to:

HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: Chief Executive Officer

If to the Practice, to:

Jeffrey Morer, O.D., P.C.
c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: President

If to the Stockholder, to:

Jeffrey Morer, O.D.
c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161

11. Entire Agreement. This Agreement sets forth the entire understanding
among the parties hereto with respect to the matters set forth herein and
supersedes all previous

<PAGE>

-5-

and contemporaneous written or oral negotiations, commitments, understandings
and agreements with respect to such matters.

12. Remedies. The parties hereto will be entitled to enforce their rights
under this Agreement specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that any party hereto may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief in order to enforce or prevent any
violation of the provisions of this Agreement.

13. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.

14. Binding Agreement; Amendment and Termination. This Agreement is
intended to take effect and be binding upon the parties hereto and their heirs,
executors, administrators, successors and assigns as a sealed instrument. This
Agreement may be amended or terminated only by a writing executed by each of the
Company, the Practice and the Stockholder.

15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which need not contain the signatures of all parties
hereto, and all of such counterparts taken together shall constitute one
agreement. Copies of executed counterparts transmitted by facsimile or other
electronic transmission shall be considered original executed counterparts for
purposes of this paragraph provided receipt of copies of such counterparts is
confirmed.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.

STOCKHOLDER:

________________________________

<PAGE>

-6-

JEFFREY MORER, O.D., P.C.

By:_____________________________

Name:______________________

Title:__________________________

HEALTHDRIVE CORPORATION

By:_____________________________

Name:______________________

Title:__________________________

<PAGE>

STOCK POWER

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers
unto ______________ ( ) Shares of Common Stock of _______________, P.C. standing
in its name on the books of said Corporation represented by Certificate No. __
herewith, and do hereby irrevocably constitute and appoint __________ attorney
to transfer the said stock on the books of said Corporation with full power and
substitution in the premises.

Dated ____________

______________________________

In presence of

____________________________________

<PAGE>
OPTION AGREEMENT

OPTION AGREEMENT (this "Agreement") dated as of May 26, 1998 among Mary C.
Manesis, D.P.M. (the "Stockholder"), Mary C. Manesis, D.P.M., P.C. (the
"Practice") and HealthDrive Corporation, a Delaware corporation (the "Company").

WHEREAS, the Stockholder holds 100 shares, no stated par value per share,
of the Practice (the "Common Stock"), such shares being all of the issued and
outstanding capital stock of the Practice;

WHEREAS, the Practice is a professional corporation organized under the
laws of the Commonwealth of Massachusetts engaged in the practice of podiatry;

WHEREAS, the Company is unwilling to enter into the Operating Agreement
unless the Stockholder and the Practice enter into this Agreement;

NOW, THEREFORE, the parties hereto mutually covenant and agree as follows:

<PAGE>
-2-

3. Exercise and Payment; Designation of Purchaser; Termination.

(e) As soon as reasonably practicable after the applicable Exercise Date,
the Company Designee shall cause the Practice to change its name to the name of
the Company Designee.

<PAGE>
-3-

<PAGE>
-4-

DISPOSED OF WITHOUT THE EXPLICIT WRITTEN CONSENT OF THE COMPANY UNTIL THE
OPTION GRANTED TO THE COMPANY BY SUCH OPTION AGREEMENT HAS BEEN EXERCISED
OR SUCH OPTION AGREEMENT HAS BEEN TERMINATED.

If to the Company, to:

HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: Chief Executive Officer

If to the Practice, to:

Mary C. Manesis, D.P.M., P.C.
c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: President

If to the Stockholder, to:

Mary C. Manesis, D.P.M.
c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161

11. Entire Agreement. This Agreement sets forth the entire understanding
among the parties hereto with respect to the matters set forth herein and
supersedes all previous and

<PAGE>
-5-

contemporaneous written or oral negotiations, commitments, understandings and
agreements with respect to such matters.

13. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.

STOCKHOLDER:

/s/ Steven S. Charlap
________________________________

<PAGE>

-6-

MARY C. MANESIS, D.P.M., P.C.

By: /s/ Mary C. Manesis
_____________________________

Name: Mary C. Manesis
______________________

Title: President
__________________________

HEALTHDRIVE CORPORATION

By: /s/ Steven S. Charlap
_____________________________

Name: Steven S. Charlap
______________________

Title: President
__________________________

<PAGE>

STOCK POWER

Dated ____________

______________________________________

In presence of

__________________________

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
June 19, 1998

<PAGE>
<ARTICLE> 5
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<CURRENT-ASSETS> 1,969
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1,950
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</TABLE>