APPLE ORTHODONTIX INC, S-1/A, 1997-05-14

APPLE ORTHODONTIX INC
S-1/A, 1997-05-14
HEALTH SERVICES

Previous: OVM INTERNATIONAL HOLDING CORP, SB-2, 1997-05-14

Next: POLAND COMMUNICATIONS INC, 424B3, 1997-05-14

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1997
REGISTRATION NO. 333-22785

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

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

AMENDMENT NO. 4
TO

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

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

<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 8021 74-2795193
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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

<TABLE>
<CAPTION>
<S> <C>
MICHAEL W. HARLAN
APPLE ORTHODONTIX, INC. APPLE ORTHODONTIX, INC.
ONE WEST LOOP SOUTH, SUITE 100 ONE WEST LOOP SOUTH, SUITE 100
HOUSTON, TEXAS 77027 HOUSTON, TEXAS 77027
(713) 964-6882 (713) 964-6882
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
OFFICES)
</TABLE>
------------------------

COPIES TO:

RICHARD S. ROTH TED W. PARIS
JACKSON & WALKER, L.L.P. BAKER & BOTTS, L.L.P.
1100 LOUISIANA 3000 ONE SHELL PLAZA
SUITE 4200 910 LOUISIANA
HOUSTON, TEXAS 77002 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. [ ]

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

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 MAY 14, 1997

PROSPECTUS

2,350,000 SHARES

[LOGO -- APPLE ORTHODONTIX, INC.]

CLASS A COMMON STOCK

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

All of the 2,350,000 shares of Class A Common Stock ("Common Stock")
offered hereby are being sold by Apple Orthodontix, Inc. ("Apple"). 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 $8.00
and $9.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The 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 Common Stock has been approved
for listing on the American Stock Exchange under the symbol "AOI," subject to
notice of issuance.
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 8.

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

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.

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

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated at $5,500,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 352,500 additional shares of Class A Common Stock, on the same terms and
conditions as set forth above, 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 of Common Stock are being offered severally by the Underwriters,
subject to prior sale, when, as and if accepted by the Underwriters and subject
to conditions, including their right to reject orders, in whole or in part. It
is expected that delivery of the shares will be made at the offices of Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, on or about
, 1997.
------------------------

BEAR, STEARNS & CO. INC. EQUITABLE SECURITIES CORPORATION

The date of this Prospectus is , 1997
<PAGE>
[Map showing locations
of Founding Affiliated Practices]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, OTHER STABILIZING AND SHORT-COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."

2
<PAGE>
PROSPECTUS SUMMARY

CONCURRENTLY WITH THE CLOSING OF THE OFFERING, APPLE 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 CLASS A COMMON STOCK, PAR VALUE $.001 PER SHARE, OF APPLE ("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 COMMON STOCK
ISSUED IN CONNECTION WITH THE ACQUISITIONS ARE ESTIMATED, BASED ON AN ASSUMED
INITIAL PUBLIC OFFERING PRICE OF $8.50 PER SHARE (THE MIDPOINT OF THE ESTIMATED
INITIAL PUBLIC OFFERING PRICE RANGE). UNLESS OTHERWISE INDICATED BY THE CONTEXT,
REFERENCES HEREIN TO (I) "APPLE" OR THE "COMPANY" MEAN APPLE ORTHODONTIX,
INC., (II) "AFFILIATED PRACTICES" MEAN THE FOUNDING AFFILIATED PRACTICES AND
ANY ORTHODONTIC PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO SIMILAR
RELATIONSHIPS IN THE FUTURE, (III) "NEW CASE STARTS" MEAN THE NUMBER OF NEW
PATIENTS BEGINNING TREATMENT DURING A PERIOD OF TIME AND (IV) "CASE ACCEPTANCE
RATE" MEAN, FOR ANY SPECIFIED PERIOD OF TIME, THE PERCENTAGE OF POTENTIAL
PATIENTS WHO UNDERGO AN INITIAL EXAMINATION AT AN ORTHODONTIC PRACTICE WHO IN
FACT ELECT TO BEGIN TREATMENT WITH SUCH EXAMINING ORTHODONTIST.

