APPLE ORTHODONTIX INC, S-1, 1997-03-05

APPLE ORTHODONTIX INC
S-1, 1997-03-05

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 1997
REGISTRATION NO. 333-
================================================================================

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

APPLE ORTHODONTIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 8021
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)

74-2795193
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
------------------------

APPLE ORTHODONTIX, INC.
ONE WEST LOOP SOUTH, SUITE 100
HOUSTON, TEXAS 77027
(713) 964-6882
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)

MICHAEL W. HARLAN
APPLE ORTHODONTIX, INC.
ONE WEST LOOP SOUTH, SUITE 100
HOUSTON, TEXAS 77027
(713) 964-6882
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

COPIES TO:

RICHARD S. ROTH
JACKSON & WALKER, L.L.P.
1100 LOUISIANA
SUITE 4200
HOUSTON, TEXAS 77002

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

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 or continuous 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

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(2),(3) FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........... -- -- $31,145,829 $9,439
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.

(2) Includes shares of Common Stock issuable upon exercise of the Underwriters
over-allotment option.

(3) Estimated solely for purposes of calculating the registration fee.
------------------------

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>

******************************************************************************
* *
* 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. *
* *
******************************************************************************

SUBJECT TO COMPLETION DATED MARCH , 1997

PROSPECTUS
, 1997

2,083,333 SHARES

APPLE ORTHODONTIX, INC.

CLASS A COMMON STOCK

All of the shares of Common Stock offered hereby are being sold by Apple
Orthodontix, Inc. Prior to the Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. The Class A Common Stock is entitled to one vote per
share while the Class B Common Stock is entitled to three-tenths ( 3/10ths) of a
vote per share. The Company has applied to have the shares of Class A Common
Stock approved for inclusion on the Nasdaq National Market, under the symbol
" ."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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.

================================================================================
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNT AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share.............. $ $ $
- --------------------------------------------------------------------------------
Total(3)............... $ $ $
================================================================================

(1) See "Underwriting" for indemnification arrangements with the Underwriters.

(2) Before deducting expenses estimated at $ , which will be paid by
the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 312,500 additional shares of Class A Common Stock at the Price to the
Public less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively.
See "Underwriting."

The shares are being offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to various prior conditions, including their right to reject orders in whole or
in part. It is expected that delivery of the shares will be made in New York,
New York on or about , 1997.
<PAGE>
[Map showing locations
of Founding Affiliated Practices]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>
PROSPECTUS SUMMARY

CONCURRENTLY WITH THE CLOSING OF THE OFFERING, THE COMPANY WILL ACQUIRE, IN
SEPARATE TRANSACTIONS (THE "ACQUISITIONS"), SUBSTANTIALLY ALL THE TANGIBLE AND
INTANGIBLE ASSETS, AND ASSUME CERTAIN LIABILITIES, OF 31 ORTHODONTIC PRACTICES
(COLLECTIVELY, THE "FOUNDING AFFILIATED PRACTICES") IN EXCHANGE FOR CASH AND
SHARES OF COMMON STOCK. THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED IN
EACH ACQUISITION WILL DEPEND ON THE INITIAL PUBLIC OFFERING PRICE OF THE COMMON
STOCK. ACCORDINGLY, THE DISCLOSURES HEREIN RELATING TO THE SHARES OF CLASS A
COMMON STOCK, PAR VALUE $.01 PER SHARE ("COMMON STOCK") ISSUED TO THE FOUNDERS
OF APPLE AND TO BE ISSUED IN CONNECTION WITH THE ACQUISITIONS ARE ESTIMATED,
BASED ON AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $12.00 PER SHARE (THE
MIDPOINT OF THE ESTIMATED INITIAL PUBLIC OFFERING PRICE RANGE). UNLESS OTHERWISE
INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I) "APPLE" MEAN APPLE
ORTHODONTIX, INC., (II) THE "COMPANY" MEAN APPLE AND THE FOUNDING AFFILIATED
PRACTICES AND (III) "AFFILIATED PRACTICES" MEAN THE FOUNDING AFFILIATED
PRACTICES AND ANY ORTHODONTIC PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO
SIMILAR RELATIONSHIPS IN THE FUTURE.

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION AND
SHARE AND PER SHARE DATA IN THIS PROSPECTUS (I) GIVE EFFECT TO THE ACQUISITIONS,
(II) ASSUME THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (III)
GIVE EFFECT TO A STOCK SPLIT OF THE OUTSTANDING SHARES OF COMMON STOCK TO BE
EFFECTED IN CONNECTION WITH THE OFFERING.

THE COMPANY

OVERVIEW

Apple was founded in July 1996 to provide practice management services to
orthodontic practices in the United States and Canada. The Company's objective
is to provide a full complement of practice management services designed to
drive internal growth by enhancing the ability of Affiliated Practices to: (i)
deliver quality, affordable orthodontic treatment primarily on a fee-for-service
basis; (ii) stimulate demand in their local markets by increasing consumer
awareness of the benefits, availability and affordability of orthodontic
treatment; and (iii) improve the productivity and profitability of their
practices. The Company will also seek to grow through acquisitions. The Company
will earn revenue by providing management and other services to Affiliated
Practices, including staffing, education and training, billing and collections,
cash management, purchasing, inventory management, payroll processing, employee
benefits administration, advertising production and other marketing support,
patient scheduling, financial reporting and analysis, productivity reporting and
analysis, recruiting and support for acquisitions, new site development and
other capital requirements.

The Company has entered into definitive agreements to acquire substantially
all the tangible and intangible assets and assume certain liabilities of, and
provide long-term management services to, the Founding Affiliated Practices. The
Founding Affiliated Practices include 31 orthodontists and 52 offices located in
13 states in the United States and in Calgary, Alberta. The Founding Affiliated
Practices were selected based on a variety of factors, including the competitive
and financial strengths and historical growth of their practices and the
potential for future growth in their markets. Apple also considered the local
and national reputations of the Founding Affiliated Practices within the
orthodontic services industry, their ability to manage multi-location practices
providing high levels of quality care and their desire to grow and improve the
operating efficiency of their respective practices.

3
<PAGE>
industry currently generates approximately $3.5 billion in annual gross
revenues. Industry revenues have steadily grown an average rate of 7.5% per year
in recent years. Industry data and management's experience indicate that the
need for orthodontics significantly exceeds the current demand. Based on
published industry data, over 70% of orthodontic treatments are performed on a
private pay, fee-for-service basis, 25% of treatments are covered by traditional
forms of dental insurance (generally with a 50% or greater co-payment by the
patient) and the remaining 5% of treatments are performed through other payment
methods, including managed care networks. Managed care represents only a small
portion of the payor sources due to the elective nature of most orthodontic
treatments. Most orthodontic practices (including the Founding Affiliated
Practices) do not accept payment by Medicare or Medicaid.

BUSINESS STRATEGY

The Company's business strategy emphasizes (i) implementing a comprehensive
operating strategy designed to drive internal growth of the Affiliated Practices
and (ii) expanding the Company's network of Affiliated Practices through an
aggressive acquisition program.

The primary elements of the Company's operating strategy are (i)
implementing internal and external marketing programs designed to generate new
patient starts through increased referrals from patients and former patients and
the use of multimedia advertising to stimulate demand for treatment services,
(ii) offering more affordable payment plans to patients to broaden the market
for orthodontic services, (iii) increasing the operating efficiency of the
Affiliated Practices by relieving the orthodontists from various time-consuming
administrative responsibilities and realizing economies of scale; (iv) providing
a systems-oriented approach to training and education of clinic personnel to
develop their internal marketing abilities and increase their productivity, (v)
developing satellite offices to expand the geographic markets served by
Affiliated Practices and (vi) utilizing customized management information
systems to provide detailed financial and operating data and related analysis to
Affiliated Practices and management. Each of these elements is intended to drive
the internal growth of the Affiliated Practices while allowing them to maintain
high levels of quality care.

The Company has implemented its operating strategy at a prototype practice
owned and, until June 1996, operated by the Company's Chairman and CEO, John G.
Vondrak, D.D.S. This practice has grown substantially since 1989, when Dr.
Vondrak acquired it, to approximately $1.9 million of revenues in 1996, placing
it among the largest sole-practitioner orthodontic practices in the United
States. Among the factors contributing to this growth have been the Company's
internal marketing program (consisting of a complete training and operating
program emphasizing clear, concise and consistent communications to patients and
potential patients in order to maximize patient satisfaction levels, generate
referrals from existing and former patients and increase case acceptance rates
(the percentage of initial inquiries from prospective patients resulting in
contracts for the provision of orthodontic treatment)) and external marketing
efforts, including television advertising. The Company believes this prototype
practice has a higher case acceptance rate than the industry average and a
higher than average percentage of new case starts generated from patient
referrals and multimedia advertising. Management believes that the results of
this practice demonstrate the effectiveness of the Company's operating strategy.
In July 1996, Dr. Vondrak transferred the operation of this practice to an
orthodontist who recently completed her education to devote his time fully to
the formation of the Company. Since this transfer, the continued application of
the Company's operating strategy has resulted in further increases in case
starts based on a comparison of the six-month period ending December 31, 1996 to
the corresponding period in the prior year.

The Company intends to pursue an aggressive expansion program designed to
strengthen its position in its current markets, achieve economies of scale in
those markets and expand its network of Affiliated Practices into markets it
does not currently serve. The Company believes that, due to the highly
fragmented nature of the industry, there are numerous orthodontic practices that
are attractive candidates to become Affiliated Practices. In identifying
candidates to become Affiliated Practices, the Company will consider

4
<PAGE>
such factors as location, population, demographics, profitability, capacity for
growth, competitive environment and advertising costs. Additionally, the Company
plans to focus on candidates who have strong reputations in their local markets
and the desire to implement the Company's operating strategy. The Company
intends to leverage the reputations and relationships of the orthodontists
affiliated with the Founding Affiliated Practices to identify and develop growth
opportunities with candidates to become future Affiliated Practices. Many of
these orthodontists hold, or have previously held, leadership roles in various
state, regional and national associations or are affiliated with or teach at
graduate orthodontic programs at dental schools. The Company believes the
visibility and reputation of these individuals, combined with the acquisition
experience of management, will provide the Company with certain advantages in
identifying, negotiating and consummating future acquisitions.

THE OFFERING

Class A Common Stock offered by the
Company............................ 2,083,333 shares

Class A Common Stock to be
outstanding after the Offering..... 4,226,481 shares(1)

Class B Common Stock to be
outstanding after the Offering..... 4,106,852

Voting Rights........................ Holders of Class B Common Stock, par
value $0.01 per share ("Class B Stock"),
are entitled to three-tenths ( 3/10ths)
of a vote per share and the holders of
Common Stock are entitled to one vote
per share. In addition, holders of the
Class B Stock are entitled to elect as a
class one member of the Board of
Directors. The Common Stock and Class B
Stock possess ordinary voting rights and
vote together as a single class in the
election of all other directors and in
respect of other corporate matters.

Conversion of the Class B Stock...... Each share of Class B Stock will
automatically convert to Common Stock on
a share for share basis (i) in the event
of a disposition of such share of Class
B Stock by the holder thereof, (ii) in
the event any person acquires beneficial
ownership of 15% or more of the
outstanding shares of capital stock of
the Company, (iii) in the event any
person offers to acquire 15% or more of
the outstanding shares of capital stock
of the Company, (iv) in the event the
holder of such share elects to so
convert at any time after the second
anniversary of the date of this
Prospectus, (v) on the fifth anniversary
of the date of this Prospectus or (vi)
in the event the holders of that number
of shares of Common Stock and Class B
Stock, voting together as a single
class, with a majority of the voting
power approve such conversion. In
addition, the Company may elect to
convert any outstanding shares of Class
B Stock into shares of Common Stock in
the event 80% or more of the outstanding
shares of Class B Stock on the date of
this Prospectus have previously been
converted into shares of Common Stock.

5
<PAGE>
Use of proceeds...................... To fund the cash portion of the purchase
price for the assets of the Founding
Affiliated Practices, to repay
indebtedness and for gen- eral corporate
purposes, which are expected to include
future acquisitions, the development of
satellite offices and future capital
expenditures. See "Use of Proceeds."

Proposed Nasdaq National Market
symbol...............................

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

(1) Includes 2,143,148 shares of Common Stock to be issued in connection with
the Acquisitions and excludes (i) an aggregate of 236,363 shares of Common
Stock issuable on conversion of $2,600,000 in aggregate principal amount of
convertible promissory notes (the "Convertible Notes") issued by Apple to
TriCap Funding I, L.L.C. ("TriCap") in connection with Apple's
organizational financing which Convertible Notes are convertible into shares
of Common Stock at a conversion price equal to $11.00 per share, (ii) an
aggregate of approximately 798,000 shares of Common Stock issuable upon
exercise of stock options outstanding at a weighted average exercise price
of $11.77 per share under the Company's 1996 Stock Option Plan (the "1996
Stock Option Plan") and (iii) approximately 202,000 shares reserved for
future issuance under the 1996 Stock Option Plan. See "Management -- 1996
Stock Option Plan." The number of shares to be outstanding on completion of
the Offering will decrease if the initial public offering price is higher,
and will increase if the initial public offering price is lower, than $12.00
per share. For example, 7,142,857 shares would be outstanding if that price
is $14.00 while 10,000,000 shares would be outstanding if that price is
$10.00.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
------------------------

The Company's principal executive offices are located at One West Loop
South, Suite 100, Houston, Texas 77027. The Company's telephone number is (713)
964-6882.

INDUSTRY INFORMATION USED IN THIS PROSPECTUS IS DERIVED FROM THE 1995
JOURNAL OF CLINICAL ORTHODONTISTS ORTHODONTIC PRACTICE STUDY ("1995 JCO
STUDY"), A BIENNIAL STUDY, AND RELATES TO 1994 UNLESS OTHERWISE INDICATED.
COMPARABLE INFORMATION FOR 1995 AND 1996 IS NOT EXPECTED TO BE AVAILABLE UNTIL
THE RELEASE OF THE 1997 JCO STUDY IN LATE 1997. THE INFORMATION COMPILED IN THE
1995 JCO STUDY RELATES TO ORTHODONTISTS WHO HAVE COMPLETED ACCREDITED GRADUATE
ORTHODONTIC TRAINING PROGRAMS AND DOES NOT INCLUDE GENERAL DENTISTS WHO ALSO
PERFORM ORTHODONTIC SERVICES.

6
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

The following summary pro forma financial information assumes Apple has
acquired the assets and assumed certain liabilities of the Founding Affiliated
Practices, and assumed certain liabilities related to those assets, executed
management service agreements with the Founding Affiliated Practices pursuant to
the Acquisitions and completed the Offering. This information is derived from
the unaudited pro forma consolidated financial statements of Apple contained
elsewhere in this Prospectus.

The unaudited pro forma consolidated financial statements have been
prepared by the Company based on assumptions deemed appropriate by the Company.
These pro forma financial statements may not be indicative of actual results if
the transactions had occurred on the dates indicated or which may be realized in
the future. Neither expected benefits and cost reductions anticipated by the
Company nor future corporate costs of the Company have been reflected in such
pro forma financial data. The pro forma consolidated balance sheet as of
December 31, 1996 gives effect to the Acquisitions and the Offering as if such
transactions had occurred on December 31, 1996. The pro forma consolidated
statement of operations for the year ended December 31, 1996 assumes the Company
had completed the transactions on January 1, 1996.

UNAUDITED PRO FORMA(1)
FOR THE YEAR
ENDED DECEMBER 31, 1996
-----------------------
STATEMENT OF OPERATIONS DATA
Management service revenues............. $ 18,138
-----------------------
Costs and expenses:
Salaries, wages and benefits........ 7,008
Orthodontic supplies................ 2,548
Rent................................ 1,943
Advertising and marketing........... 438
General and administrative
expenses........................... 3,680
Depreciation and amortization....... 869
Other (income)/expenses, net........ 4
-----------------------
Total costs and expenses................ 16,490
-----------------------
Income before income taxes.............. 1,648
Provision for income taxes.............. 627
-----------------------
Net income.............................. $ 1,021
=======================
Net income per share.................... $ 0.14
=======================
Number of shares used in net income per
share calculation(2).................. 7,459,120
=======================

UNAUDITED PRO FORMA(1)
AS OF DECEMBER 31, 1996
-----------------------
BALANCE SHEET DATA
Working capital......................... $ 10,887
Total assets............................ 16,795
Long-term liabilities, net of current
portion............................... 927
Stockholders' equity.................... 13,883

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

(1) See the Unaudited Pro Forma Consolidated Financial Statements included
elsewhere in this Prospectus for a discussion of the assumptions made and
adjustments applied in the preparation of this information.

(2) The number of shares used in the pro forma net income per share calculation
have been determined as follows:

NUMBER OF SHARES
----------------
Estimated outstanding shares after the
Acquisitions and Offering............. 8,333,333
Net shares that would be outstanding if
outstanding options were exercised and
the proceeds were used to repurchase
shares at the assumed initial public
offering price........................ 15,000
Less: Shares not required for the
Acquisitions and other uses of
proceeds ($10,671/$12.00)............. (889,213)
----------------
7,459,120
----------------

7
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF THE COMMON STOCK
OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER FROM THOSE DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS.

ABSENCE OF COMBINED OPERATING HISTORY

The Company was incorporated in July 1996 and has conducted no operations
to date other than in connection with the Offering and the Acquisitions. The
Company has entered into agreements to acquire substantially all the assets and
assume certain liabilities of the Founding Affiliated Practices concurrently
with the closing of the Offering. In connection with the consummation of the
Acquisitions, the Company is entering into agreements to provide management
services ("Service Agreements") to the Founding Affiliated Practices for
initial terms of 20 years (subject to early termination by either party for
"cause," which includes a material default by or bankruptcy of the other
party). See "Business -- Service Agreements." The Founding Affiliated
Practices have operated, and will continue to operate prior to the closing of
the Acquisitions, as separate independent entities. There can be no assurance
that the process of integrating the management and administrative functions of
the Founding Affiliated Practices will be successful or that the recently
assembled management group will be able to manage effectively the combined
operations and successfully implement the Company's operating or expansion
strategies.