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 IN
THIS PROSPECTUS (I) GIVES EFFECT TO THE ACQUISITIONS, (II) ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (III) GIVES EFFECT TO A
STOCK SPLIT OF THE OUTSTANDING SHARES OF CLASS B COMMON STOCK, PAR VALUE $.001
PER SHARE ("CLASS B STOCK").

THE COMPANY

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 the acquisition of
additional Affiliated Practices and the development of satellite offices that
complement geographic areas served by existing and future Affiliated Practices.
The Company will earn revenue by providing management, administrative,
development and other services to Affiliated Practices.

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 58 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. For the year ended December
31, 1996, the Founding Affiliated Practices had median patient revenues per
practice of approximately $700,000 and average (mean) patient revenues per
practice of approximately $800,000.

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 existing public
practice management company specializing in orthodontics. The industry currently
generates approximately $3.5 billion in annual gross revenues, which have grown
steadily at an average rate

3
<PAGE>
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.

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 practice-building and external marketing programs designed to
generate new patient starts through increased referrals from existing 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 improve their communications with patients and potential patients
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, which
management believes places it among the largest sole-practitioner orthodontic
practices in the United States. Among the factors contributing to this growth
have been the Company's practice-building program (consisting of a complete
training and operating program designed to maximize patient satisfaction levels,
generate referrals from existing and former patients and increase case
acceptance rates) and external marketing efforts, including television
advertising focusing on affordable payment programs offered by that practice.
This prototype practice had a case acceptance rate of approximately 71% in 1996.
Management believes that the results of this practice demonstrate the
effectiveness of the Company's operating strategy. In July 1996, Dr. Vondrak
delegated the operating responsibilities of this practice to a newly hired
orthodontist who recently completed her education, so that he could 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 a comparable
number of case starts based on a comparison of the six-month period ended
December 31, 1996 to the corresponding period in the prior year.

The Company also intends to pursue an aggressive expansion program designed
to strengthen its position in its current 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. 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.

4
<PAGE>
THE OFFERING

Common Stock offered by the
Company............................ 2,350,000 shares

Common Stock to be outstanding after
the Offering....................... 5,375,634 shares(1)

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

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

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 (excluding
dispositions to such holder's
affiliates), (ii) in the event any person
not affiliated with Apple acquires
beneficial ownership of 15% or more of
the outstanding shares of capital stock
of the Company, (iii) in the event any
person not affiliated with Apple 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 a majority of the outstanding
shares of Common Stock 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 as of
the date of this Prospectus have
previously been converted into shares of
Common Stock.

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 general corporate
purposes, which are expected to include
future acquisitions, the development of
satellite offices and future capital
expenditures. See "Use of Proceeds."

Proposed American Stock Exchange
symbol............................... AOI

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

(1) Includes 3,025,634 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 $2.6 million 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 760,000 shares of Common Stock issuable upon
exercise of stock options outstanding at a weighted average exercise price
of $8.36 per share under Apple's 1996 Stock Option Plan (the "1996 Stock
Option Plan"), (iii) approximately 240,000 shares reserved for

5
<PAGE>
future issuance under the 1996 Stock Option Plan and (iv) approximately
324,280 shares of Common Stock issuable upon the exercise of a warrant
issued to an affiliate of TriCap, with an exercise price per share equal to
the price to public per share set forth on the cover page of this
Prospectus, which warrant provides that the number of underlying shares will
be determined based upon the initial public offering price per share. 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 $8.50 per share. For
example, an aggregate of 5,207,543 shares of Common Stock would be
outstanding if that price is $9.00 while an aggregate of 5,564,734 shares of
Common Stock would be outstanding if that price is $8.00. See
"Management -- 1996 Stock Option Plan."

EXCEPT WHERE OTHERWISE SPECIFIED, 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 NEITHER
THAT INFORMATION NOR ANY OTHER INDUSTRY INFORMATION SET FORTH IN THIS PROSPECTUS
INCLUDES GENERAL DENTISTS WHO ALSO PERFORM ORTHODONTIC SERVICES.

6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS)

The following information is derived from the audited financial statements
of Apple included elsewhere in this Prospectus. Except as otherwise indicated,
this information does not reflect the effects of the Acquisitions or the
Offering. For certain information concerning the Founding Affiliated Practices,
see Note 6 of Notes to Financial Statements.

YEAR ENDED
DECEMBER 31, 1996
-----------------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ --
Costs and expenses:
Salaries, wages and benefits.... 627
Rent............................ 20
Depreciation and amortization... 5
General and administrative
expenses....................... 232
Special compensation expense
related to issuance of stock... 20,581
Special consulting expense
related to issuance of stock... 14,323
-----------------
Total costs and expenses........ 35,788
-----------------
Income (loss) before income taxes.... (35,788)
Provision for income taxes........... --
-----------------
Net income (loss).................... $ (35,788)
=================

DECEMBER 31, 1996
-------------------------------
HISTORICAL AS ADJUSTED(1)
------------- --------------
BALANCE SHEET DATA:
Working capital...................... $(2,324) $ 5,651
Total assets......................... 1,461 10,912
Long-term debt and capital lease
obligations, net of current
portion............................ -- 412
Class B common stock subject to put
option............................. 6,156 6,156
Stockholders' equity................. (7,040) 1,646

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

(1) As adjusted to give effect to the Acquisitions and the Offering.

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). The Founding Affiliated Practices have operated 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 or profitably these operations and successfully implement
the Company's operating or expansion strategies. Failure by the Company to
successfully implement its operating and expansion strategies would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Business Strategy" and "-- Service
Agreements."

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. The profitability of
the Affiliated Practices, 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 will have 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. The ability of the Affiliated Practices to replace
existing orthodontists by attracting new orthodontists may be constrained by the
limited number of new orthodontists completing post-graduate orthodontic
programs each year. Failure by the Affiliated Practices to employ a sufficient
number of orthodontists (whether by renewals of existing employment agreements
or otherwise) would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Industry" and
"-- 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, (ii) affiliate with acceptable
Affiliated Practices on favorable terms, (iii) adapt the Company's structure to

8
<PAGE>
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 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. 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.
Furthermore, using shares of Common Stock as consideration for (or in order to
provide financing for) future acquisitions could result in significant dilution
to then-existing stockholders. In addition, future acquisitions accounted for as
purchases may result in substantial annual noncash amortization charges for
intangible assets in the Company's statements of operations. See
" -- Competition," " -- Substantial Dilution and Absence of Dividends,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Business Strategy."

NEED FOR ADDITIONAL FINANCING

The Company's expansion strategy 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. In addition, the Affiliated
Practices may from time to time require capital for renovation and expansion and
for the addition of equipment and technology. The Service Agreements provide for
advances by the Company to the Founding Affiliated Practices for working capital
requirements (including any deficits in cash flows of Founding Affiliated
Practices resulting from, among other things, development of satellite offices)
and other purposes. Such loans will generally bear interest at prime plus one
percent and will be repayable over varying periods of time not to exceed five
years. The proceeds from the Offering will not be sufficient to fund the
Company's planned acquisition program. The extent to which the Company will be
able or willing to use shares of Common Stock to consummate acquisitions or
provide future financing will depend on its market value from time to time and,
in the case of acquisitions, the willingness of owners of potential Affiliated
Practices to accept Common Stock as full or partial payment of acquisition
consideration. Using shares of Common Stock for these purposes may result in
significant dilution to then-existing stockholders. The Company will 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's business, financial condition and
results of operations. See " -- Substantial Dilution and Absence of Dividends"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- 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 for the acquisition of his practice. 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 in connection with the Offering and (ii) approximately
$500,000 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

9
<PAGE>
Partners. The Company has used $230,000 of the funds advanced to it by TriCap to
reimburse John G. Vondrak Apple Orthodontix, Inc., one of the Founding
Affiliated Practices ("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"

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.