RELIANCE ON AFFILIATED PRACTICES AND ORTHODONTISTS

The Company will receive fees for management services provided to the
Affiliated Practices under the Service Agreements. It will not employ
orthodontists or control the practice of orthodontics by the orthodontists
employed by the Affiliated Practices and its management services revenue
generally will depend on revenue generated by the Affiliated Practices. In some
cases, the management fees will be based on the costs and expenses the Company
incurs in connection with providing management services. While the laws of some
states permit the Company to participate in the negotiations by Affiliated
Practices of managed care contracts, preferred provider arrangements and other
negotiated price agreements, the Affiliated Practices are the contracting
parties for all such relationships, and the Company will be dependent on the
Affiliated Practices for the success of those relationships. Accordingly, the
profitability of those payor relationships, as well as the performance of the
individual orthodontists employed by the Affiliated Practices, will affect the
Company's profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business -- Service
Agreements."

The revenue of the Affiliated Practices (and, therefore, the success of the
Company) is dependent on fees generated by the orthodontists employed by the
Affiliated Practices. In connection with the Service Agreements, each
orthodontist affiliated with a Founding Affiliated Practice will enter into an
employment agreement, substantially all of which having a five-year term, with
the professional corporation or association in which that orthodontist owns an
equity interest (and which is a party to a Service Agreement). A substantial
reduction in the number of orthodontists employed by or associated with the
Affiliated Practices could have a material adverse effect on the financial
performance of the Company. See "Business -- Orthodontist Employment
Agreements."

RISKS ASSOCIATED WITH EXPANSION STRATEGY

The success of the Company's expansion strategy will depend on a number of
factors, including the Company's ability to (i) identify attractive and willing
candidates to become Affiliated Practices in suitable markets and in good
locations within those markets, (ii) affiliate with acceptable Affiliated
Practices on favorable terms, (iii) adapt the Company's structure to comply with
present or future legal requirements affecting the Company's arrangements with
Affiliated Practices and comply with regulatory and licensing requirements
applicable to orthodontists and facilities operated and services offered by
orthodontists, (iv) obtain suitable financing to facilitate its expansion
program, and (v) expand the Company's infrastructure

8
<PAGE>
and management to accommodate expansion. Identifying candidates to become
Affiliated Practices and proposing, negotiating and implementing economically
feasible affiliations with such groups can be a lengthy, complex and costly
process. A shortage of available orthodontists with the skills and experience
sought by the Company would have a material adverse effect on the Company's
expansion opportunities. Furthermore, the Company anticipates facing substantial
competition from other companies to establish affiliations with additional
orthodontic practices. See " -- Competition." There can be no assurance that
the Company's expansion strategy will be successful, that modifications to the
Company's strategy will not be required, that the Company will be able to
effectively manage and enhance the profitability of additional Affiliated
Practices or that the Company will be able to obtain adequate financing on
reasonable terms to support its expansion program.

NEED FOR ADDITIONAL FINANCING

The Company's expansion program will require substantial capital resources.
Capital is needed not only for the acquisition of the assets of additional
Affiliated Practices, but also for the effective integration, operation and
expansion of the Affiliated Practices. The Affiliated Practices may from time to
time require capital for renovation and expansion and for the addition of
equipment and technology. The Company believes the net proceeds from the
Offering and cash flow from operations will be sufficient to meet the Company's
anticipated expansion and working capital needs through the end of 1997.
Thereafter, however, the Company may require additional capital from outside
financing sources in order to continue its expansion program. Although the
Company currently believes it will be able to secure additional financing, there
can be no assurance that the Company will be able to obtain additional funds
when needed on satisfactory terms or at all. Any limitation on the Company's
ability to obtain additional financing could have a material adverse effect on
the Company. See "Management's Discussion and Analysis -- Liquidity and Capital
Resources."

PROCEEDS OF OFFERING PAYABLE TO AFFILIATES

In connection with the closing of the Acquisitions, the Company will pay,
out of proceeds from the Offering, approximately $6.4 million in cash to the
owners of the Founding Affiliated Practices, including approximately $455,000 to
Dr. Vondrak. The Company will also use (i) approximately $3.0 million of the
proceeds from the Offering to repay the entire principal and interest amounts
outstanding under the Convertible Notes, all of which are held by TriCap, and to
reimburse the expenses incurred by TriCap on behalf of the Company and (ii)
approximately $1.2 million of such proceeds to pay a financial advisory fee to
TriCap Partners, L.L.C. ("TriCap Partners"), an affiliate of TriCap, pursuant
to a consulting agreement between Apple and TriCap Partners. The consulting
agreement also provides for certain future fees payable by the Company to TriCap
Partners in connection with certain securities offerings and merger and
acquisition transactions that may be completed by the Company in the future. The
Company has used $230,000 of the funds advanced to it by TriCap to reimburse
John G. Vondrak Apple Orthodontix, Inc. ("JGVAOI") for a portion of the
organizational expenses of Apple incurred by JGVAOI. The Company intends to
reimburse JGVAOI an additional $70,000 from the proceeds of the Offering to
repay the remainder of such expenses. See "Use of Proceeds" and "Certain
Transactions -- Agreements with TriCap."

GOVERNMENT REGULATION

Various federal and state laws regulate the orthodontic services industry.
Regulatory oversight includes, but is not limited to, considerations of
fee-splitting and corporate practice of orthodontics.

9
<PAGE>
employing orthodontists to practice orthodontics (or, in certain states,
employing dental hygienists or orthodontic assistants), or controlling the
content of an orthodontist's advertising or professional practice. The laws of
many states also prohibit orthodontists from sharing professional fees with
non-orthodontic entities. State orthodontic boards do not generally interpret
these prohibitions as preventing a non-orthodontic entity from owning
non-professional assets used by an orthodontist in an orthodontic practice or
providing management services to an orthodontist for a fee provided certain
conditions are met. The Company believes that its operations will not contravene
any restriction on the corporate practice of orthodontics and that the
management fees it intends to charge for its services are consistent with the
laws and regulations of the jurisdictions in which it will operate concerning
fee-splitting. There can be no assurance, however, that a review of the
Company's business relationships by courts or regulatory authorities will not
result in determinations that could prohibit or otherwise adversely affect the
operations of the Company or that the regulatory environment will not change,
requiring the Company to reorganize or restrict its existing or future
operations. The laws regarding fee-splitting and the corporate practice of
orthodontics and their interpretation are enforced by regulatory authorities
with broad discretion. There can be no assurance that the legality of the
Company's business or its relationship with the Affiliated Practices will not be
successfully challenged or that the enforceability of the provisions of any
Service Agreement will not be limited.

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

Following the completion of the Acquisitions and the Offering (and assuming
the Convertible Notes will be repaid in full with proceeds from the Offering and
will not be converted into shares of Common Stock), Dr. John G. Vondrak, the
Company's Chairman and Chief Executive Officer, the other executive officers and
directors of the Company as a group, and TriCap will beneficially own
approximately 38.6%, 11.3% and 41.0%, respectively, of the outstanding shares of
Class B Stock and 4.4%, 1.6% and none, respectively, of the outstanding shares
of Common Stock (4.1%, 1.5% and none, respectively, if the Underwriters'
over-allotment option is exercised in full). The shares of Common Stock and
Class B Stock beneficially owned by Dr. Vondrak, such officers and directors as
a group and TriCap represents approximately 12.0%, 2.6% and 9.3%, respectively,
of the voting power of the capital stock of the Company. These persons, if
acting in concert, will be able to exercise control over the Company's affairs,
elect the entire Board of Directors and (subject to Section 203 of the Delaware
General Corporation Law ("DGCL")) control the outcome of any matter submitted
to a vote of stockholders. See "Security Ownership of Certain Beneficial Owners
and Management."

COMPETITION

The Company anticipates facing substantial competition from other companies
to establish affiliations with additional orthodontic practices. The Company is
aware of one public and two private practice management companies focused on
orthodontics and several companies pursuing similar strategies in other segments
of the health care industry (including dentistry). Additional companies with
similar objectives may enter the Company's markets and compete with the Company.
In addition, the business of providing orthodontic services is highly
competitive in each market in which the Company will operate. Each of the
Founding Affiliated Practices faces local competition from other orthodontists,
general dentists and pedodontists (dentists specializing in the care of
children's teeth) some of whom have more established practices. Dentists are not
restricted by law or any other governmental authority from providing orthodontic
services. Management believes the increase in recent years in dentists providing
orthodontic services has limited the growth of patient case starts performed by
orthodontists. There can be no assurance that the Company or the Affiliated
Practices will be able to compete effectively with their respective competitors,

10
<PAGE>
that additional competitors will not enter their markets or that additional
competition will not have a material adverse effect on the Company. See
"Business -- Competition."

RISK OF PROVIDING ORTHODONTIC SERVICES

The Affiliated Practices provide orthodontic services to the public and are
exposed to the risk of professional liability and other claims. Such claims, if
successful, could result in substantial damage awards to the claimants that may
exceed the limits of any applicable insurance coverage. Although the Company
will not control the practice of orthodontics by the Affiliated Practices, it
could be asserted that the Company should be held liable for malpractice of an
orthodontist employed by an Affiliated Practice. Each Affiliated Practice has
undertaken to comply with all applicable regulations and legal requirements, and
the Company maintains liability insurance for itself and it is anticipated that
the Company will be named as an additional insured party on the liability
insurance policies of the Affiliated Practices. There can be no assurance,
however, that a future claim or claims will not be successful or, if successful,
will not exceed the limits of available insurance coverage or that such coverage
will continue to be available at acceptable costs. See "Business -- Litigation
and Insurance."

LITIGATION WITH ORTHODONTIC CENTERS OF AMERICA

On December 10, 1996, Orthodontic Centers of America, Inc. ("OCA") filed
a complaint in the United States District Court for the Eastern District of
Louisiana against Apple, Dr. Vondrak, John G. Vondrak, P.C. and John G. Vondrak
Apple Orthodontix, Inc., a Texas corporation and one of the Founding Affiliated
Practices, alleging, among other things, misappropriation of trade secrets and
certain breaches of a confidentiality agreement executed by Dr. Vondrak, on
behalf of John Vondrak, P.C., in favor of OCA. While Apple is not a party to the
confidentiality agreement, OCA has alleged that the Company should be bound by
its terms as a result of the relationship between Dr. Vondrak and Apple
(specifically, OCA has alleged that Dr. Vondrak and Apple are alter egos and,
alternatively, that Dr. Vondrak was acting as Apple's agent when he executed the
confidentiality agreement). The Company intends to vigorously defend against the
claims made by OCA, which the Company believes are without merit.

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK

The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. The shares being sold in the Offering will be
freely tradable unless acquired by affiliates of the Company.

Concurrently with the closing of the Offering, security holders of the
Founding Affiliated Practices will receive, in the aggregate, 2,143,148 shares
of Common Stock as a portion of the consideration for the assets of their
practices. Certain other stockholders of the Company will hold, in the
aggregate, an additional 4,106,852 shares of Class B Stock. Those shares are not
being offered and sold pursuant to this Prospectus. None of those 6,250,000
shares were acquired in the transactions registered under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, such shares may not
be sold except in transactions registered under the Securities Act or pursuant
to an exemption from registration. In addition, the holders of 2,143,148 of
those shares have agreed not to sell any shares of Common Stock owned by them
immediately after the consummation of the Acquisitions for a period following
the Offering of two years (or for such shorter period as the Securities and
Exchange Commission (the "Commission") may prescribe as the holding period for
restricted securities under Rule 144 of the Securities Act), subject to their
right to exercise certain registration rights. After the expiration of such
restricted period, all of those shares may be sold in accordance with Rule 144
under the Securities Act, subject to the applicable volume limitations, holding
period and other requirements of Rule 144.

The Company, its directors and executive officers, TriCap and all persons
acquiring shares of Common Stock in connection with the Acquisitions have agreed
not to offer or sell any shares of Common Stock for a period of 180 days (the
"180-Day Lockup Period") following the date of this Prospectus without the
prior written consent of , except that the Company
may issue Common Stock in connection with acquisitions and awards under the 1996
Stock Option Plan.

11
<PAGE>
Following completion of the Offering, the Company intends to register the
issuance of an additional 5,000,000 shares of its Common Stock under the
Securities Act subsequent to completion of the Offering for use by the Company
as all or a portion of the consideration to be paid in future acquisitions.
Those shares will generally be freely tradable by nonaffiliates after their
issuance, unless the sale thereof is contractually restricted.

The Company anticipates that, prior to the consummation of the Offering,
the Company will have outstanding under the 1996 Stock Option Plan options to
purchase approximately 798,000 shares of Common Stock. The Company intends to
register the shares issuable upon exercise of options granted under the 1996
Stock Option Plan. See "Management -- 1996 Stock Option Plan" and "Shares
Eligible for Future Sale."

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if a trading market does develop, that it will continue after the Offering.
The initial public offering price of the Common Stock, which will be determined
through negotiations between the Company and the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
See "Underwriting" for a description of the factors considered in determining
the initial public offering price. The market price of the Common Stock could be
subject to significant fluctuations in response to numerous factors, including
variations in financial results or announcements of material events by the
Company or its competitors. Regulatory changes, developments in the health care
industry or changes in general conditions in the economy or the financial
markets could also adversely affect the market price of the Common Stock.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Bylaws and of Delaware law could,
together or separately, discourage potential acquisition proposals, delay or
prevent a change in control of the Company or limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
The Certificate of Incorporation provides for "blank check" preferred stock,
which may be issued without stockholder approval and provides for a
"staggered" Board of Directors. In addition, certain provisions of the
Company's Bylaws restrict the right of the stockholders to call a special
meeting of stockholders, to nominate directors, to submit proposals to be
considered at stockholders' meetings and to adopt amendments to the Bylaws. The
Company also is subject to Section 203 of the DGCL, which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business acquisitions with an "interested stockholder" for a period
of three years following the date such stockholder became an interested
stockholder. See "Description of Capital Stock."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares in the amount of $10.39 per share. See "Dilution." In the event the
Company issues additional Common Stock in the future, including shares that may
be issued in connection with future acquisitions, purchasers of Common Stock in
the Offering may experience further dilution in the net tangible book value per
share of Common Stock.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting the underwriting discounts and commissions and
estimated Offering expenses including the repayment of the entire principal and
interest amounts outstanding under the Convertible Notes issued to TriCap and
the expenses incurred by TriCap on behalf of the Company in connection with the
Acquisitions and the Offering) are estimated to be approximately $17.1 million
(approximately $20.6 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $12.00

12
<PAGE>
per share (the midpoint of the estimated initial public offering price range).
Of those net proceeds, (i) approximately $6.4 million will be used to pay the
cash portion of the consideration for the Acquisitions and (ii) $1.2 million
will be used to pay a financial advisory fee to an affiliate of TriCap. The
remaining net proceeds will be used for general corporate purposes, which are
expected to include future acquisitions, the development of satellite offices
and future capital expenditures. Other than with respect to the Acquisitions,
the Company currently has no agreement or understanding with respect to any
future acquisitions. Pending such uses, the net proceeds will be invested in
short-term, interest bearing, investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."

The Convertible Notes were issued in connection with loans made by TriCap
in the aggregate amount of $3.0 million to fund Apple's organizational and other
expenses incurred prior to the completion of the Offering. The Convertible Notes
bear interest at an average rate of 8.5% per annum and are convertible, at the
option of either Apple or TriCap, into shares of Common Stock at a conversion
price of $11.00 per share. Apple does not currently intend to exercise its
conversion rights in respect of the Convertible Notes and, based on a written
representation received from TriCap, does not expect TriCap to exercise its
conversion rights. Assuming the Convertible Notes are not converted, the
indebtedness represented thereby will mature and become due on the closing of
the Offering.

DIVIDEND POLICY

It is the Company's current intention to retain earnings for the
foreseeable future to support operations and finance expansion. The payment of
any future dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, cash flow from operations, capital requirements, expansion
plans, the income tax laws then in effect, the requirements of Delaware law and
restrictions that may be imposed in the Company's future financing arrangements.

13
<PAGE>
DILUTION

The pro forma net tangible book value of the Company as of December 31,
1996 was $(.58) per share of Common Stock, after giving effect to the
Acquisitions. Pro forma net tangible book value per share is determined by
dividing the pro forma tangible net worth of the Company (pro forma tangible
assets less pro forma total liabilities) by the number of shares of Common Stock
and Class B Stock to be outstanding after giving effect to the Acquistions.
After giving effect to (i) the Acquisitions and (ii) the sale by the Company of
an estimated 2,083,333 shares of Common Stock offered at an assumed price of
$12.00 per share and the application of the estimated net proceeds therefrom as
set forth under "Use of Proceeds," the net pro forma tangible book value of
the Company as of December 31, 1996 would have been $ 1.61 per share. This
represents an immediate increase in the net tangible book value of $2.19 per
share to existing stockholders and an immediate dilution to new investors
purchasing Common Stock in the Offering of $10.39 per share. The following table
illustrates the per share dilution to new investors purchasing Common Stock in
the Offering:

Assumed initial public offering price
per share(1)......................... $ 12.00
Pro forma net tangible book value per
share as of December 31, 1996
before the Offering................ $ (.58)
Increase per share attributable to
Offering........................... 2.19
---------
Pro forma net tangible book value per
share after the Offering........... 1.61
---------
Dilution per share to initial public
offering investors................... $ 10.39
=========

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

The dilution to new investors purchasing shares in the Offering will
increase if the initial public offering price is higher, and will decrease if
the initial public offering price is lower, than $12.00 per share.

The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of December 31, 1996, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by existing stockholders and the new
investors purchasing shares from the Company in the Offering (before deducting
underwriting discounts and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED ----------------------- AVERAGE
--------------------- AMOUNT PRICE
NUMBER PERCENT (IN 000'S) PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)............. 6,250,000 75% $(3,217) (14.8)% $(0.51)
New investors........................ 2,083,333 25 25,000 114.8 12.00
--------- ------- ----------- -------
Total........................... 8,333,333 100.0% $21,783 100.0%
========= ======= =========== =======
</TABLE>

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

(1) Before deducting estimated underwriting discount and estimated expenses of
the Offering payable by the Company.

(2) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Affiliated Practices before the
Offering, adjusted to reflect the payment of $6.4 million in cash as part of
the consideration for the Acquisitions. See "Use of Proceeds" and
"Capitalization."

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<PAGE>
CAPITALIZATION

The following table sets forth the short-term debt and the capitalization
of the Company at December 31, 1996 (i) on a pro forma combined basis to give
effect to the Acquisitions and (ii) as adjusted to reflect the sale of 2,083,333
shares of Common Stock offered hereby (assuming an offering price of $12.00 per
share) and the application of the estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with the unaudited Pro
Forma Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.