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. Pursuant to the agreements entered into in connection with the
Acquisitions, Apple will neither acquire any professional assets nor employ any
orthodontists who will provide orthodontic services at any of the Founding
Affiliated Practices' locations. 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. There can be no
assurance 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.

EXTENT OF PROTECTION OF PROPRIETARY RIGHTS

Apple relies in part on trademark, service mark, trade dress, trade secret,
unfair competition and copyright laws to protect its intellectual property
rights. There can be no assurance that the actions that have been taken by the
Company will be adequate to protect its intellectual property rights from
misappropriation by others, that the Company's proprietary information will not
become known to competitors, that others will not independently develop
substantially equivalent or better intellectual properties that do not infringe
on the Company's intellectual property rights or that others will not assert
rights in, and ownership of, proprietary rights of the Company. Furthermore, the
Company's rights to its "APPLE ORTHODONTIX" common law service mark may be
limited in market areas where a similar trademark or service mark may already be
in use. The Company has not applied for or obtained any registrations of its
trademarks or service marks. The Company is aware of several other businesses
that utilize an "APPLE" service mark in connection with the provision of
general dental services, some of which have obtained federal or state trademark
registrations. The Company is aware of only one other orthodontic practice in
the United States that utilizes a service mark similar to the Company's, and
that practice is not located in a market where any of the Founding Affiliated
Practices' offices are located.

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS; POTENTIAL CONFLICTS OF INTEREST

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

10
<PAGE>
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 (or an aggregate of approximately 91.0%) and
4.6%, 7.9% and none, respectively, of the outstanding shares of Common Stock (or
an aggregate of approximately 12.1%). These persons, if acting in concert, will
be able to exercise significant influence 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." The Company's Chairman of the Board and Chief Executive Officer,
John G. Vondrak, D.D.S., is the sole shareholder of JGVAOI and will be a party
to a Service Agreement with the Company. In connection with the provision of
management services by the Company to the Affiliated Practice owned by Dr.
Vondrak, there are potential conflicts of interest that may arise from time to
time in connection with negotiating terms of working capital loans from the
Company to that practice, if any, and certain other arrangements under the
Service Agreement.

DEPENDENCE ON KEY PERSONNEL

The Company's future performance depends in significant part on the
continued service of its senior management, including John G. Vondrak, D.D.S.
and other key personnel, including LeeAnn Peniche. There can be no assurance
that Dr. Vondrak, the Company's senior management and other key employees will
continue to work for the Company. Loss of services of those employees could have
a material adverse effect on the Company's business, results of operations and
financial condition. The success of the Company's growth strategy will also
depend on the Company's ability to attract and retain additional high quality
personnel. See "Business -- Employees" 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). Certain of these competitors
have greater financial and other resources than the Company (including more
established trading histories for their shares of common stock, which may be
used as currency in making acquisitions). 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 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,
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; ADEQUACY OF INSURANCE COVERAGE

The Affiliated Practices provide orthodontic services to the public and are
exposed to the risks 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. The Founding Affiliated
Practices have agreed to maintain comprehensive professional liability
insurance, generally with

11
<PAGE>
limits of not less than $1.0 million per claim and with aggregate policy limits
of not less than $3.0 million per orthodontist and, in the event a Founding
Affiliated Practice employs more than one orthodontist, that Founding Affiliated
Practices will maintain such insurance with a separate limit for claims against
that Founding Affiliated Practice in an amount acceptable to Apple. 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 JGVAOI 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 Apple 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,
based on the advice of legal counsel, the Company believes are without merit.
See "Business -- Litigation and Insurance."

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, 3,025,634 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 7,132,486
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 3,025,634 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 one-year period
following the Offering, 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. Substantially all of the outstanding shares of Class B Stock will become
eligible for resale pursuant to Rule 144 in October 1997, although such shares
will remain subject to a contractual resale restriction during the 180-day
period described in the following paragraph.