AS OF DECEMBER 31, 1996
------------------------------
PRO FORMA(1) AS ADJUSTED(2)
------------ --------------
(IN THOUSANDS)
Short-term debt and capital lease
obligations:
Current portion of long-term
debt and capital lease
obligations.................... $ 121 $ 121
------------ --------------
Total short-term debt and
capital lease obligations...... $ 121 $ 121
============ ==============
Long-term debt and capital lease
obligations:
Long-term debt and capital lease
obligations, net of current
portion........................ $ 927 $ 927
Stockholders' equity (deficit):
Class A Common Stock, $0.01 par
value, 50,000,000 shares
authorized; 4,226,481 shares
issued and outstanding as
adjusted(3).................... 21 42
Class B Common Stock, $0.01 par
value, 4,106,852 shares
authorized; 4,106,852 shares
issued and outstanding as
adjusted....................... 41 41
Additional paid-in capital........... (2,552) 14,527
Retained earnings (deficit).......... (727) (727)
------------ --------------
Total stockholders' equity...... (3,217) 13,883
------------ --------------
Total capitalization............ $ (2,290) $ 14,810
============ ==============

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

(1) Amounts represent pro forma balances assuming the Acquisitions had occurred
but exclude the effects of the Offering.

(2) Amounts represent the effects of both the Acquisitions and the Offering. See
Unaudited Pro Forma Consolidated Financial Statements included elsewhere in
this Prospectus.

(3) Excludes (i) an aggregate of 236,363 shares of Common Stock issuable on
conversion of the Convertible Notes (which are expected to be repaid with
proceeds from the Offering) and (ii) approximately 798,000 shares of Common
Stock subject to options granted pursuant to the 1996 Stock Option Plan. See
"Management -- 1996 Stock Option Plan."

<PAGE>
SELECTED FINANCIAL DATA

SELECTED PRO FORMA APPLE FINANCIAL DATA

The following selected pro forma financial information assumes Apple has
acquired the assets and assumed certain liabilities of the Founding Affiliated
Practices and assumed certain liabilities related to those assets, executed
Service Agreements with the Founding Affiliated Practices in connection with the
Acquisitions and completed the Offering. This information is derived from the
unaudited pro forma consolidated financial statements of Apple and audited
financial statements of Apple included elsewhere in this Prospectus.

The unaudited pro forma consolidated financial statements have been
prepared by the Company based on data derived from the historical combined
financial statements of the Founding Affiliated Practices included elsewhere in
this Prospectus and assumptions deemed appropriate by the Company. The unaudited
pro forma financial statements may not be indicative of actual results that
might have been obtained if the transactions had occurred on the dates indicated
or that may be realized in the future. Neither expected benefits and cost
reductions anticipated by the Company nor future corporate costs of the Company
have been reflected in the pro forma financial data. The unaudited pro forma
consolidated balance sheet as of December 31, 1996 gives effect to the
Acquisitions and the Offering as if those transactions had occurred on December
31, 1996. The pro forma consolidated statements of operations for the year ended
December 31, 1996 assumes the Company had completed the transactions on January
1, 1996.

SELECTED APPLE FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

YEAR ENDED
DECEMBER 31, 1996
---------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ -- $ 18,138
Costs and expenses:
Salaries, wages and benefits..... 627 7,008
Orthodontic supplies............. -- 2,548
Rent............................. 20 1,943
Advertising and marketing........ -- 438
General and administrative
expenses........................ 3,680
Depreciation and amortization.... 5 869
Other (income)/expenses, net..... 35 4
---------- ------------
Total costs and expenses......... 687 16,490
---------- ------------
Income /(loss) before income taxes... (687) 1,648
Provision for income taxes........... -- 627
---------- ------------
Net income /(loss)................... $ (687) $ 1,021
========== ============
Net income per share................. $ .14
============
Shares outstanding(2)................ 7,459,120
============

DECEMBER 31, 1996
---------------------------
HISTORICAL PRO FORMA
---------- ------------
BALANCE SHEET DATA:
Working capital...................... $ (216) $ 10,887
Total assets......................... 1,659 16,795
Long-term debt and capital lease
obligations, net of current
portion............................ 515 927
Stockholders' equity................. (686) 13,883

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

(1) See the Unaudited Pro Forma Combined Financial Statements included elsewhere
in this Prospectus for a discussion of the assumptions made and adjustments
applied in preparation of this information.

(2) The number of shares used in the pro forma net income per share calculation
have been determined as follows:

NUMBER OF SHARES
----------------
Estimated outstanding shares after
the Acquisitions and Offering...... 8,333,333
Net shares that would be outstanding
if outstanding options were
exercised and the proceeds were
used to repurchase shares at the
assumed initial public offering
price.............................. 15,000
Less: Shares not required for the
Acquisitions and other uses of
proceeds ($10,671/$12.00).......... (889,213)
----------------
7,459,120
================

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with the Founding Affiliated
Practices' Financial Statements and related notes thereto and "Selected
Financial Data" appearing elsewhere in this Prospectus.

OVERVIEW

The Company has conducted no significant operations to date but will be
acquiring, in connection with the Acquisitions, tangible and intangible assets
and liabilities of, and entering into Service Agreements with, the Founding
Affiliated Practices. Through the Service Agreements, the Company will be
providing a full complement of practice management services to the Founding
Affiliated Practices in return for management service fees. In general, the
Company's management service revenue will be based upon the revenue generated by
the Founding Affiliated Practices, less amounts retained by the orthodontic
entity. In other cases, the Company's management fee will be based on a percent
of revenue generated by the Founding Affiliated Practices plus the reimbursement
of expenses. Revenue is earned by the Company under its Service Agreements from
fees paid by the Affiliated Practices equal to approximately 24% of new patient
contract balances in the first month of treatment plus a portion of existing
contract balances pro rated over the remaining patient contract term. The amount
retained by the orthodontic entity will generally be dependent on its financial
performance, based on cash receipts and disbursements provided in the Service
Agreements. Accordingly, orthodontists affiliated with an Affiliated Practice
generally will have a financial incentive to maximize profits of the Affiliated
Practice.

The expenses incurred by the Company in fulfilling its obligations under
the Service Agreements are generally of the same nature as the operating costs
and expenses that would have otherwise been incurred by the Founding Affiliated
Practices, including salaries, wages and benefits of practice personnel
(excluding orthodontists and, in some cases, orthodontic assistants and other
professional personnel), orthodontic supplies and office supplies used in
administering their clinic practices, the office (general and administrative)
expenses of the practices and depreciation and amortization of assets acquired
from the Founding Affiliated Practices. In addition to the operating costs and
expenses discussed above, the Company will be incurring personnel and
administrative expenses in connection with establishing and maintaining a
corporate office, which will provide management, administrative, marketing and
development and acquisition services.

RESULTS OF OPERATIONS

HISTORICAL

The Company has conducted no significant operations to date and will not
conduct significant operations until the Acquisitions and the Offering are
completed. General and administrative expenses were incurred during the year
ended December 31, 1996. The Company has incurred and will continue to incur
various legal, accounting, travel, personnel and marketing costs in connection
with the Acquisitions and the Offering, up to $3,000,000 of which are being
funded through the issuance of Convertible Notes to TriCap. The Convertible
Notes are expected to be repaid from the proceeds of the Offering.

PRO FORMA

REVENUES. It is anticipated that substantially all the Company's revenues
will consist of fees under the Service Agreements. The revenues included in the
unaudited pro forma financial statements are calculated by applying the terms of
the service agreements to the financial results of the founding affiliated
practices for the year ended December 31, 1996 assuming the Acquisitions had
been completed as of January 1, 1996.

OPERATING EXPENSES. The total pro forma operating expenses do not reflect
cost reductions anticipated by the Company or the additional corporate costs
that the Company will incur in the future. Furthermore, the pro forma operating
expenses are based on the expenses incurred by Apple for the period from
inception, July 15, 1996 through December 31, 1996. No adjustment was made for
expenses that may

17
<PAGE>
have been incurred if the Company was organized on January 1, 1996. However, the
expenses of the Company do reflect pro forma adjustment to include the costs and
expenses of the Founding Affiliated Practices which will be assumed by Apple.

PROVISION FOR INCOME TAXES. Pro forma income taxes assume that the Company
had operated as a tax-paying entity for the year ended December 31, 1996,
subject to an effective combined tax rate for state and federal income taxes of
38% for the period.

LIQUIDITY AND CAPITAL RESOURCES

If the Acquisitions had occurred on December 31, 1996, the Company would
have had pro forma working capital of $10,887,000 at that date. The
approximately $1,048,000 of pro forma indebtedness of the Company as of December
31, 1996 consists primarily of capital lease obligations, debt of the practices
that Apple has agreed to assume, and financing provided by TriCap.

The Company anticipates making routine capital expenditures during the
remainder of 1997 of approximately $2 million. It is anticipated that the
foregoing capital expenditures will be funded from the Company's cash flow from
operations. The Company also expects to make acquisitions of additional
orthodontic practices during 1997 that will involve the use of cash and Common
Stock.

Management believes that the existing cash proceeds of the Offering
combined with its cash flow from operations will be sufficient to fund planned
capital expenditures and ongoing operations of the Company through the end of
1997. The Company is also seeking to establish a revolving bank credit facility
and intends to register five million additional shares of Common Stock which,
when combined with the Company's cash resources, will be utilized in the
Company's planned acquisition program.

ACCOUNTING TREATMENT

The acquisition of the assets and assumption of certain liabilities for all
of the Founding Affiliated Practices pursuant to the Acquisitions are accounted
for by the Company at the transferors' historical cost basis following the
guidance of the Commission's Staff Accounting Bulletin No. 48 "Transfers of
Nonmonetary Assets by Promoters or Stockholders". The Common Stock being issued
in the Acquisitions is recorded by Apple at the founders' historical costs of
the net assets being acquired. Cash consideration given in the Acquisitions is
treated for accounting purposes as a dividend from Apple to the Founding
Affiliated Practices and their owners.

BUSINESS

OVERVIEW

18
<PAGE>
selected based on a variety of factors, including the competitive and financial
strengths and historical growth of their practices and the potential for future
growth in their markets. Apple also considered the local and national
reputations of the Founding Affiliated Practices within the orthodontic services
industry, their ability to manage multi-location practices providing high levels
of quality care and their desire to grow and improve the operating efficiency of
their respective practices.

INDUSTRY

The orthodontic services industry is highly fragmented, with over 90% of
the approximately 9,000 orthodontists in the United States operating as sole
practitioners and less than 2% being affiliated with the only public practice
management company specializing in orthodontics. The number of orthodontists in
the United States has grown slowly since 1990, which management believes can be
attributed to the limited number of new orthodontists completing post-graduate
orthodontic programs each year. The industry currently generates approximately
$3.5 billion in annual gross revenues. Industry revenues have steadily grown an
average rate of 7.5% per year in recent years. Industry data and management's
experience indicate that the need for orthodontics significantly exceeds the
current demand. Based on published industry data, over 70% of orthodontic
treatments are performed on a private pay, fee-for-service basis, 25% of
treatments are covered by traditional forms of dental insurance (generally with
a 50% or greater co-payment by the patient) and the remaining 5% of treatments
are performed through other payment methods, including managed care networks.
Managed care represents only a small portion of the payor sources due to the
elective nature of most orthodontic treatments. Most orthodontic practices
(including all the Founding Affiliated Practices) do not accept payment by
Medicare or Medicaid.

Orthodontic treatments are principally provided by orthodontists who have
completed three years of post-graduate studies following graduation from dental
school. The number of new orthodontists is restricted by the limited number of
schools offering post-graduate orthodontic programs and the small class size at
each of those schools. In addition to orthodontists, a number of dentists
provide various orthodontic services. The industry data set forth in this
Prospectus (including the data derived from the 1995 JCO Study) does not include
orthodontic treatments provided by dentists.

The table below summarizes certain information from the 1995 JCO Study
concerning the United States orthodontic services industry for each of the years
presented:

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of orthodontists.............. 8,720 8,760 8,856 8,958 9,060
Number of new cases.................. 1,308,000 1,314,000 1,416,690 1,478,070 1,540,200
Average fee per case................. $ 3,050 $ 3,221 $ 3,401 $ 3,447 $ 3,492
</TABLE>

On an individual practice basis, the 1995 JCO Study reported median annual
revenues of $475,000 and median operating income of $191,000 in 1994. The median
overhead as a percentage of revenues was 55%, resulting in a 45% median
operating margin before orthodontist compensation, interest and taxes. Median
down payments were equal to approximately 25% of the total treatment cost.
Median case starts and active treatment cases were 170 and 360 per practice,
respectively. Individual practices on average generate over one-half of their
referrals from dentists. Less than 7% of the practices utilized commercial
advertising as a referral source. The median case acceptance rate (case starts
divided by the number of referrals) was 60%. Orthodontists believed they had the
ability to increase case starts by 30% more cases, yet the median case starts
have not increased significantly since 1981, the first year of data presented in
the study.

Based on a 1994 study performed by the Department of Orthodontics,
University of Florida College of Dentistry (the "University of Florida Study")
and management's experience, the Company believes the need for orthodontics
significantly exceeds the current demand. The University of Florida Study, which
was funded by a grant from the National Institute of Dental Research, concluded
that only approximately one out of every five children who need orthodontics
receives treatment. The University of Florida Study also indicated that cost was
a barrier to orthodontics. Children in higher socioeconomic groups received
treatment approximately six times more often than children in lower groups
despite no measurable difference in need among the groups. The University of
Florida Study did not address the market potential

19
<PAGE>
for adult patients, which management believes is significant. The Company
believes there is significant opportunity to expand the orthodontic treatment
population through improved public awareness of the benefits, availability and
affordability of orthodontic treatment.

BUSINESS STRATEGY

The Company intends to pursue an aggressive expansion strategy designed to
strengthen its position in its current markets, achieve economies of scale in
those markets and expand its network of Affiliated Practices into markets it
does not currently serve. The Company believes that, due to the highly
fragmented nature of the industry, there are numerous orthodontic practices that
are attractive candidates to become Affiliated Practices. In identifying
candidates to become Affiliated Practices, the Company will consider such
factors as location, population, demographics, profitability, capacity for
growth, competitive environment and advertising costs. Additionally, the Company
plans to focus on candidates who have strong reputations in their local markets
and the desire to implement the Company's operating strategy. The Company
intends to leverage the reputations and relationships of the orthodontists
affiliated with the Founding Affiliated Practices to identify and develop growth
opportunities with candidates to become future Affiliated Practices. Many of
these orthodontists hold, or have previously held, leadership roles in various
state, regional and national associations or are affiliated with or teach at
graduate orthodontic programs at dental schools. The Company believes the
visibility and reputation of these individuals,

20
<PAGE>
combined with the acquisition experience of management, will provide the Company
with certain advantages in identifying, negotiating and consummating future
acquisitions.

The Company believes its services will be attractive to orthodontists due
to: (i) opportunities for the orthodontists to drive internal growth by
implementing the Company's operating strategy; (ii) the fee structure contained
in the Service Agreements which generally allows the orthodontists to share in
the increased profitability resulting from internal growth; (iii) opportunities
to achieve economies of scale to provide management and administrative services
at lower costs than Affiliated Practices can obtain on an individual basis; (iv)
providing the opportunity to share advertising and other costs with other
Affiliated Practices in their market; (v) opportunities to increase the
orthodontist's focus on patient care rather than administration; (vi) enhanced
liquidity and diversification achieved from affiliating with the Company; and
(vii) the practice transition services provided by the Company.

As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The Company intends to
register five million additional shares of Common Stock under the Securities Act
subsequent to completion of the Offering for use in connection with future
acquisitions.

SERVICES AND OPERATIONS

The Company will manage all aspects of the Affiliated Practices operations
other than the provision of orthodontic treatment. The Company will employ all
business personnel at the offices of the Affiliated Practices and, where
permitted by applicable law and governmental regulations, also will employ the
orthodontic assistants.

ADMINISTRATIVE. The Company will earn revenue by providing management and
other services to the Affiliated Practices, including staffing, education and
training, billing and collections, cash management, purchasing, inventory
management, payroll processing, employee benefits administration, advertising
production and other marketing support, patient scheduling, financial reporting
and analysis, productivity reporting and analysis, associate recruiting and
support for acquisitions, new site development and other capital requirements.
The Company believes the orthodontists at the Affiliated Practices will benefit
from the administrative and management support provided by Apple and that these
services will substantially reduce the amount of time the orthodontists are
required to spend on administrative matters and will enable them to dedicate
more time to the growth of their professional practices. Management believes
that through economies of scale the Company will be able to provide these
services at a lower cost than could be obtained by each of the Affiliated
Practices individually. In addition, the Company believes that, due to its size
and purchasing power, it will be able to negotiate discounts on, among other
things, orthodontic and office supplies, health and malpractice insurance and
equipment.

INTERNAL MARKETING. Management believes patient satisfaction levels,
practice productivity and profitability can be substantially enhanced through a
consistent training program emphasizing internal marketing techniques. The
Company will implement internal marketing programs designed to generate growth
in case starts by increasing (i) referrals from existing and former patients and
(ii) case acceptance rates. The Company's programs are designed to result in
clear, concise and consistent communications between the patient and the
orthodontist and his or her staff. These programs include a full complement of
training, operating and monitoring techniques emphasizing improvements in
communications with patients and patient satisfaction levels in all facets of
operations, including initial telephone contacts with prospective patients,
initial consultations and case presentations and written or telephonic
follow-ups after office visits. It is management's belief that these programs
will have a positive effect on the patients' experience and therefore positively
impact the number of patient referrals and case acceptance rates.

EXTERNAL MARKETING. The Company and the Affiliated Practices will utilize
multimedia advertising in local markets to stimulate demand for orthodontic
treatment and promote name recognition for Apple and the Affiliated Practices.
The general public traditionally has had little information about the
availability of orthodontic services or orthodontic fees prior to an initial
consultation with an orthodontist. The advertisements will address the two
primary barriers to receiving orthodontic treatment, availability and

21
<PAGE>
affordability, by focusing on the availability of orthodontic services and the
more affordable payment plans offered by the Affiliated Practices. The
advertisements will also stress the quality of care available at the Affiliated
Practices and the advantage of receiving orthodontic treatment from a
professionally trained orthodontist as opposed to a general dentist, and will
promote a toll-free number for ease of scheduling an appointment with the local
Affiliated Practice.