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 Bear, Stearns & Co. Inc., except that the Company may
issue, subject to certain conditions, Common Stock in connection with
acquisitions and awards under the 1996 Stock Option Plan.

Following completion of the Offering, the Company intends to register the
issuance of an additional 2,000,000 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 the agreements entered into in connection with its future
acquisitions will contractually restrict the resale of all or a portion of the
shares issued in those transactions for varying periods of time.

12
<PAGE>
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 760,000 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.
The factors considered in making such determination will include the prevailing
market conditions, the financial condition and operating history of the Company
and the Affiliated Practices, their prospects and the prospects for the
orthodontic services industry in general, the management of the Company and the
market price of securities for companies in businesses similar to that of the
Company. The securities markets have, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. These fluctuations often substantially affect the
market price of a company's common stock. The market prices for securities of
physician practice management companies have in the past been, and can in the
future be expected to be, particularly volatile. The market price of the Common
Stock may be subject to volatility from quarter to quarter depending on
announcements regarding the Affiliated Practices and their ability to open new
satellite offices, acquisitions by the Company or its competitors, government
relations, developments or disputes concerning proprietary rights, changes in
reimbursement levels, changes in health care policy in the United States and
internationally, the issuance of stock market analyst reports and
recommendations, and economic and other external factors, as well as operating
results of the Company and fluctuations in the Company's financial results. See
"-- Fluctuations in Operating Results" and "Underwriting."

FLUCTUATIONS IN OPERATING RESULTS

The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year. Results may fluctuate due to a number of
factors, including the timing of future acquisitions and satellite office
openings, seasonal fluctuations in the demand for orthodontic services and
competitive factors. Accordingly, quarterly comparisons of the Company's
revenues and operating results should not be relied on as an indication of
future performance, and the results of any quarterly period may not be
indicative of results to be expected for a full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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, provides for a "staggered"
Board of Directors and provides that stockholders may act only at an annual or
special meeting of stockholders and may not act by written consent. 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."

13
<PAGE>
SUBSTANTIAL DILUTION AND ABSENCE OF DIVIDENDS

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 $8.37 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. The Company has never paid any cash dividends and does
not anticipate paying cash dividends on its Common Stock or Class B Stock in the
foreseeable future. See "Dividend Policy."

14
<PAGE>
THE COMPANY

USE OF PROCEEDS

The gross proceeds from the sale of the shares of Common Stock offered
hereby are estimated to be approximately $20.0 million (approximately $23.0
million if the Underwriters' over-allotment option is exercised in full). 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 (excluding 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 $16.1 million
(approximately $18.9 million if the Underwriters' over-allotment option is
exercised in full).

Of the $16.1 million of net proceeds, the Company intends to use (i)
approximately $6.4 million to pay the cash portion of the consideration for the
Acquisitions, (ii) approximately $2.6 million to repay TriCap amounts
outstanding under the Convertible Notes and approximately $400,000 to reimburse
TriCap for expenses incurred by TriCap on behalf of Apple, and (iii) $500,000 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 $2.6 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 with respect to 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.

15
<PAGE>
DILUTION

The net tangible book value of the Company as of December 31, 1996 was
$(1.73) per share. Pro forma net tangible book value after giving effect to the
Acquisitions would have been $(1.59) per share as 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 Acquisitions, but before the
Offering. After giving effect to (i) the Acquisitions and (ii) the sale by the
Company of an estimated 2,350,000 shares of Common Stock offered at an assumed
price of $8.50 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 $0.13 per
share. This represents an immediate increase in the net tangible book value of
$1.72 per share to existing stockholders and an immediate dilution to new
investors purchasing Common Stock in the Offering of $8.37 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)......................... $ 8.50
Historical net tangible book
value.......................... $ (1.73)
Increase due to Acquisitions,
but before the Offering........ 0.14
Increase attributable to new
investors...................... 1.72
---------
Pro forma net tangible book
value per share after the
Offering....................... 0.13
---------
Dilution per share to initial public
offering investors................... $ 8.37
=========

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

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 $8.50 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 and
Class B 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>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)............. 7,132,486 75.2% $(10,931,000) (120.9)% $(1.53)
New investors........................ 2,350,000 24.8 19,975,000 220.9 8.50
--------- ------- ------------ -------
Total........................... 9,482,486 100.0% $ 9,044,000 100.0%
========= ======= ============ =======
</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."