Generally, it is anticipated that an Affiliated Practice will spend an
amount equal to between 5% and 7% of its net revenues for advertising and
marketing. The Company will be responsible for subcontracting the production of
all broadcast advertising, which will be tailored to meet local requirements.
Advertisements will generally be 30-second television commercials and will
include the names of the affiliated orthodontists and the Company. The frequency
and airing times for these television ads will be determined by regional media
consultants retained by Apple and the Affiliated Practice in order to optimize
penetration to target market segments.

Orthodontic services primarily involve private pay, fee-for-service
treatments. As part of its overall marketing strategy for the Affiliated
Practices, the Company intends to encourage each Affiliated Practice to make
orthodontic services available to a larger portion of the population in their
respective markets by offering more affordable payment plans. Many of the
Founding Affiliated Practices have historically received a down payment equal to
25% of the total cost of services, with the remaining amount paid equally over
the term of treatment. It is contemplated that the typical payment plan utilized
after the Offering would consist of a modest initial down payment and monthly
payments thereafter for the duration of the treatment period, generally between
26 and 34 months. The Company believes that offering more affordable payment
plans combined with the use of advertising will result in an increase in the
number of patients inquiring about orthodontic treatment. The Company also
believes that this anticipated increase combined with the use of its internal
marketing programs will result in an increase in the number of patients
receiving orthodontic treatment at the Affiliated Practices.

SATELLITE OFFICES. The Company intends to develop additional satellite
offices (or branch locations) within selected markets served by the Affiliated
Practices. The Company believes that the satellite offices will increase the
geographic area served by the Affiliated Practices, thereby (i) increasing the
potential market, (ii) leveraging the advertising budget of the Affiliated
Practices and (iii) achieving critical mass within its existing markets. It is
anticipated that the satellite offices will generally be located in high
traffic, retail-oriented areas.

Satellite offices developed by the Company will either be staffed on a
part-time basis by an orthodontist from an Affiliated Practice or on a full-time
basis by a newly recruited orthodontist, depending on the potential for
additional patients. The average cost of developing a satellite office (which
may vary by geographic market) is estimated to be approximately $250,000,
including initial working capital requirements. The Company will provide
management services and capital to develop satellite offices. The Company will
be responsible for selecting the site, negotiating the lease, designing the
office layout and furnishing the satellite office. The Company will also assist
the Affiliated Practices in recruiting orthodontists and support staff for those
satellite offices which will be open full time.

TRAINING AND EDUCATION. Staff and practice development programs are an
integral part of the Company's operating strategy. The Company believes its
programs will (i) increase the motivation and overall performance of the staff,
(ii) improve the level of patient satisfaction achieved by the Affiliated
Practices and (iii) improve the Company's ability to attract and retain
qualified personnel, which will collectively result in increased referrals from
existing and former patients and increased case acceptance rates for the
Affiliated Practices. The Company will provide each Affiliated Practice with
consulting and educational services. These services include a full training
program covering all non-orthodontic aspects of the practice and specific
training designed for the efficient and effective use of the Company's
management information system.

Specifically, the Company's training program will provide each member of
the practice, from the receptionist to the orthodontist, with guidelines on
addressing prospective and existing patient questions and

22
<PAGE>
concerns, a technique for explaining treatment procedures and length of
treatment, parameters for establishing appropriate financial arrangements with
each patient and a systematic approach to monitoring the success of each area of
training. Training will be conducted both at individual clinics and in group
sessions and will include proprietary manuals, tapes and role playing
activities.

MANAGEMENT INFORMATION SYSTEMS. The Company believes access to accurate,
relevant and timely financial and operating information is a key element to
providing practice management services to orthodontic practices. The Company
will offer a fully integrated financial reporting, productivity management and
patient management system at each Affiliated Practice. The Company will provide
management information systems designed to increase the productivity of the
Affiliated Practices by enabling the Company and the Affiliated Practices to
cost effectively monitor the productivity of the Affiliated Practices, identify
opportunities for improvement and advice on corrective action in a timely
manner. Productivity measures to be monitored will include case acceptance
rates, treatment time and case starts. In addition, the management information
systems will facilitate optimization of the orthodontists' time through
computerized scheduling and diagnostic and treatment recordkeeping systems. The
Company believes these systems will also improve the productivity of the
Affiliated Practices through benchmarking programs that identify and help
establish the most efficient operational procedures. As of the date of this
Prospectus, seven of the 31 Founding Affiliated Practices have installed the
Company's management information system. This system will be made available to
the remaining Affiliated Practices following the closing of the Acquisitions.

LOCATIONS

Upon consummation of the Acquisitions, the Company will provide management
services to the following locations:

NUMBER OF
-------------------------
STATE OFFICES ORTHODONTISTS
- ------------------------------------- ------- --------------
Arizona.............................. 4 2
California........................... 9 7
Colorado............................. 9 5
Connecticut.......................... 5 3
Illinois............................. 3 1
New Mexico........................... 1 1
New York............................. 2 1
Nevada............................... 1 1
Montana.............................. 2 1
Pennsylvania......................... 4 2
Texas................................ 8 4
Utah................................. 1 1
Virginia............................. 2 1
Canada............................... 1 1
--
-------
Totals..................... 52 31
======= ==

SERVICE AGREEMENTS

Upon consummation of the Acquisitions, the Company will enter into a
Service Agreement with each Founding Affiliated Practice under which the Company
will become the exclusive manager and administrator of non-orthodontic services
relating to the operation of the Founding Affiliated Practice. The following is
intended to be a brief summary of the typical form of Service Agreement the
Company will enter into with each Founding Affiliated Practice. The Company
expects to enter into similar agreements with Affiliated Practices in the
future. The actual terms of the various Service Agreements vary from the
description below on a case by case basis, depending on negotiations with the
individual Founding Affiliated Practices and the requirements of applicable law
and governmental regulations.

23
<PAGE>
The service fees (the "Service Fees") payable to the Company by the
Founding Affiliated Practices under the Service Agreements vary based on the
fair market value, as determined in arms-length negotiations, for the nature and
amount of services provided. Such fees are payable monthly and will be
calculated pursuant to one of the following formulas: (i) a percentage of
revenues resulting from orthodontist services plus expenses, or (ii) revenues
relating to orthodontist services less an amount to be retained by orthodontists
based on collections resulting from orthodontist services subject to certain
adjustments. In addition, with respect to one of the Founding Affiliated
Practices, the service fees are based on flat fees that are subject to
renegotiation on an annual basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

Pursuant to each Service Agreement, the Company will, among other things,
(i) act as the exclusive manager and administrator of non-orthodontist services
relating to the operation of the Founding Affiliated Practice, subject to
matters reserved to the Founding Affiliated Practice, (ii) administer the
billing of patients, insurance companies and other third-party payors and
collect on behalf of the Founding Affiliated Practice the fees for professional
orthodontic and other services and products rendered or sold by the Founding
Affiliated Practice, (iii) provide, as necessary, clerical, accounting, payroll,
legal, bookkeeping and computer services and personnel, information management,
tax return information, printing, postage and duplication services and
transcribing services, (iv) supervise and maintain custody of substantially all
files and records, (v) provide facilities, equipment and furnishings for the
Founding Affiliated Practice, (vi) prepare, in consultation with the Affiliated
Practice, all annual capital and operating budgets, (vii) order and purchase
inventory and supplies as reasonably requested by the Founding Affiliated
Practice and (viii) implement, in consultation with the Founding Affiliated
Practice, public relations or advertising programs.

Under the Service Agreement, the respective Founding Affiliated Practice
retains the responsibility for, among other things, (i) hiring, compensating and
supervising, orthodontist employees and other licensed dental professionals,
(ii) ensuring that orthodontists have the required licenses, credentials,
approvals and other certifications appropriate to the performance of their
duties and (iii) complying with federal and state laws, regulations and ethical
standards applicable to the practice of orthodontics. In addition, the Founding
Affiliated Practice will be exclusively in control of all aspects of the
practice of orthodontics and the provision of orthodontic services.

Each Service Agreement is for an initial term of twenty years, with
automatic extensions (unless specified notice is given) of five years. The
Service Agreement may be terminated by either party if the other party (i) files
a petition in bankruptcy or other similar events occur or (ii) defaults on the
performance of a material duty or obligation, which default continues for a
specified term after notice. In addition, the Service Agreement may be
terminated by the Company (i) if the Founding Affiliated Practice or an
orthodontist employee engages in conduct for which the orthodontist employee's
license to practice dentistry is revoked or suspended or is the subject of any
restrictions or limitations by any governmental authority to such an extent that
he, she or it cannot engage in the practice of orthodontics or (ii) upon the
death, disability or retirement of the orthodontist.

During the term of the Service Agreement and, subject to certain
limitations, for a period of two years thereafter, the Founding Affiliated
Practice agrees not to compete with the Company or the other practices for which
the Company provides management services within a specified geographic area. The
Founding Affiliated Practice also agrees not to disclose certain confidential
and proprietary information relating to the Company and the Affiliated
Practices.

The Founding Affiliated Practice is responsible for obtaining professional
liability insurance for the employees of the Founding Affiliated Practice (and
which will name the Company as an additional insured) and the Company is
responsible for obtaining general liability and property insurance for the
Founding Affiliated Practice.

Upon termination of a Service Agreement, the Founding Affiliated Practice
has the option to purchase and assume, and the Company has the option to require
the Founding Affiliated Practice to purchase and assume, the assets and
liabilities related to the Founding Affiliated Practice at the fair market value
thereof,

24
<PAGE>
except in certain circumstances where the Founding Affiliated Practice or the
Company, as applicable, was in breach of the Service Agreement.

ORTHODONTIST EMPLOYMENT AGREEMENTS

Upon consummation of the Acquisitions, each Founding Affiliated Practice
will be a party to an employment agreement with each orthodontist associated
with its practice (the "Orthodontist Employment Agreements"), including the
orthodontist who will receive cash or Common Stock in the Acquisition of such
Founding Affiliated Practice. Substantially all of the Orthodontist Employment
Agreements with orthodontists who will receive cash or Common Stock in the
Acquisitions are for an initial term of five years, and continue thereafter on a
year-to-year basis until terminated under the terms of the agreements. If
employment of an orthodontist is terminated during the initial term for any
reason other than the orthodontist's death or disability or the occurrence of
certain events outside the orthodontist's control, the orthodontist will be
required to pay to the Founding Affiliated Practice liquidated damages. The
Orthodontist Employment Agreements provide that the employee orthodontist will
not compete with the Affiliated Practice during the term of the agreement and
following the termination of the agreement for a term of two years in a
specified geographical area, if termination occurs within the initial term, or
for one year if termination occurs after the initial term.

COMPETITION

The Company anticipates facing substantial competition from other companies
to establish affiliations with additional orthodontic practices. The Company is
aware of one public and two private practice management companies focused on
orthodontics and several companies pursuing similar strategies in other segments
of the health care industry (including dentistry). Additional companies with
similar objectives may enter the Company's markets and compete with the Company.
In addition, the business of providing orthodontic services is highly
competitive in each market in which the Company will operate. Each of the
Founding Affiliated Practices faces local competition from other orthodontists,
general dentists and pedodontists (dentists specializing in the care of
children's teeth) some of whom have more established practices. Dentists are not
restricted by law or any other governmental authority from providing orthodontic
services. Management believes the increase in recent years of dentists providing
orthodontic services has limited the growth of patient case starts performed by
orthodontists. There can be no assurance that the Company or the Affiliated
Practices will be able to compete effectively with their respective competitors,
that additional competitors will not enter their markets or that additional
competition will not have a material adverse effect on the Company.

EMPLOYEES

At the date of this Prospectus, the Company employed 10 persons and upon
consummation of the Acquisitions, the Company expects that it will have
approximately employees of which approximately 15 will be employed at the
Company's headquarters and approximately will be employed at the locations of
the Founding Affiliated Practices. None of the Company's employees are
represented by collective bargaining agreements. The Company has not experienced
any work stoppages as a result of labor disputes and the Company considers its
employee relations to be good.

LITIGATION AND INSURANCE

The Affiliated Practices provide orthodontic services to the public and are
exposed to the risk of professional liability and other claims. Such claims, if
successful, could result in substantial damage awards to the claimants that may
exceed the limits of any applicable insurance coverage. Although the Company
does not control the practice of orthodontics by the Affiliated Practices, it
could be asserted that the Company should be held liable for malpractice of an
orthodontist employed by an Affiliated Practice. Each Affiliated Practice has
undertaken to comply with all applicable regulations and legal requirements, and
the Company maintains liability insurance for itself and it is anticipated that
the Company will be named as an additional insured party on the liability
insurance policies of the Affiliated Practices. There can be no assurance,
however, that a future claim or claims will not be successful or, if successful,
will not exceed the

25
<PAGE>
limits of available insurance coverage or that such coverage will continue to be
available at acceptable costs.

On December 10, 1996, OCA filed a complaint in the United States District
Court for the Eastern District of Louisiana against Apple, Dr. Vondrak, John G.
Vondrak, P.C. and John G. Vondrak Apple Orthodontix, Inc., a Texas corporation
and one of the Founding Affiliated Practices, alleging, among other things,
misappropriation of trade secrets and certain breaches of a confidentiality
agreement executed by Dr. Vondrak, on behalf of John Vondrak, P.C., in favor of
OCA. While Apple is not a party to the confidentiality agreement, OCA has
alleged that the Company should be bound by its terms as a result of the
relationship between Dr. Vondrak and Apple (specifically, OCA has alleged that
Dr. Vondrak and Apple are alter egos and, alternatively, that Dr. Vondrak was
acting as Apple's agent when he executed the confidentiality agreement). The
Company intends to vigorously defend against the claims made by OCA, which the
Company believes are without merit.

The Company is not currently a party to any other claims, suits or
complaints relating to services and products provided by the Company or the
Founding Affiliated Practices, although there can be no assurances that such
claims will not be asserted against the Company in the future. The Company will
become subject to certain pending claims as the result of successor liability in
connection with the Acquisitions; however, it is the opinion of management that
the ultimate resolution of those claims will not have a material adverse effect
on the financial position or operating results of the Company.

The Founding Affiliated Practices have maintained professional liability
insurance coverage on a claims-made basis. Such insurance provides coverage for
claims asserted when the policy is in effect regardless of when the events that
caused the claim occurred. The Company intends to acquire similar coverage after
the closing of the Acquisitions, since the Company, as a result of the
Acquisitions, will in some cases succeed to the liabilities of the Founding
Affiliated Practices. Therefore, claims may be asserted after the Acquisitions
against the Company for events that occurred prior to the Acquisitions.

GOVERNMENT REGULATION

The orthodontic services industry is regulated extensively at both the
state and federal levels. Regulatory oversight includes, but is not limited to,
considerations of fee-splitting, corporate practice of orthodontics and state
insurance regulation.

FEE-SPLITTING; CORPORATE PRACTICE OF ORTHODONTICS

The laws of many states prohibit business corporations such as the Company
from engaging in the practice of orthodontics or employing orthodontists to
practice orthodontics and prohibit orthodontists from splitting fees with
non-orthodontists. The specific restrictions against the corporate practice of
orthodontics, as well as the interpretation of those restrictions by state
regulatory authorities, vary from state to state. The restrictions are generally
designed to prohibit a non-orthodontic entity (such as the Company) from
controlling the professional assets of an orthodontic practice (such as patient
records and payor contracts), employing orthodontists to practice orthodontics
(or, in certain states, employing dental hygienists or orthodontic assistants),
or controlling the content of an orthodontist's advertising or professional
practice. The Company does not control the practice of orthodontics or employ
orthodontists to practice orthodontics. Moreover, in states in which it is
prohibited, the Company does not employ orthodontic hygienists or orthodontic
assistants. The Company provides management services to the Affiliated
Practices, and believes that the management fees the Company charges for those
services are consistent with the laws and regulations of the jurisdictions in
which it operates. Therefore, the Company believes it would not be regarded as
"owner," "operator" or "manager" of the Affiliated Practices within the
meaning of those terms under the state orthodontic practice acts and believes
that its operations comply with the above-described laws to which it is subject.

The laws of many states also prohibit orthodontists from sharing
professional fees with non-orthodontic entities. The Company believes that its
operations will not contravene any restriction on the corporate practice of
orthodontics and that the management fees it intends to charge for its services
are

26
<PAGE>
consistent with the laws and regulations of the jurisdictions in which it will
operate concerning fee-splitting. There can be no assurance, however, that a
review of the Company's business relationships by courts or regulatory
authorities will not result in determinations that could prohibit or otherwise
adversely affect the operations of the Company or that the regulatory
environment will not change, requiring the Company to reorganize or restrict its
existing or future operations. The laws regarding fee-splitting and the
corporate practice of orthodontics and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.

State dental boards do not generally interpret these prohibitions as
preventing a non-orthodontic entity from owning non-professional assets used by
an orthodontist in an orthodontic practice or providing management services to
an orthodontist for a fee provided that the following conditions are met: a
licensed dentist has complete control and custody over the professional assets;
the non-orthodontic entity does not employ or control the orthodontists (or, in
some states, orthodontic hygienists or orthodontic assistants); all orthodontic
services are provided by a licensed dentist; licensed dentists have control over
the manner in which orthodontic care is provided and all decisions affecting the
provision of orthodontic care. State laws generally require that the amount of a
management fee be reflective of the fair market value of the services provided
by the management company and in certain states require that any management fee
be a flat fee or cost-plus fee based on the cost of services performed by the
Company. In general, the state orthodontic practice acts do not address or
provide any restrictions concerning the manner in which companies account for
revenues from an orthodontic practice subject to the above-noted restrictions
relating to control over the professional activities of the orthodontic
practice, ownership of the professional assets of an orthodontic practice and
payments for management services.