16
<PAGE>
CAPITALIZATION

The following table sets forth the short-term debt and the capitalization
of the Company at December 31, 1996 and as adjusted to reflect (i) the
Acquisitions and (ii) the sale of 2,350,000 shares of Common Stock offered
hereby (assuming an offering price of $8.50 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
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Short-term debt and capital lease
obligations:
Current portion of long-term
debt and capital lease
obligations(1)................. $ 515 $ 636
---------- -----------
Total short-term debt and
capital lease obligations...... $ 515 $ 636
========== ===========
Long-term debt and capital lease
obligations:
Long-term debt and capital lease
obligations, net of current
portion(1)..................... $ -- $ 412
Class B Common Stock subject to a put
option, $0.001 par value,
724,267 shares issued and
outstanding, includes related
additional paid-in capital of
$6,155,545......................... 6,156 6,156
Stockholders' equity (deficit):
Class A Common Stock, $0.001 par
value, 25,000,000 shares
authorized; 5,375,634 shares
issued and outstanding as
adjusted(2).................... -- 5
Class B Common Stock, $0.001 par
value, 4,106,852 shares
authorized; 3,382,585 shares
issued and outstanding as
adjusted....................... 3 3
Warrant to purchase
approximately 324,280 shares at
the initial offering price to
the public per share, assuming
a price of $8.50............... -- 1,700
Additional paid-in capital(3)... 28,745 35,726
Retained earnings (deficit)..... (35,788) (35,788)
---------- -----------
Total stockholders' equity
(deficit)............... (7,040) 1,646
---------- -----------
Total capitalization....... $ (884) $ 8,214
========== ===========

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

(1) Includes the current and long-term portions, respectively, of capital lease
obligations of the Founding Affiliated Practices to be assumed by the
Company.

(2) 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), (ii) approximately 760,000 shares of Common
Stock subject to options granted pursuant to the 1996 Stock Option Plan and
(iii) approximately 324,280 shares of Common Stock issuable upon the
exercise of a warrant issued to TriCap Partners, with an exercise price per
share equal to the price to public per share set forth on the cover page of
this Prospectus, which warrant provides that the number of underlying shares
will be determined based upon the initial public offering price per share.
See "Management -- 1996 Stock Option Plan."

(3) Reflects the effects of the Offering and Acquisitions. The Offering will
result in estimated net proceeds of $16.1 million, which will be used to
repay approximately $2.6 million outstanding under the Convertible Notes
issued to TriCap, to reimburse approximately $400,000 of expenses incurred
by TriCap on behalf of Apple, to reflect the issuance to TriCap Partners of
a warrant with an estimated value of $1.7 million and to make a $500,000
cash payment to TriCap Partners upon completion of the Offering. The effect
of the Acquisitions on additional paid-in capital is equal to the aggregate
book value of the assets to be acquired from the Founding Affiliated
Practices, net of the aggregate liabilities to be assumed (including
$100,000 of certain indebtedness to be assumed by the Company), of $2.5
million, less the aggregate cash payments of $6.4 million to be made as part
of the consideration for the Acquisitions.

17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information is derived from the audited financial statements
of Apple included elsewhere in this Prospectus. This information does not
reflect the effect of the Acquisitions or the Offering.