STATE INSURANCE REGULATION

Although the Company does not anticipate entering into managed care
contracts, there are certain regulatory risks associated with the Company's role
in negotiating and administering managed care contracts. The application of
state insurance laws to other than various types of fee for service arrangements
is an unsettled area of law and is subject to interpretation by regulators with
broad discretion. As the Company or the Affiliated Practices contract with
third-party payors, including self-insured plans, for certain non-fee for
service basis arrangements, the Company may become subject to state insurance
laws. Specifically, in some states, state insurance regulators may determine
that the Company or an Affiliated Practice is engaged in the business of
insurance because some of the managed care contracts to which an Affiliated
Practice may become a party may contain capitation features. The Company is
reviewing, and where appropriate modifying, the terms of certain of its
capitation contracts to reduce the likelihood that they could be characterized
as insurance contracts. In the event that the Company or an Affiliated Practice
is determined to be engaged in the business of insurance, it could be required
either to seek licensure as an insurance company or to change the form of the
relationships with third-party payors and, as a result the Company's revenues
may be adversely affected.

HEALTH CARE REFORM PROPOSALS

The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what, if any, legislative proposals will be adopted in the future
or what actions federal or state legislatures or third-party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. Health care reform legislation could have a material adverse effect
on the operations of the Company, and changes in the health care industry, such
as the growth of managed care organizations and provider networks, may result in
lower payment levels for the services of orthodontic practitioners and lower
profitability for Affiliated Practices.

27
<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information concerning the Company's
directors, the three persons nominated to become directors on the closing of the
Offering and the executive officers of the Company (ages are as of January 31,
1997):

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Directors and Executive Officers
John G. Vondrak, D.D.S.................... 56 Chairman of the Board
and Chief Executive Officer
Robert J. Syverson........................ 47 President and Chief Operating Officer
Michael W. Harlan......................... 36 Vice President and Chief Financial Officer
W. Daniel Cook............................ 41 Director
William W. Sherrill....................... 70 Director
Key Employees
LeeAnn Peniche............................ 36 Director of Training
Wm. Randol Womack, D.D.S.................. 58 Director of Business Development
Charles W. Sommer......................... 32 Controller
</TABLE>

JOHN G. VONDRAK, D.D.S. has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since October 1996 and has served as a
director of the Company since July 1996. Dr. Vondrak has been the President and
sole shareholder of John G. Vondrak Apple Orthodontix, Inc., one of the Founding
Affiliated Practices, for more than the past five years. Dr. Vondrak is a
licensed dentist, a graduate of an American Dental Association accredited
orthodontic program and has maintained a private orthodontic practice for over
24 years. He is a member of the American Association of Orthodontists and
Southwest Society of Orthodontists and has served as President of the New Mexico
Orthodontic Society (1979).

ROBERT J. SYVERSON has been President of the Company since November 1996
and Chief Operating Officer of the Company since October 1996. From July 1996
through October 1996, Mr. Syverson served as a consultant to the Company on
operational and financial matters. From February 1979 through April 1996, Mr.
Syverson held various executive positions in the finance operations and sales
departments of "A" Company Orthodontics, a manufacturer and supplier of
orthodontic materials. Positions included Vice President of Finance, Vice
President of Operations, Vice President International Sales and most recently,
Executive Vice President Sales. "A" Company Orthodontics was an affiliate of
Johnson & Johnson from April 1982 through June 1994. Prior thereto, Mr. Syverson
held various positions with Coopers & Lybrand as a certified public accountant,
where he was a manager from July 1977 through January 1979.

MICHAEL W. HARLAN has been Vice President and Chief Financial Officer of
the Company since March 1997. From December 1996 to February 1997, Mr. Harlan
served as a consultant to the Company on financial and accounting matters. From
April 1991 through December 1996, Mr. Harlan held various positions in the
finance and acquisition departments of Sanifill, Inc., a publicly traded,
international environmental services company with operations in 23 states,
Puerto Rico, Canada and Mexico, where he had been the Treasurer since September
1993. While at Sanifill, Inc., Mr. Harlan participated in over 100 acquisitions
and was actively involved in raising in excess of $500 million of public and
private capital. From May 1982 through April 1991, Mr. Harlan held various
positions in the tax and corporate financial consulting services division of
Arthur Andersen LLP where he had been a manager since July 1986. Mr. Harlan is a
certified public accountant.

W. DANIEL COOK has served as a director of the Company since October 1996.
Since December 1996, Mr. Cook has served as a consultant to the Company on
various legal matters. Prior thereto he was a partner at the law firm of Breard,
Raines & Cook, P.L.L.C. (1996 to 1997) and was associated with the law firm of
Page, Mannio, Peresich, Dickinson & McDermott, P.L.L.C. (1991 to 1995).

28
<PAGE>
WILLIAM W. SHERRILL has served as a director of the Company since October
1996 and is an Executive Professor at the University of Houston College of
Business Administration and is the Director for the University of Houston's Conn
Center for Entrepreneurship & Innovation. Mr. Sherrill was formerly the
principal of William W. Sherrill, Financial Consultants from 1974 to 1981. From
1971 to 1974, Mr. Sherrill served as the President of Associates Corporation of
North America and was a director of Gulf and Western Industries, Inc. Before
joining Associates Corporation, he was appointed by the President of the United
States in 1967, and confirmed by the U.S. Senate, to fill an unexpired term as
Governor of the Federal Reserve Board in Washington D.C. Governor Sherrill was
reappointed by the President, and again confirmed by the Senate, to a full 14
year term on the Board of Governors. Prior to his Federal Reserve appointment,
he was the Director of the Federal Deposit Insurance Corporation, being
appointed by the President, and confirmed by the Senate, to the FDIC's three
member Board of Directors. Before joining the FDIC, he was President and Chief
Operating Officer of the Homestead Bank, Houston, Texas, from 1963 to 1966. Mr.
Sherrill is being appointed to the Company's Board of Directors pursuant to the
provisions of a funding agreement between Apple and TriCap. This funding
agreement will terminate pursuant to its terms upon completion of the Offering.
See "Certain Transactions -- Agreements with TriCap."

LEEANN PENICHE has been Director of Training of the Company since March
1997. From September 1996 to February 1997, Ms. Peniche served as a consultant
to the Company on various practice development matters. In July 1989, Ms.
Peniche founded Peniche & Associates, Inc., a consulting firm specializing in
the development and implementation of practice development techniques for
orthodontic practices throughout North America, where she has served as its
President from inception to the date of this Prospectus. Ms. Peniche has entered
into a three-year employment agreement with the Company. From June 1978 until
July 1989, Ms. Peniche held various positions within several orthodontic
clinics, including dental assistant and office manager. From January 1985 until
September 1991, Ms. Peniche was on the faculty of Paradigm Practice Management
Company where she specialized in training orthodontists and their staff in
practice development activities. Ms. Peniche is a frequent lecturer with the
American Association of Orthodontics, the Pacific Coast Orthodontic Society, and
numerous other private orthodontic societies. Ms. Peniche is a Registered Dental
Assistant, specializing in orthodontics.

WM. RANDOL WOMACK, D.D.S., has been Director of Business Development since
March 1997. From December 1996 to February 1997, Dr. Womack has served as a
consultant to the Company. Prior thereto, Dr. Womack practiced orthodontics
beginning in 1966 in Clovis, New Mexico, with a satellite practice in Tucumari,
New Mexico, and subsequently established a practice in Phoenix, Arizona where he
has practiced orthodontics since 1972.

CHARLES W. SOMMER has been Controller of the Company since March 1997. From
January 1997 to February 1997, Mr. Sommer served as a consultant to the Company
on various accounting matters. From February 1996 through January 1997, Mr.
Sommer was the Corporate Controller of COREStaff, Inc., a publicly traded,
national provider of temporary services which has grown through acquisitions
since its inception. From November 1993 through February 1996, Mr. Sommer was
assistant corporate controller of Sanifill, Inc. where he was responsible for
Commission reporting and financial due diligence on acquisitions. From July 1986
through November 1993, Mr. Sommer held various positions in the audit division
of Arthur Andersen LLP where he had been a manager since July 1990. Mr. Sommer
is a certified public accountant.

BOARD OF DIRECTORS

The Board of Directors of the Company currently is composed of three
directors. The Company intends to expand the Board of Directors shortly after
the Offering in order to add two additional directors, each of whom will not be
affiliated with the Company or its affiliates. The Board of Directors will be
divided into three classes with two directors in each class, with the term of
one class expiring at the annual meeting of stockholders in each year,
commencing 1998. At each annual meeting of stockholders, directors of the class
the term of which then expires will be elected by the holders of the Common
Stock to succeed those directors whose terms are expiring.

29
<PAGE>
On closing of the Offering, there will be three committees of the Board:
Audit, Compensation and Executive. The members of the Audit and Compensation
Committees will not be employees of the Company.

Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive a fee of $2,000 for attendance at each Board of
Directors meeting and $1,000 for each committee meeting (unless held on the same
day as a Board of Directors meeting) and an initial grant of nonqualified
options to purchase 12,500 shares of Common Stock. See " -- 1996 Stock Option
Plan." All directors of the Company are reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof,
and for other expenses incurred in their capacity as directors of the Company.

EXECUTIVE COMPENSATION

Apple was incorporated in July 1996 and has not conducted any operations to
date other than in connection with the Offering and the Acquisitions. The
Company anticipates that during 1996 its most highly compensated executive
officers will be Dr. Vondrak and Messrs. Syverson and Harlan (the "Named
Executive Officers"), each of whom has entered or will enter into an employment
agreement providing for an annual salary of $180,000, $150,000 and $130,000,
respectively. See " -- Employment Agreements."

In addition to base salary, the Named Executive Officers through their
employment agreements are eligible for bonuses based on earnings performance of
the Company. Bonuses are capped at 50% of base salary.

Apple entered into agreements with Messrs. Syverson and Harlan pursuant to
which the Company sold to such officers 160,502 shares and 94,295 shares of
Common Stock, respectively, at a nominal purchase price. Each holder of such
shares is entitled to all rights of ownership of Common Stock, including the
right to vote and receive dividends, subject to certain restrictions set forth
in a subscription agreement entered into by the Company and each such holder
(each a "Subscription Agreement"). Each Subscription Agreement provides that,
until the restrictions affecting such shares lapse, the holder may not sell,
transfer, pledge or otherwise dispose of the shares subject to the agreement.
Each Subscription Agreement also provides that, in the event of the termination
of the employment of such holder (other than as a result of termination without
cause, death, disability or a change in control of the Company) the Company
shall have the right to repurchase any shares with respect to which the
restrictions imposed by the Subscription Agreement have not lapsed at the price
per share paid by the executive officer. Each Subscription Agreement further
provides that, in the event of a change in control of the Company (defined to
include, among other events, the acquisition by any person or entity of 25% or
more of the combined voting power of the Company's then outstanding securities),
the executive officer will be entitled to put to the Company all shares
purchased pursuant to such Subscription Agreement that such person then owns
(provided such shares are then subject to resale restrictions under federal
securities laws), and the Company will be required to purchase all such shares,
at a price equal to the fair market value thereof at the time the change in
control occurs.

The Subscription Agreements provide that the restrictions shall lapse with
respect to 50% of each holder's shares upon consummation of the Offering and
that the restrictions on such holder's remaining shares shall lapse on the first
anniversary of the consummation date of the Offering.

In January 1997, the Company granted options to purchase 135,000 shares,
100,000 shares and 90,000 shares of Common Stock to Dr. Vondrak, Mr. Syverson
and Mr. Harlan, respectively, under the Company's 1996 Stock Option Plan,
exercisable at the initial public offering price per share set forth on the
cover page of this Prospectus. See "-- 1996 Stock Option Plan."

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messrs. Vondrak,
Syverson and Harlan. The following summary of these agreements, which will be
effective on the closing of the Acquisitions and the Offering, does not purport
to be complete and is qualified by reference to such agreements, copies of

30
<PAGE>
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. Each of these agreements provides for an annual base
salary in an amount not less than the initial specified amount and entitles the
employee to participate in all the Company's compensation plans (as defined) in
which other executive officers of the Company participate. Each of these
agreements also has a continuous three-year term subject to the right of the
Company and the employee to terminate the employee's employment at any time. If
the employee's employment is terminated by the Company without cause (as
defined) or by the employee with good reason (as defined), the employee will be
entitled, during each of the years in the three-year period beginning on the
termination date, to (i) periodic payments equal to his average annual cash
compensation (as defined) from the Company, including bonuses, if any, during
the two years (or such shorter period of employment) preceding the termination
date, and (ii) continued participation in all the Company's compensation plans
(other than the granting of new awards under the 1996 Stock Option Plan or any
other performance-based plan). Except in the case of a termination for cause,
any stock options previously granted to the employee under the Incentive Plan
that have not been exercised and are outstanding as of the time immediately
prior to the date of his termination will remain outstanding (and continue to
become exercisable pursuant to their respective terms) until exercised or the
expiration of their term, whichever is earlier. If a change of control (as
defined) of the Company occurs, the employee will be entitled to terminate his
employment at any time during the 365-day period following that change of
control and receive a lump sum payment equal to three times his highest annual
base salary under the agreement (plus such amounts as may be necessary to hold
the employee harmless from the consequences of any resulting excise or other
similar purpose tax relating to "parachute payments" under the Internal
Revenue Code of 1986, as amended (the "Code")). Each employment agreement
contains a covenant limiting the employee's right to compete against the Company
for a period of one year following termination of employment.

Each Founding Affiliated Practice will enter into an employment agreement
with its orthodontist employees. See "Business -- Orthodontist Employment
Agreements."

1996 STOCK OPTION PLAN

In December 1996, the Board of Directors adopted, and the stockholders of
the Company approved, the 1996 Stock Option Plan. The purpose of the 1996 Stock
Option Plan is to provide employees with additional incentives by increasing
their proprietary interest in the Company. The Company has reserved 1,000,000
shares of Common Stock for use in connection with the 1996 Stock Option Plan
(which includes 798,000 shares subject to options previously granted). Beginning
with the Company's first fiscal quarter after the closing of this Offering and
continuing each fiscal quarter thereafter, the number of shares available for
use in connection with the 1996 Stock Option Plan will be the greater of
1,000,000 or 12% of the number of shares of Common Stock outstanding on the last
day of the preceding calendar quarter.

The 1996 Stock Option Plan provides for the grant of incentive stock
options ("ISOs"), as defined in Section 422 of the Code, and nonqualified
stock options (collectively, "Awards"). Following the consummation of the
Offering, the 1996 Stock Option Plan will be administered by the Compensation
Committee of the Board of Directors, which will be comprised of not less than
two members of the Board of Directors (the "Committee"). Prior to the
consummation of the Offering, the 1996 Stock Option Plan had been administered
by the Company's full Board of Directors. The Committee has, subject to the
terms of the 1996 Stock Option Plan, the sole authority to grant Awards under
the 1996 Stock Option Plan, to interpret the 1996 Stock Option Plan and to make
all other determinations necessary or advisable for the administration of the
1996 Stock Option Plan.

All of the Company's employees, non-employee directors and advisors are
eligible to receive Awards under the 1996 Stock Option Plan, but only employees
of the Company are eligible to receive ISOs. Awards will be exercisable during
the period specified in each option agreement and will generally be exercisable
in installments pursuant to a vesting schedule to be designated by the
Committee. Notwithstanding the provisions of any option agreement, options will
become immediately exercisable in the event of certain events including certain
merger or consolidation transactions and changes in control of the Company. No

31
<PAGE>
option will remain exercisable later than ten years after the date of grant (or
five years from the date of grant in the case of ISOs granted to holders of more
than 10% of Common Stock).

The exercise price for ISOs granted under the 1996 Stock Option Plan may be
no less than the fair market value of the Common Stock on the date of grant (or
110% of the fair market value in the case of ISOs granted to employees owning
more than 10% of the Common Stock). The exercise price for nonqualified options
granted under the 1996 Stock Option Plan will be in the discretion of the
Committee.

There are generally no federal income tax consequences upon the grant of an
option under the 1996 Stock Option Plan. Upon exercise of a nonqualified option,
the optionee generally will recognize ordinary income in the amount equal to the
difference between the fair market value of the option shares at the time of
exercise and the exercise price, and the Company is generally entitled to a
corresponding tax deduction. When an optionee sells shares issued upon the
exercise of a non-qualified stock option, the optionee realizes short-term or
long-term capital gain or loss, depending on the length of the holding period,
but the Company is not entitled to any tax deduction in connection with such
sale.

An optionee will not be subject to federal income taxation upon the
exercise of ISOs granted under the 1996 Stock Option Plan, and the Company will
not be entitled to a federal income tax deduction by reason of such exercise. A
sale of shares of Common Stock acquired upon exercise of an ISO that does not
occur within one year after the exercise or within two years after the grant of
the option generally will result in the recognition of long-term capital gain or
loss by the optionee in the amount of the difference between the amount realized
on the sale and the exercise price, and the Company is not entitled to any tax
deduction in connection therewith. If a sale of shares of Common Stock acquired
upon exercise of an ISO occurs within one year from the date of exercise of the
option or within two years from the date of the option grant (a "disqualifying
disposition"), the optionee generally will recognize ordinary income equal to
the lesser of (i) the excess of the fair market value of the shares on the date
of exercise of the options over the exercise price or (ii) the excess of the
amount realized on the sale of the shares over the exercise price. Any amount
realized on a disqualifying disposition in excess of the amount treated as
ordinary income will be long-term or short-term capital gain, depending upon the
length of time the shares were held. The Company generally will be entitled to a
tax deduction on a disqualifying disposition corresponding to the ordinary
income recognized by the optionee.

The Company anticipates that upon the consummation of the Offering it will
have (i) outstanding options to purchase a total of approximately 798,000 shares
of Common Stock under the 1996 Stock Option Plan and (ii) options to purchase
202,000 additional shares available for grant under the 1996 Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to December 1996, the Company did not have a Compensation Committee
and executive compensation has historically been set by the Company's Board of
Directors.

CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

On October 11, 1996, the Company issued to TriCap, Dr. Vondrak, Mr.
Syverson and Mr. Cook (collectively, the "Founding Stockholders"), 1,685,274,
1,667,217, 160,502 and 210,659, respectively, shares of Class B Stock at an
aggregate purchase price of $4.20, $4.16, $0.40 and $0.53, respectively. On
December 9, 1996, the Company issued to Mr. Harlan 94,295 shares of Class B
Stock at an aggregate purchase price of $70.50. In connection with the
Acquisition relating to his practice, Dr. Vondrak will receive approximately
151,656 shares of Common Stock and $455,000, and will enter into a Service
Agreement providing for service fee payments to the Company. See
"Business -- Service Agreements." Additionally, TriCap has incurred $400,000
of expenses in connection with the Acquisitions and the Offering, and has
advanced to the Company $2.6 million to fund transaction costs in exchange for
the reimbursement of such expenses and the repayment of such advances plus
accrued interest (at the prime rate

32
<PAGE>
announced by NationsBank of Texas, N.A. plus .25%) from the proceeds of the
Offering. The Company has used $230,000 of the funds advanced to it by TriCap to
reimburse JGVAOI for a portion of the organizational expenses of Apple incurred
by JGVAOI. The Company intends to reimburse JGVAOI an additional $70,000 from
the proceeds of the Offering to repay the remainder of such expenses. See "Use
of Proceeds."

AGREEMENTS WITH TRICAP

TriCap Partners, an affiliate of TriCap co-owned by Mr. Sherrill, is the
exclusive financial advisor to Apple pursuant to a consulting agreement with an
initial term extending through the date of consummation of the first public
offering of Common Stock (or a security convertible into or exchangeable for
Common Stock) by the Company following the Offering. The consulting agreement
provides for, among other things, the payment by Apple to TriCap Partners of (i)
$1,150,000 upon consummation of the Offering, (ii) an amount equal to 2% of the
aggregate principal amount of any non-convertible debt securities issued by the
Company in any offering prior to the expiration of the agreement, (iii) the
lesser of $1,050,000 or 3.5% of the gross proceeds of any equity securities (or
debt securities convertible into equity securities) issued by Apple in any
offering subsequent to the Offering and prior to the expiration of the agreement
and (iv) one-half of any investment banking or financial advisory fees payable
by Apple in connection with any merger or acquisition transaction with an
aggregate purchase price of $5 million or more with another management services
company.

Pursuant to a funding agreement between TriCap and Apple, TriCap has
advanced to Apple approximately $2.6 million to fund transaction costs in
connection with the Acquisitions and the Offering. These advances, which are
evidenced by the Convertible Notes, together with expenses incurred by TriCap on
behalf of the Company estimated at $400,000, will be repaid with proceeds from
the Offering. The funding agreement terminates pursuant to its terms upon
completion of the Offering. See "Use of Proceeds." In connection with this
agreement, Apple granted TriCap and Dr. Vondrak certain piggy-back registration
rights. See "Shares Eligible For Future Sale."

COMPANY POLICY

It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members of
the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company does
not intend to incur any further indebtedness to, or make any loans to, any of
its executive officers, directors or other affiliates.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows, as of February 28, 1997, information respecting
the then "beneficial owners" (as defined by the Commission) of more than 5% of
the Class B Stock:

SHARES BENEFICIALLY OWNED
-------------------------
PERCENT
NAME NUMBER OF CLASS
- ------------------------------------- ----------- --------
TriCap Funding I, L.L.C. ............ 1,685,274 41.0%
John G. Vondrak, D.D.S. ............. 1,586,966 38.6%
W. Daniel Cook....................... 210,659 5.1%

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<PAGE>
The following table shows, immediately after giving effect to the closing
of the Acquisitions and the Offering, the then "beneficial ownership" of the
Common Stock and Class B Stock of (i) TriCap; (ii) each director and person
nominated to become a director on closing of the Offering; (iii) each executive
officer; and (iv) all executive officers and directors of the Company as a
group. The table assumes none of such persons intend to acquire shares in the
Offering.

<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
AFTER OFFERING(1)
--------------------------------------------------
COMMON CLASS B PERCENT OF
NAME STOCK PERCENT STOCK CLASS
- ------------------------------------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
TriCap Funding I, L.L.C. ............ -- -- 1,685,274 41.0%
One West Loop South, Suite 100
Houston, Texas 77027
John G. Vondrak, D.D.S............... 185,406(2) 4.4% 1,586,966 38.6%
W. Daniel Cook....................... 17,500(3) * 210,659 5.1%
Robert J. Syverson................... 25,000(4) * 160,502 3.9%
Michael W. Harlan.................... 22,500(5) * 94,295 2.3%
William W. Sherrill.................. 3,125(6) * -- --
All executive officers and directors
as a group
(5 persons)........................ 253,531(7) 5.9% 2,052,422 50.0%
</TABLE>

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

* less than 1%.

(1) Shares shown in the above table do not include shares that could be acquired
upon exercise of currently outstanding stock options which do not vest
within 60 days hereof.

(2) Includes 151,656 shares issued in connection with the acquisition of Dr.
Vondrak's Corpus Christi, Texas practice and 33,750 shares that may be
acquired pursuant to outstanding options within 60 days of February 28,
1997.

(3) Includes 17,500 shares that may be acquired pursuant to outstanding options
within 60 days of February 28, 1997.

(4) Includes 25,000 shares that may be acquired pursuant to outstanding options
within 60 days of February 28, 1997.

(5) Includes 22,500 shares that may be acquired pursuant to outstanding options
within 60 days of February 28, 1997.

(6) Includes 3,125 shares that may be acquired pursuant to outstanding options
within 60 days of February 28, 1997.

(7) Includes 101,875 shares that may be acquired pursuant to outstanding options
within 60 days of February 28, 1997.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 50,000,000 shares of
Class A Common Stock, par value $.01 per share, 4,106,852 shares of Class B
Common Stock, par value $0.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). At February 28, 1997,
4,106,852 shares of Class B Stock were issued and outstanding and no shares of
Common Stock or preferred stock of the Company were issued and outstanding. The
following summary is qualified in its entirety by reference to the Certificate
of Incorporation, which is included as an exhibit to the Registration Statement
of which this Prospectus is a part.

COMMON STOCK AND CLASS B COMMON STOCK

Holders of the Class B Stock are entitled to elect as a class one member of
the Board of Directors. The Common Stock and Class B Stock possess ordinary
voting rights and vote together as a single class for the election of all other
directors and in respect of all other corporate matters, and, in connection
therewith, holders of shares of Common Stock are entitled to one vote per share
and holders of shares of Class B Stock

34
<PAGE>
are entitled to three-tenths ( 3/10ths) of a vote per share. The Common Stock
affords no cumulative voting rights, and the holders of a majority of the shares
voting for the election of directors can elect all the directors if they choose
to do so. The Common Stock and Class B Stock carry no preemptive rights, are not
convertible, redeemable, assessable or entitled to the benefits of any sinking
fund. The holders of Common Stock and Class B Stock are entitled to dividends in
such amounts and at such times as may be declared by the Board of Directors out
of funds legally available therefore. The Company intends that, after completion
of the Offering, all future dividends, if any, declared on, or distributions
with respect to, its shares of Common Stock and Class B Stock will be paid on a
pro rata basis to the holders of such shares. See "Dividend Policy" for
information regarding the Company's dividend policy.

Each share of Class B Stock will automatically convert to Common Stock on a
share for share basis (i) in the event of a disposition of such share of Class B
Stock by the holder thereof, (ii) in the event any person acquires beneficial
ownership of 15% or more of the outstanding shares of capital stock of the
Company, (iii) in the event any person offers to acquire 15% or more of the
outstanding shares of capital stock of the Company, (iv) in the event the holder
of such share elects to so convert at any time after the second anniversary of
the date of this Prospectus, (v) on the fifth anniversary of the date of this
Prospectus or (vi) in the event the holders of that number of shares of Common
Stock and Class B Stock, voting together as a single class, with a majority of
the voting power approve such conversion.In addition, the Company may elect to
convert any outstanding shares of Class B Stock into shares of Common Stock in
the event 80% or more of the outstanding shares of Class B Stock on the date of
this Prospectus have previously been converted into shares sof Common Stock.

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Certificate of Incorporation and limitations prescribed by law, the Board
of Directors is expressly authorized to adopt resolutions to issue the shares,
to fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any further action or vote by the holders
of Common Stock.

Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction that resulted in the
interested

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<PAGE>
stockholder's becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not provide
employees with the rights to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer) or (iii)
following the transaction in which such person became an interested stockholder,
the business combination was approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of 66% of the outstanding voting stock of the corporation not
owned by the interested stockholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to any person
becoming an interested stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors.

OTHER MATTERS

Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors' must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors of the Company to the Company or
its stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.

The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
and executive officers providing for indemnification with respect to certain
matters.

The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written consent.
The Bylaws provide that special meetings of the stockholders can be called only
by the Chairman of the Board, the President or a majority of the Board of
Directors.

The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's Board
of Directors will be elected each year. The classified board provision could
prevent a party who acquires control of a majority of the outstanding voting
stock of the Company from obtaining control of the Board of Directors until the
second annual stockholders meeting following the date the acquiror obtains the
controlling interest. See "Management -- Directors and Executive Officers."

The Certificate of Incorporation provides that the number of directors
shall be as determined by the Board of Directors from time to time, but shall
not be less than three. It also provides that directors may be

36
<PAGE>
removed only for cause, and then only by the affirmative vote of the holders of
at least a majority of all outstanding voting stock entitled to vote. This
provision, in conjunction with the provisions of the Certificate of
Incorporation authorizing the Board of Directors to fill vacant directorships,
will prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.

STOCKHOLDER PROPOSALS

The Company's Bylaws contain provisions (i) requiring that advance notice
be delivered to the Company of any business to be brought by a stockholder
before an annual meeting of stockholders and (ii) establishing certain
procedures to be followed by stockholders in nominating persons for election to
the Board of Directors. Generally, such advance notice provisions provide that
written notice must be given to the Secretary of the Company by a stockholder
(i) in the event of business to be brought by a stockholder before an annual
meeting, not less than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders (with certain exceptions if the date of
the annual meeting is different by more than specified amounts from the
anniversary date), and (ii) in the event of nominations of persons for election
to the Board of Directors by any stockholder, (a) with respect to an election to
be held at the annual meeting of stockholders, not less than 90 days prior to
the anniversary date of the immediately preceding annual meeting of stockholders
(with certain exceptions if the date of the annual meeting is different by more
than specified amounts from the anniversary date), and (b) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, not later than the close of business on the 10th day following the
day on which notice of the date of the special meeting was mailed to
stockholders or public disclosure of the date of the special meeting was made,
whichever first occurs. Such notice must set forth specific information
regarding such stockholder and such business or director nominee, as described
in the Company's Bylaws. The foregoing summary is qualified in its entirety by
reference to the Company's Bylaws, which are included as an exhibit to the
Registration Statement of which this Prospectus is a part.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is
.

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Acquisitions and the Offering, the Company will
have outstanding (i) 4,226,481 shares of Common Stock (4,538,981 if the
Underwriters' over-allotment option is exercised in full) of which the 2,083,333
shares sold in the Offering (2,395,833 if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction or
further registration under the Securities Act, except for those held by
"affiliates" (as defined in the Securities Act) of the Company, which shares
will be subject to the resale limitations of Rule 144 under the Securities Act,
and (ii) 4,106,852 shares of Class B Stock. The remaining 2,143,148 shares of
Common Stock and all of the outstanding shares of Class B Stock are deemed
"restricted securities" under Rule 144 in that they were originally issued and
sold by the Company in private transactions in reliance upon exemptions under
the Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.

In general, under Rule 144 as currently in effect, if a minimum of two
years has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from an affiliate of the issuer, the acquirer or
subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
issuer. In addition, if a period of at least three years has elapsed since the
later of the date of acquisition of restricted securities from the issuer or
from any affiliate of the issuer, and the acquirer

37
<PAGE>
or subsequent holder thereof is deemed not to have been an affiliate of the
issuer of such restricted securities at any time during the 90 days preceding a
sale, such person would be entitled to sell such restricted securities under
Rule 144(k) without regard to the requirements described above. Rule 144 does
not require the same person to have held the securities for the applicable
periods. The foregoing summary of Rule 144 is not intended to be a complete
description thereof. The Commission has adopted an amendment to Rule 144 that
would shorten the three- and two-year holding periods described above to two
years and one year, respectively, which will be effective on April 25, 1997.

As of February 28, 1997, options to purchase an aggregate of approximately
798,000 shares of Common stock were outstanding under the Company's 1996 Stock
Option Plan. See " Management -- Stock Option Plans." In general, pursuant to
Rule 701 under the Securities Act, any employee, officer or director of, or
consultant to, the Company who purchased his or her shares pursuant to a written
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701, which permit non-affiliates to sell such shares without compliance
with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permit affiliates to sell such shares without
compliance with the holding period provisions of Rule 144, in each case
commencing 90 days after the date of this Prospectus. A total of 199,500 shares
of Common Stock will be eligible for resale pursuant to Rule 701 (upon exercise
of options) 90 days following the date of this Prospectus. In addition, the
Company intends to file a registration statement covering the 800,500 additional
shares issuable upon exercise of stock options that may be granted in the future
under the 1996 Stock Option Plan, in which case such shares of Common Stock
generally will be freely tradable by non-affiliates in the public market without
restriction under the Security Act.

The Company, its executive officers and directors, TriCap and the persons
acquiring shares of Common Stock in connection with the Acquisitions have agreed
not to offer, sell, contract to sell, grant any option or other right for the
sale of, or otherwise dispose of any shares of Common Stock or any securities,
indebtedness or other rights exercisable for or convertible or exchangeable into
Common Stock owned or acquired in the future in any manner prior to the
expiration of 180 days after the date of this Prospectus without the prior
written consent of , except that the Company may
issue Common Stock in connection with acquisitions and may grant Awards under
the 1996 Stock Option Plan (or Common Stock upon exercise of Awards). In
addition, the holders of the shares of Common Stock acquired in connection with
the Acquisitions have agreed with the Company that they generally will not sell,
transfer or otherwise dispose of any of their shares for two years following the
closing of the Offering (or for such shorter period as the Commission may
prescribe as the holding period for restricted securities under Rule 144).

In connection with the Acquisitions, the Company will enter into a
registration rights agreement with former stockholders of the Founding
Affiliated Practices (the "Registration Rights Agreement"), which will provide
certain registration rights with respect to the Common Stock issued to such
stockholders in the Acquisitions. The Registration Rights Agreement will provide
the holders of Common Stock subject to the agreement with the right in the event
the Company proposes to register under the Securities Act any Common Stock for
its own account or for the account of others at any time through November 2001,
subject to certain exceptions, to require the Company to include shares owned by
them in the registration. In addition, pursuant to a separate registration
rights agreement with TriCap and Dr. Vondrak, both TriCap and Dr. Vondrak have
the right, in the event the Company proposes to register under the Securities
Act any Class B Stock for its own account or for the account of others at any
time through November 2001, subject to certain exceptions, to require the
Company to include shares owned by them in the registration.

In the case of each registration rights agreement described above, the
Company is generally required to pay the costs associated with such an offering
other than underwriting discounts and commissions and transfer taxes
attributable to the shares sold on behalf of the selling stockholders. Each
registration rights agreement provides that the number of shares of Common Stock
that must be registered on behalf of the selling stockholders is subject to
limitation if the managing underwriter determines that market conditions

38
<PAGE>
require a limitation. Under each agreement, the Company will indemnify the
selling stockholders thereunder, and such stockholders will indemnify the
Company, against certain liabilities in respect of any registration statement or
offering covered by the registration rights agreement.

Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time after
the Offering. The Company is unable to estimate the number of shares that may be
sold in the public market under Rule 144, or otherwise, because such amount will
depend on the trading volume in, and market price for, the Common Stock and
other factors. Nevertheless, sales of substantial amounts of shares in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock of the Company. See
"Underwriting."

UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement (the
"Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom and are
acting as representatives (the "Representatives"), have severally agreed to
purchase from the Company an aggregate of shares of Common Stock. The
number of shares of Common Stock that each Underwriter has agreed to purchase is
set forth opposite its name below.

NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- ------------

------------
Total.........................
============

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. If any of the shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all such
shares of Common Stock (other than shares covered by the over-allotment option
described below) must be so purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
to exceed $ per share. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share to any other Underwriter
and certain other dealers. After the initial public offering of the shares of
Common Stock, the Offering price and the concessions and discounts to dealers
may be changed by the Representatives.

The Company has granted to the Underwriters an option to purchase up to
additional shares of Common Stock at the initial public offering price set
forth on the cover page hereof less underwriting discounts and commissions,
solely to cover over-allotments. Such option may be exercised at any time until
30 days after the date of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.

The Company and its directors and officers have agreed not to offer or sell
any shares of Common Stock for a period of 180 days from the date of this
Prospectus without the prior written consent of

39
<PAGE>
, except that the Company may issue Common Stock
in connection with acquisitions and Awards under the 1996 Stock Option Plan (or
Common Stock upon exercise of Awards).

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

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

Prior to the Offering, there has been no public market for the Common
Stock. The initial price to the public for the shares of Common Stock offered
hereby will be determined by negotiations between the Company and the
Representatives. The principal factors to be considered in determining the
initial price to the public will include the history of and the prospects for
the industry in which the Company competes, the ability of the Company's
management, the past and present operations of the Founding Affiliated
Practices, the historical results of operations of the Founding Affiliated
Practices, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offering, the market for
new issues of securities and the recent demand for securities of generally
comparable companies. 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.

The shares of Common Stock have been approved for listing on the Nasdaq
National Market under the symbol " ," subject to official
notification of issuance.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jackson & Walker, L.L.P., Houston, Texas. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by .

EXPERTS

The financial statements of Apple Orthodontix, Inc. as of December 31, 1996
and for the period from inception, July 15, 1996, through December 31, 1996
included in this Prospectus and appearing elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and is included
herein in reliance upon the authority of said firm as experts in giving said
report.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") with respect to the Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document filed as an exhibit to the
Registration Statement accurately describes the material provisions of such
document and are qualified in their entirety by reference to such exhibits for
complete statements of their provisions. All of these documents may be inspected
without charge at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies can also be obtained from the Commission
at prescribed rates. The Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

<PAGE>
INDEX TO FINANCIAL STATEMENTS

PAGE
----

AUDITED FINANCIAL STATEMENTS OF APPLE
ORTHODONTIX, INC.

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

Balance Sheet -- December 31,
1996........................... F-3

Statement of Operations For the
Period From Inception, July 15,
1996 Through
December 31, 1996............. F-4

Statement of Changes in
Stockholders' Equity (Deficit)
For the Period From Inception,
July 15, 1996 Through December
31, 1996....................... F-5

Statement of Cash Flows For the
Period From Inception, July 15,
1996 Through
December 31, 1996............. F-6

Notes to Financial Statements... F-7

UNAUDITED PRO FORMA FINANCIAL
STATEMENTS......................... F-11

Unaudited Pro Forma Consolidated
Balance Sheet December 31,
1996........................... F-12

Unaudited Pro Forma Consolidated
Statement of Operations For the
Year Ended
December 31, 1996............. F-13

Notes to Unaudited Pro Forma
Consolidated Financial
Statements..................... F-14

F-1
<PAGE>
After the stock split discussed in Note 2 to the Apple Orthodontix, Inc.'s
financial statements is effected, we expect to be in a position to render the
following audit report.

Arthur Andersen LLP
February 28, 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Apple Orthodontix, Inc.:

We have audited the accompanying balance sheet of Apple Orthodontix, Inc.,
a Delaware corporation, as of December 31, 1996, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
period from inception, July 15, 1996, through December 31, 1996. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Apple Orthodontix, Inc., as
of December 31, 1996, and the results of its operations and its cash flows for
the period from inception, July 15, 1996, through December 31, 1996, in
conformity with generally accepted accounting principles.

Houston, Texas
, 1997

F-2
<PAGE>
APPLE ORTHODONTIX, INC.
BALANCE SHEET -- DECEMBER 31, 1996

ASSETS
CASH AND CASH EQUIVALENTS............... $ 21,254
DEFERRED ISSUANCE COSTS................. 1,592,582
ORGANIZATION COSTS, net of accumulated
amortization of $4,510................ 44,687
------------
Total assets.................. $ 1,658,523
============

LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES........................... $ 1,799,565
AMOUNTS DUE TO A FOUNDING AFFILIATED
PRACTICE.............................. 30,444
AMOUNTS DUE TO VENTURE CAPITAL
INVESTORS............................. 515,000
------------
Total liabilities............. 2,345,009
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Common Stock, $.01 par
value, no shares authorized,
issued and outstanding............ --
Class B Common stock, $.01 par
value, 4,106,852 shares
authorized,
4,106,852 issued and
outstanding....................... 41,069
Retained deficit................... (727,555)
------------
Total stockholders' equity
(deficit).................... (686,486)
------------
Total liabilities and
stockholders' equity
(deficit).................... $ 1,658,523
============

The accompanying notes are an integral part of this financial statement.

F-3
<PAGE>
APPLE ORTHODONTIX, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, JULY 15, 1996
THROUGH DECEMBER 31, 1996

REVENUES............................. $ --
COSTS AND EXPENSES:
Salaries and benefits........... 627,476
Rent............................ 19,676
Amortization of organization
costs........................... 4,510
Other expenses.................. 35,000
------------
Total costs and expenses... 686,662
PROVISION FOR INCOME TAXES........... --
------------
NET LOSS............................. $ (686,662)
============
NET LOSS PER SHARE................... $ (0.17)
============
NUMBER OF SHARES USED IN CALCULATING
NET LOSS PER SHARE................... 4,121,852
============

The accompanying notes are an integral part of this financial statement.

F-4
<PAGE>
APPLE ORTHODONTIX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION, JULY 15, 1996
THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
---------------------- RETAINED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
----------- ------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, July 15, 1996............... -- $ -- $ -- $ --
Issuance of stock............... 4,106,852 41,069 (40,893) 176
Net loss........................ -- -- (686,662) (686,662)
----------- ------- ------------ -------------
BALANCE, December 31, 1996........... 4,106,852 $41,069 $ (727,555) $(686,486)
=========== ======= ============ =============
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE>
APPLE ORTHODONTIX, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION, JULY 15, 1996
THROUGH DECEMBER 31, 1996

CASH FLOWS USED IN OPERATING
ACTIVITIES:
Net loss........................ $ (686,662)
Amortization of organization
costs........................... 4,510
Increase in deferred issuance
costs.......................... (1,592,582)
Increase in accounts payable and
accrued liabilities............. 1,799,565
--------------
Net cash used in operating
activities................ (475,169)
--------------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Cash paid for organization
costs.......................... (49,197)
Advances from a related party... 515,000
Advances from a founding
practice........................ 283,744
Repayment of advances from a
founding practice.............. (253,300)
Proceeds from issuance of common
stock.......................... 176
--------------
Net cash provided by
financing activities...... 496,423
--------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... $ 21,254
==============

The accompanying notes are an integral part of this financial statement.

F-6
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Apple Orthodontix, Inc. (Apple or the Company), was established as a
Delaware corporation on
July 15, 1996, for the purpose of creating an orthodontic practice management
company which will own the assets of and provide management services to
orthodontic practices (see Note 6). The Company's operations to date have
consisted primarily of seeking affiliations with orthodontists, negotiating to
acquire the assets of those professionals' practices and negotiating agreements
to provide management services to those practices. Apple plans to complete an
initial public offering of its common stock and simultaneously exchange cash and
shares of its common stock for selected assets and liabilities associated with
31 orthodontic practices (the Founding Affiliated Practices). The completion of
the asset acquisitions, public offering and entry by Apple into service
agreements with the owners of the orthodontic practices will mark the beginning
of Apple's operations. The financial statements have been prepared on the basis
that the proposed transactions will occur although no assurance can be made that
the proposed transaction will be completed.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DEFERRED ISSUANCE COSTS

Substantially all costs incurred to date have been in conjunction with the
Acquisitions and the anticipated initial public offering (Offering) of the
Company's common stock. All costs incurred in connection with those efforts,
excluding certain ongoing costs of the Company, have been capitalized and will
be charged against the proceeds of the initial public offering upon its
successful completion.

ORGANIZATION COSTS

Organization costs incurred in the formation of the Company are amortized
on a straight-line basis over a five-year period.

STOCKHOLDERS' EQUITY (DEFICIT)

On October 11, 1996, 3,884,155 shares of Class B stock were issued at a
total price of $9.68. Management believes that the $.01 per share received in
consideration for those shares represented the fair value of the shares at that
date. On December 9, 1996, 222,697 additional shares were issued in exchange for
$166 of consideration. Management believes that the $3.00 per share received in
consideration for those shares represented the fair value of the shares at that
date. The shares issued through December 31, 1996, have been restated to reflect
the effect of a 4,013-for-one stock split. The Class B stock will be entitled to
a three tenths of a vote per share. The Class B stock automatically converts to
one vote per share in the event of disposition of the stock by the stockholder,
any person offering to or acquiring 15% or more of the outstanding common stock
of the Company, a replacement director elected after June 30, 1997, not being
elected unanimously by the board of directors or by majority vote of the Class A
and Class B shareholders, voting as a single class or on the fifth anniversary
of the effective date of this Offering. In the event that 80 percent or more of
the currently outstanding Class B stock has been converted into shares of Class
A stock, the Company may elect to convert the remaining outstanding Class B
shares into shares of Class A stock. The Class A stock to be distributed to the
Founding Affiliated Practices and in the Offering will be entitled to one vote
per share.

The shares used in calculating net loss per share include all shares
outstanding as of February 28, 1997 and the additional shares that would be
outstanding if all options that were issued prior to the Offering were exercised
and the proceeds used to repurchase shares at the anticipated offering price of
$12 per share.

STOCK OPTION PLAN

In December 1996 the board of directors of the Company adopted the 1996
Stock Option Plan (Plan). Employees, non-employee directors and advisors are
eligible to receive awards under the Plan; only employees of the Company are
eligible to receive incentive stock options. The aggregate number of options to
purchase shares of common stock that may granted under the Plan is 1,000,000. As
of December 31, 1996, no options had been granted under the Plan. The Company
anticipates that upon or shortly after the consummation of its Offering that it
will grant options to purchase approximately 798,000 shares of common stock
under the Plan. All of these options will be at the Offering price except for
20,000 options that were granted in January 1997 at $3.00 per option which
equaled the fair value of the common stock of

F-7
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company at that date. The Company will account for options issued to
employees and non-employee directors under the Plan in accordance with APB
Opinion No. 25, and accordingly no compensation cost will be recognized. The
Company will provide the pro forma disclosure of net and earnings per share in
the notes to the financial statements as if the fair value based method of
accounting had been applied to awards as required by Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation."

INCOME TAXES

As reflected in the accompanying statement of operations, the Company
incurred a loss from operations during the period from inception, July 15, 1996,
through December 31, 1996. Due to the limited operations of the Company since
its inception and the pending Offering, a valuation allowance has been recorded
to fully reserve for the deferred tax benefits generated by these net operating
losses. There is no significant difference in the tax and book bases of the
Company's assets or liabilities that would give rise to deferred tax balances.

USE OF ESTIMATES

The preparation of financial statements in conformity with general accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts and liabilities and disclosures
of contingent asset and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.

3. FINANCING PROVIDED BY VENTURE CAPITAL INVESTORS:

On November 14, 1996, the Company signed an agreement with TriCap Partners,
L.L.C. (TriCap), whereby TriCap agreed to provide $3,000,000 to finance costs
related to the Offering. As of December 31, 1996, the Company had borrowed
$515,000 under this agreement. The $3,000,000, to the extent expended, will be
repaid out of proceeds from the Offering, including interest at a rate of prime
plus .25 percent. This agreement extends through the date of the consummation of
the first public offering of Common Stock (or a security convertable or
exchangeable for Common Stock) by the Company following the Offering. This
agreement also provides for the payment by Apple to TriCap of (a) $1,150,000
upon consummation of the Offering, (b) an amount equal to 2% of the aggregate
principal amount of any nonconvertible debt securities issued by the Company in
any offering of such securities prior to expiration of the agreement, (c) the
lesser of $1,050,000 or 3.5% of the gross proceeds of any equity securities
issued by Apple subsequent to the offering in any offering prior to expiration
of the agreement and (d) one-half of any investment banking or financial
advisory fees payable by Apple in connection with any merger or acquisition
transaction with an aggregate purchase price of $5 million or more with another
management services company.

4. RELATED PARTY:

The practice of a founding stockholder of the Company, John G. Vondrak,
D.D.S., has paid for certain costs and expenses on behalf of the Company. Such
payments net of reimbursement in conjunction with the financing, have been
reflected as amounts due to a Founding Affiliated practice in the accompanying
balance sheet and will be repaid with proceeds from the planned Offering.

5. LITIGATION:

On December 10, 1996, Orthodontic Centers of America (OCA) filed a
complaint against Apple, Dr. Vondrak and his practice alleging misappropriation
of trade secrets and breach of a confidentiality agreement executed by Dr.
Vondrak with OCA. The Company plans to vigorously defend itself in this matter
and does not believe that the results of these proceedings will have a material
adverse effect on the Company's operating results or financial position.

F-8
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. PLANNED ACQUISITIONS OF FOUNDING AFFILIATED PRACTICES:

Apple plans to complete through a series of mergers and asset purchases,
the acquisition of certain assets and assumption of certain liabilities of the
Founding Affiliated Practices (the Acquisitions) concurrently with an initial
public offering of shares of its common stock. The Founding Affiliated Practices
will receive Apple common stock and cash as consideration in the Acquisitions.
In connection with the Acquisitions, the selling orthodontists will create new
professional corporations, professional associations or other entities
(collectively, the New PCs) that will enter into 20-year service agreements with
Apple. Additionally, those orthodontists will enter into employment and
noncompete agreements with the New PCs.

The Company will not employ orthodontists or control the practice of
orthodontics by the orthodontists employed by the New PCs. As Apple will not be
acquiring the future patient revenues earned by the New PCs, the Acquisitions
are not deemed to be business combinations. In accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin (SAB) No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders," the acquired nonmonetary
assets and assumed liabilities will be accounted for at the historical cost
basis of the Founding Affiliated Practices. Any monetary assets included in the
Acquisitions will be recorded at fair value. The resulting value of the net
assets acquired by Apple will be recorded as the value of the stock
consideration tendered. Cash consideration paid to selling orthodontists in
conjunction with the Acquisitions will be reflected as a dividend paid by Apple.

The selling orthodontists will generally retain the long-term debt
obligations of their respective practices. Capital lease obligations will be
assumed by the Company. In certain cases, Apple has agreed to refinance debt
retained by the selling orthodontists.

The combined detail of the Founding Affiliated Practices' assets to be
acquired and liabilities to be assumed is as follows:

COMBINED PRESENTATION OF ASSETS TO BE ACQUIRED AND LIABILITIES ASSUMED FROM THE
FOUNDING AFFILIATED PRACTICES AS OF DECEMBER 31, 1996

Cash and cash equivalents............ $ 1,177,000
Patient receivables, net of
allowances and patient
prepayments........................ 866,000
Prepaid expenses and other current
assets............................. 137,000
Property, equipment and improvements,
net................................ 2,087,000
Intangible and other long term
assets, net........................ 431,000
Current portion of capital lease
obligations........................ (121,000)
Accounts payable and accrued
liabilities........................ (1,627,000)
Long term portion of capital lease
obligations........................ (312,000)

The management service revenues that will be earned by Apple subsequent to
the Acquisitions and execution of the service agreements are based on various
arrangements. In general, the resulting fee will be substantially based on the
patient revenues and cash collections of the New PCs and the operating expenses
assumed by Apple. Apple's standard form of service agreement (the Standard
Contract) will be applied to all practices operating in locations where it is
not prohibited by law or governmental regulation. In those instances where the
standard contract may not be permitted, an alternative form of agreement (the
Alternative Contract) will be used.

COMBINED OPERATING DATA OF THE FOUNDING AFFILIATED PRACTICES FOR THE
YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
PATIENT REVENUES CASH COLLECTIONS OPERATING EXPENSES
---------------- ---------------- ------------------
<S> <C> <C> <C>
Practices participating under the
Standard Contract.................. $ 19,699,000 $ 19,886,000 $ 12,035,000
Practices participating under the
Alternative Contract............... 5,358,000 5,519,000 2,935,000
---------------- ---------------- ------------------
Totals for Founding Affiliated
Practices.......................... $ 25,057,000 $ 25,405,000 $ 14,970,000
================ ================ ==================
</TABLE>

F-9
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Patient revenues are derived from orthodontic care provided to patients
under contract terms agreed to by the patient or other responsible parties. The
contracts vary by practice and by patient and service often extends over an
eighteen month to six year period. Revenue is recognized on a
percentage-of-completion basis, with approximately 24 percent being recognized
at the time of initial treatment. The balance of the contract revenue is
realized evenly over the remaining contract period. The 24 percent estimated
cost at the initial treatment date is consistent with industry standards and
includes the estimated costs of diagnosis, treatment plan development, initial
treatment by orthodontic personnel, orthodontic supplies and associated
administrative services.

The difference in the timing of the recognition of patient revenues and
cash collections results in (i) unbilled receivables in instances where
recognition of revenues preceeds the patient's payment plan and (ii) patient
prepayments when payments are made on a more accelerated basis than revenues are
earned. The following table presents the combined uncollected patient
receivables, unbilled patient receivables, and patient prepayments of the
Founding Affiliated Practices. These amounts are not receivables of the Company,
but the net position of these receivables will be acquired as part of the
Acquisitions and in future periods each New PC will provide the Company with a
security interest in the receivables of the New PC.

COMBINED PATIENT RECEIVABLES, NET, OF THE FOUNDING AFFILIATED PRACTICES AS OF
DECEMBER 31, 1996

Patient receivables, net of
allowances of $631,000............. $ 918,000
Unbilled patient receivables, net of
allowances of $70,000.............. 3,361,000
Patient prepayments.................. (3,413,000)
--------------
Patient receivables net of
allowances and prepayments.... $ 866,000
==============

Subsequent to the Acquisitions, the operating expenses of the Founding
Affiliated Practices will be the responsibility of Apple. The Company will have
discretion to control the level of those expenses in conjunction with providing
the related services to the New PCs. The combined historical expenses of the
Founding Affiliated Practices for the year ended December 31, 1996 that will be
assumed by the Company in the future were:

COMBINED DETAIL OF THE FOUNDING AFFILIATED PRACTICES' EXPENSES FOR THE YEAR
ENDED
DECEMBER 31, 1996

Salaries, wages and benefits of
employees, excluding the
orthodontists...................... $ 6,381,000
Orthodontic supplies................. 2,548,000
Rent................................. 1,923,000
Advertising and marketing............ 438,000
General and administrative
expenses........................... 3,680,000
--------------
Total operating expenses........ 14,970,000
Depreciation and amortization on
acquired assets.................... 864,000
--------------
Total expenses to be assumed.... $ 15,834,000
==============

The combined historical financial information of the Founding Affiliated
Practices presented herein is not related to the financial position or results
of operations of Apple. This information is presented solely for the purpose of
providing disclosures to potential investors regarding the group of entities
with which Apple will be contracting to provide future services. The Founding
Affiliated Practices' financial information is presented on a combined basis to
assist in an understanding of their relationship to the pro forma financial
statements included elsewhere in this registration statement and due to the fact
that their service agreements with the Company will be signed contingent on the
single common event of the completion of the Offering. Founding Affiliated
Practices were not operated under common control or management during the fiscal
year ended December 31, 1996.

F-10

<PAGE>
APPLE ORTHODONTIX, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated financial statements include
the unaudited pro forma consolidated balance sheet of Apple Orthodontix, Inc.
(Apple or the Company) as of December 31, 1996 and the unaudited pro forma
consolidated statement of operations of the Company for the year ended December
31, 1996.

The unaudited pro forma consolidated financial statements have been
prepared (a) as if the acquisitions by Apple, which include the acquisition of
certain assets and assumption of certain liabilities associated with 31
orthodontic practices (the Founding Affiliated Practices) for consideration
consisting of a combination of cash and shares of common stock of the Company,
and the execution of agreements to provide management services to the Founding
Affiliated Practices (collectively, the Acquisitions) and (b) as if the planned
initial public offering of the Company's common stock (the Offering) both had
been completed. The Company will be making these acquisitions through
subsidiaries of the Company. The accompanying unaudited pro forma consolidated
balance sheet as of December 31, 1996, gives effect to the Acquisitions and
Offering as if such transactions had occurred on December 31, 1996. The
accompanying unaudited pro forma consolidated statement of operations for the
year ended December 31, 1996, assumes the Company had completed the transactions
on January 1, 1996.

The Company will not employ orthodontists or control the practice of
orthodontics by the orthodontists. As Apple will not be acquiring the future
patient revenues earned by the Founding Affiliated Practices, the Acquisitions
are not deemed to be business combinations. In accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders," the Acquisitions will be
accounted for at the historical cost basis with the shares of common stock to be
issued in those transactions being valued at the historical cost of the
nonmonetary assets acquired net of liabilities assumed. The cash consideration
will be reflected as a dividend by Apple to the owners of the Founding
Affiliated Practices.

The unaudited pro forma consolidated financial statements have been
prepared by the Company based on the audited historical financial statements of
Apple included elsewhere in this Prospectus, including the audited combined
financial information of the Founding Affiliated Practices included in the notes
to those financial statements, and assumptions deemed appropriate by the
Company. These unaudited pro forma consolidated financial statements may not be
indicative of actual results that might have been obtained if the transactions
had occurred on the dates indicated or which may be realized in the future.
Neither expected benefits and cost reductions anticipated by the Company nor
future corporate costs of Apple (which will be material) have been reflected in
the accompanying unaudited pro forma consolidated financial statements. The
unaudited pro forma consolidated statement of operations includes the financial
results of Apple for the period from inception, July 15, 1996, through December
31, 1996. Additionally, certain of the Founding Affiliated Practices made
acquisitions or experienced departures of owner orthodontists or employee
orthodontists during the year ended December 31, 1996; the Company does not
consider the net effect of these changes to be significant for the purposes of
these unaudited pro forma consolidated financial statements.

F-11
<PAGE>
APPLE ORTHODONTIX, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)

APPLE ADJUSTMENTS PRO FORMA
------ ------------ ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 21 $ 17,100(B) $ 11,869
(6,429)(C)
1,177(C)
Receivables from orthodontic
practices..................... -- 866(C) 866
Deferred issuance costs and
other current assets.......... 1,593 3,407(A) --
(5,000)(B)
137(C) 137
------ ------------ ----------
Total current assets....... 1,614 11,258 12,872
PROPERTY AND EQUIPMENT, net.......... -- 2,087(C) 2,500
413(D)
OTHER NONCURRENT ASSETS, net......... 45 431(C) 1,423
947(E)
------ ------------ ----------
Total assets............... $1,659 $ 15,136 $ 16,795
====== ============ ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities................... $1,830 $ 3,407(A) $ 1,864
(5,000)(B)
1,627(C)
Current portion of long-term
liabilities................... -- 121(C) 121
------ ------------ ----------
Total current
liabilities............. 1,830 155 1,985
OTHER LONG-TERM LIABILITIES.......... 515 312(C) 927
100(E)
------ ------------ ----------
Total liabilities.......... 2,345 567 2,912
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock.................... 41 21(B) 83
21(C)
Additional paid-in capital...... -- 17,079(B) 14,527
(3,812)(C)
413(D)
847(E)
Retained deficit................ (727) -- (727)
------ ------------ ----------
Total stockholders' equity
(deficit)............... (686) 14,569 13,883
------ ------------ ----------
Total liabilities and
stockholders' equity
(deficit)............... $1,659 $ 15,136 $ 16,795
====== ============ ==========

See accompanying notes to unaudited pro forma consolidated financial statements.

F-12
<PAGE>
APPLE ORTHODONTIX, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
APPLE ADJUSTMENTS PRO FORMA
------ ------------ ----------
<S> <C> <C> <C>
REVENUES:
Management service revenues..... $ -- $ 18,138(AA) $ 18,138
------ ------------ ----------
COSTS AND EXPENSES:
Salaries, wages and benefits.... 627 6,381(BB) 7,008
Orthodontic supplies............ -- 2,548(BB) 2,548
Rent............................ 20 1,923(BB) 1,943
Advertising and marketing....... -- 438(BB) 438
General and administrative
expenses...................... -- 3,680(BB) 3,680
Depreciation and amortization... 5 864(BB) 869
Other (income) expense, net..... 35 47(CC) 4
(78)(DD)
------ ------------ ----------
Total costs and expenses... 687 15,803 16,490
------ ------------ ----------
INCOME (LOSS) BEFORE INCOME TAXES.... (687) 2,335 1,648
PROVISION FOR INCOME TAXES........... -- 627(EE) 627
------ ------------ ----------
NET INCOME (LOSS).................... $ (687) $ 1,708 $ 1,021
====== ============ ==========
NET INCOME (LOSS) PER SHARE.......... $ 0.14
==========
NUMBER OF SHARES USED IN NET INCOME
PER SHARE CALCULATION.............. 7,459,120(FF)
==========
</TABLE>

See accompanying notes to unaudited pro forma consolidated financial statements.

F-13
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS

The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1996, gives effect to the Acquisitions and the Offering as if those
transactions had occurred on December 31, 1996. The unaudited pro forma
consolidated balance sheet does not represent the historical or future financial
position of Apple.

(A) Reflects the accrual of estimated offering costs to be incurred
subsequent to December 31, 1996, in conjunction with the Offering to a total of
$5,000.

(B) Reflects the issuance of 2,083,333 shares of Class A common stock by
the Company in the Offering at an assumed initial public offering price of
$12.00 per share, net of underwriters' commissions of $1,750 and the
reclassification of deferred issuance costs of $6,150 (including the fee to
TriCap of $1,150) in total against the Offering proceeds. The resulting net
proceeds of $17,100 are reflected as common stock, par value of $.01 per share,
totaling $21, with the remaining amount recorded as additional paid-in capital
of $17,079.

(C) Reflects completion of the Acquisitions, which will involve (1) the
issuance of 2,143,148 shares of Class A Common Stock based on the assumed
initial public offering price of $12 per share and (2) the declaration of an
$6,429 dividend, taken together, as consideration in the Acquisition for net
assets with a historical net book value as of December 31, 1996, of $2,638
consisting of certain assets and certain liabilities of the Founding Affiliated
Practices.

The assets and liabilities of the Founding Affiliated Practices being
acquired and reflected herein are as follows:

Cash and cash equivalents............ $ 1,177
Patient receivables, net of
allowances and patient prepayments... 866
Prepaid expenses and other current
assets............................... 137
Property, equipment and improvements,
net.................................. 2,087
Intangible and other long term
assets, net.......................... 431
Current portion of capital lease
obligations.......................... (121)
Accounts payable and accrued
liabilities.......................... (1,627)
Long-term portion of capital lease
obligations.......................... (312)
Cash dividend........................ (6,429)
---------
Stockholders' deficit........... $ (3,791)
=========

Net assets acquired does not include certain long-term debt of the Founding
Affiliated Practices which will be assumed by the owner orthodontists at or
prior to the Acquisitions.

This transaction would produce a pro forma deferred tax asset of
approximately $304 which has been fully reserved in these pro forma statements
as the realizability of such asset cannot be determined.

(D) Represents property, equipment and improvements separately owned by a
selling orthodontist at December 31, 1996 related to new offices opening in 1997
that will also be acquired as an additional part of the Acquisitions in note
(C).

(E) Reflects the estimated amount of financing Apple will provide to the
selling orthodontists to refinance debt which was outstanding and recorded by
the Founding Affiliated Practices as of December 31, 1996 resulting in notes
receivable from the selling orthodontists of $947 offset by approximately $100
of debt which Apple has agreed to assume in conjunction with the Acquisitions.

F-14
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS

The accompanying unaudited pro forma consolidated statement of operations
for the year ended December 31, 1996 assumes the Company had completed the
Acquisitions and the Offering on January 1, 1996. The pro forma adjustments are
based on the historical financial results of the Founding Affiliated Practices.
This statement does not represent the historical or future results of operations
of the Company.

(AA) Represents estimated management service revenues of Apple calculated
in accordance with the management service agreements anticipated to be entered
into with the Founding Affiliated Practices, as applied to the historical
operating results of the individual Founding Affiliated Practices for the year
ended December 31, 1996.

The management service fees earned by the Company will be in accordance
with two general types of service agreements -- the standard form of the service
agreement (Standard Contract) and the alternative form of the service agreement
(the Alternative Contract) agreement. The determination of which agreement will
be used depends on the laws relating to the corporate practice of dentistry and
fee splitting in the state or states in which that practice operates. The
standard contract calls for a calculation of the monthly service fee based on
the total revenues earned by the New PCs which is defined by the agreement to
represent 24% of the total contract value in the initial month of a patient's
treatment with the remainder of the contract balance earned evenly over the
balance of the contract term. From total revenues, the orthodontists retain a
set percentage of the New PC's cash collections. There are adjustments to the
service fee designed to both provide incentives for the orthodontists to provide
efficient patient treatment and to increase the number of patients treated, as
well as to ensure that the orthodontists retain a minimum amount for payment of
their compensation from their respective New PC on a monthly basis. The
Alternative Contract is currently offered in California. It is a cost plus fee
arrangement, whereby the service fee includes the reimbursement of defined
expenses incurred by Apple in the course of providing services to the New PC
plus a percentage of revenues.

The pro forma management service fee for practices who have agreed to the
Standard Contract is based on the accrual basis revenues of the Founding
Affiliated Practices ($19,699) less an amount based on the cash collections of
the practices ($6,547) appropriately adjusted for various provisions of the
service fee agreement (taken together a net increase of $1,327). The resulting
pro forma management service fee for the year ended December 31, 1996 is
$14,479.

The pro forma management service fee for practices who have agreed to the
Alternative Contract represents a percentage of revenues ($724) and
reimbursement of the operating expenses of those practices ($2,935). The total
pro forma management service revenues would have been:

Practices participating under the
Standard Contract..................... $ 14,479
Practices participating under the
Alternative Contract.................. 3,659
---------
Total pro forma management service
revenues.......................... $ 18,138
=========

F-15
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The revenues and cash collections used to calculate the pro forma
management service revenues have not been adjusted for the pro forma effect of
acquisitions and dispositions made by the Founding Affiliated Practices during
the year ended December 31, 1996. Management does not believe that such
adjustments would have a material impact on the calculation of these pro forma
calculations.

(BB) Represents an adjustment to reflect certain historical costs of the
Founding Affiliated Practices that will be incurred by the Company in order to
fulfill the Company's obligations under the service agreements with the Founding
Affiliated Practices.

(CC) Reflects interest expense attributable to capital lease obligations
expected to be assumed by Apple in connection with the Acquisitions.

(DD) Reflects interest income on the notes receivable from orthodontists
related to the refinancing of their long term obligations at a rate of prime
plus one percent less increased interest expense related to debt of the
practices' that the Company has agreed to assume.

(EE) Reflects federal and state income taxes the Company would have
incurred on pro forma income before taxes at an assumed income tax rate of 38
percent.

(FF) The number of shares used in the pro forma net income per share
calculation are determined as follows:

Estimated outstanding Apple shares after
the Acquisitions and Offering......... 8,333,333
Net shares that would be outstanding if
outstanding options were exercised and
the proceeds were used to repurchase
shares at the assumed initial public
offering price........................ 15,000
Less -- Shares not required for the
Acquisitions and other uses of
proceeds ($10,671/$12.00)............. (889,213)
-----------
Total.............................. 7,459,120
===========

F-16

<PAGE>
================================================================================
NO DEALER, SALESPERSON OR 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 ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.

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

TABLE OF CONTENTS

PAGE
----
Prospectus Summary...................... 3
Risk Factors............................ 7
Use of Proceeds......................... 11
Dividend Policy......................... 12
Dilution................................ 13
Capitalization.......................... 14
Selected Financial Data................. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 16
Business................................ 17
Management.............................. 27
Certain Transactions.................... 31
Security Ownership of Certain Beneficial
Owners and Management................. 33
Description of Capital Stock............ 34
Shares Eligible for Future Sale......... 37
Underwriting............................ 39
Legal Matters........................... 40
Experts................................. 40
Additional Information.................. 40
Index to Financial Statements........... F-1

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.

================================================================================

APPLE ORTHODONTIX, INC.
COMMON STOCK

----------------------
PROSPECTUS
----------------------

, 1997

================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be paid by the Company
(other than underwriting compensation expected to be incurred) in connection
with the offering described in this Registration Statement. All amounts are
estimates, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Listing Fee.

SEC Registration Fee................. $ 9,439
NASD Filing Fee......................
Nasdaq National Market Listing Fee... *
Blue Sky Fees and Expenses........... *
Printing Costs....................... *
Legal Fees and Expenses.............. *
Accounting Fees and Expenses......... *
Transfer Agent and Registrar Fees and
Expenses........................... *
Premiums for D&O Insurance........... *
------------
Miscellaneous........................ *
------------
Total...................... $
============

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

DELAWARE GENERAL CORPORATION LAW

Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon

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<PAGE>
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him in connection therewith.

Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.

Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.

Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.

Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.

Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.

CERTIFICATE OF INCORPORATION

The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not

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adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.

BYLAWS

The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent permitted
by applicable law, as in effect as of the date of the adoption of the Bylaws or
to such greater extent as applicable law may thereafter permit, from and against
all losses, liabilities, claims, damages, judgments, penalties, fines, amounts
paid in settlement and expenses (including attorneys' fees) whatsoever arising
out of any event or occurrence related to the fact that such person is or was a
director or officer of the Company and further provide that the Company may, but
is not required to, indemnify and hold harmless any employee or agent of the
Company or a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise who
is or was serving in such capacity at the written request of the Company;
provided, however, that the Company is only required to indemnify persons
serving as directors, officers, employees or agents of the Company for the
expenses incurred in a proceeding if such person is a party to and is
successful, on the merits or otherwise, in such proceeding, or if unsuccessful
in the proceeding, but successful as to a matter in such proceeding, the
expenses attributable to such matter and provided further that the Company may,
but is not required to, indemnify such persons who are serving as a director,
officer, employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise at the written request of the
Company for the expenses incurred in a proceeding if such person is a party to
and is successful, on the merits or otherwise, in such proceeding. The Bylaws
further provide that, in the event of any threatened, or pending action, suit or
proceeding in which any of the persons referred to above is a party or is
involved and that may give rise to a right of indemnification under the Bylaws,
following written request by such person, the Company will promptly pay to such
person amounts to cover expenses reasonably incurred by such person in such
proceeding in advance of its final disposition upon the receipt by the Company
of (i) a written undertaking executed by or on behalf of such person providing
that such person will repay the advance if it is ultimately determined that such
person is not entitled to be indemnified by the Company as provided in the
Bylaws and (ii) satisfactory evidence as to the amount of such expenses.

UNDERWRITING AGREEMENT

The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.

TRICAP PARTNERS, L.L.C. AGREEMENT

The financial advisory consulting agreement provides for the
indemnification of the directors and officers of the Company in certain
circumstances.

INSURANCE

The Company intends to maintain liability insurance for the benefit of its
directors and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:

On October 11, 1996, the Company issued 420, 415.5, 52.5, 40, 10, 10, 10, 5
and 5 shares of Common Stock to TriCap Funding I, L.L.C., John G. Vondrak,
D.D.S., W. Daniel Cook, Robert J. Syverson, Roxanne Robertson, Wm. Randol
Womack, D.D.S., Duncan Y. Brown, D.D.S., Wanda Rose and Stephen DeOrlow,
Trustee, respectively, the founders of the Company for $0.1 per share. On
December 9, 1996, the Company issued 23.5, 24.5, 5 and 2.5 shares of Common
Stock to Michael W. Harlan, LeeAnn Peniche, Orthodontic Investors of Texas II,
Inc. and Allan Benson, respectively, for $3.00 per share. Such issuances were
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as transactions not involving any public offering.

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<PAGE>
In March 1997, each outstanding share of Common Stock was reclassified into
4,012.5569 shares of Class B Stock (the "Stock Split"). The Stock Split was
exempt from the registration requirements of the Securities Act as it did not
involve a "sale," as defined in Section 2(3) of the Securities Act.

Simultaneously with the completion of this Offering, the Company will issue
2,143,148 shares of Common Stock in connection with the acquisition of the
Founding Affiliated Practices. Such issuances will be exempt for the
registration requirements of Section 4(2) thereof as transactions not involving
any public offering.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
1.1* -- Form of Underwriting Agreement.
2.1* -- Form of Acquisition Agreement
3.1* -- Restated Certificate of Incorporation
3.2* -- Bylaws
4.1* -- Form of certificate evidencing ownership of Common Stock of Apple Orthodontix, Inc.
4.2* -- Form of Registration Rights Agreement
4.3* -- Registration Rights Agreement among Apple Orthodontix, Inc., John G. Vondrak, D.D.S. and
TriCap Funding I, L.L.C.
5.1* -- Opinion of Jackson & Walker, L.L.P.
10.1* -- Apple Orthodontix, Inc., 1996 Stock Option Plan
10.2* -- Employment Agreements between Apple Orthodontix, Inc. and John G. Vondrak, D.D.S.
10.3* -- Employment Agreement between Apple Orthodontix, Inc. and Robert J. Syverson
10.4* -- Employment Agreement between Apple Orthodontix, Inc. and Michael W. Harlan
10.5* -- Employment Agreement between Apple Orthodontix, Inc. and W. Daniel Cook
10.6* -- Form of Service Agreement
23.1 -- Consent of Arthur Andersen LLP
23.2* -- Consent of Jackson & Walker, L.L.P. (contained in Exhibit 5)
24.1 -- Power of Attorney (contained on the signature page of this Registration Statement).
</TABLE>

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

* To be filed by amendment.

(b) Financial Statement Schedules.

All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes as follows:

(1) To provide to 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) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been advised that in the opinion of the 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 payments 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

II-4
<PAGE>
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 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.

(3) That, for the purposes of determining any liability under the
Securities Act, 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.

(4) That, for the purpose of determining any liability under the
Securities Act, 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.

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<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
APPLE ORTHODONTIX, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON , 1997.

APPLE ORTHODONTIX, INC.
By: /s/ JOHN G. VONDRAK
JOHN G. VONDRAK, D.D.S.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

Each person whose signature appears below hereby appoints Robert J.
Syverson and Michael W. Harlan and each of them, each of whom may act without
joinder of the other, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute in the name of each such person
who is then an officer or director of the Registrant, and to file, any
amendments (including post-effective amendments) to this Registration Statement
and any registration statement for the same offering filed pursuant to Rule 462
under the Securities Act of 1933, and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing appropriate or necessary to be done, as
fully and for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON , 1997.

<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------------------------ ----------------------------------------
<S> <C>
Chairman of the Board and Chief
JOHN G. VONDRAK, D.D.S. Executive Officer (Principal Executive
Officer)
Vice President and Chief Financial
MICHAEL W. HARLAN Officer (Principal Financial and
Accounting Officer)
Director
W. DANIEL COOK
Director
WILLIAM W. SHERRILL
</TABLE>

II-6

EXHIBIT 23.1

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 the
Registration Statement by Apple Orthodontix, Inc. of 2,083,333 shares of Class A
Common Stock.

ARTHUR ANDERSEN LLP
March 4, 1997