DECEMBER 31, 1996
-----------------
BALANCE SHEET DATA:
Working capital...................... $(2,324)
Total assets......................... 1,461
Long-term debt and capital lease
obligations, net of current
portion............................ --
Class B Common Stock subject to put
option............................. 6,156
Stockholders' equity................. (7,040)

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE HISTORICAL RESULTS
SET FORTH IN THIS DISCUSSION AND ANALYSIS ARE NOT INDICATIVE OF TRENDS WITH
RESPECT TO ANY ACTUAL OR PROJECTED FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED 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. The Company expects that its future growth will come from
(i) implementing a comprehensive operating strategy designed to drive internal
growth of the Affiliated Practices and (ii) entering into Service Agreements
with new Affiliated Practices and developing new orthodontic centers (including
satellite offices) with existing and future Affiliated Practices.

Through its 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. Except with respect to two Service
Agreements providing for the payment of flat fees, 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 ("Alternative Contract").
The Standard Contract calls for a calculation of the monthly service fee based
on the total revenues earned by the Founding Affiliated Practices, 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 practices retain 31.5% of the Founding Affiliated Practices' 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 practices on a monthly basis. In particular, the Standard
Contract provides that, in the event a Founding Affiliated Practice's expenses
are less than 55% of its cash collections, the amount of cash collections
retained by the practice will increase by up to 7%.

The Alternative Contract will be used 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 Founding
Affilated Practice plus 13.5% of revenues. The Company believes the fees to be
generated by each of these formulas will be reflective of the fair market value
of the services provided and will be comparable to the fees earned by other
management service companies in the respective jurisdictions where these
arrangements will exist. In addition, with respect to two of the Founding
Affiliated Practices, the service fees will be based on flat fees that are
subject to adjustment on an annual basis. See "Business -- Service
Agreements."

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.

In accordance with Staff Accounting Bulletin ("SAB") No. 48, "Transfers
of Nonmonetary Assets by Promoters or Shareholders," published by the
Securities and Exchange Commission (the "Commission"), 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, with

19
<PAGE>
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. SAB No. 48 will not be applicable
to any acquisitions made by the Company subsequent to the Offering. It is
currently anticipated that the Company's future acquisitions of certain of the
assets and liabilities of Affiliated Practices may result in substantial annual
noncash amortization charges for intangible assets in the Company's statements
of operations.

RESULTS OF OPERATIONS

The Company has conducted no significant operations to date and will not
conduct significant operations until the Acquisitions and the Offering are
completed. As discussed in Notes 1 and 2 in the accompanying financial
statements, the shares issued in October and December 1996 have been valued at
the assumed offering price. Special compensation and consulting expense related
to issuance of stock has been recorded for the difference between the amount
paid for the stock and the estimated offering price of $8.50 per share. General
and administrative expenses were incurred during the year ended December 31,
1996 in connection with this Offering. 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, $2.6 million of
which is being funded through the issuance of Convertible Notes to TriCap and
$0.4 million of which is being funded by other advances from TriCap. The
Convertible Notes are expected to be repaid from the proceeds of the Offering.
See "Use of Proceeds."

LIQUIDITY AND CAPITAL RESOURCES

A part of the Company's business strategy is to encourage Affilated
Practices to offer more affordable payment plans to patients. The Company does
not expect the affordable payment plans, or any potential increase in bad debt
expense resulting from these plans, to have any significant negative impact on
the working capital or liquidity of the Affiliated Practices. Moreover, the
Company believes the Founding Affiliated Practices have the financial
wherewithal to sustain any negative impact that may result from these payment
plans. Therefore, Apple does not anticipate that the offering by the Affiliated
Practices of more affordable payment plans will impair the Company's ability to
collect management service revenues from the Affiliated Practices. See
"Business -- Services and Operations -- Affordable Payment Plans."

The Company anticipates making routine capital expenditures for the
Founding Affiliated Practices during the remainder of 1997 of approximately $2.0
million to fund, among other things, the development of satellite offices. 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 Service Agreements provide for advances by the Company
to the Founding Affiliated Practices for working capital requirements (including
any deficits in cash flows of Founding Affiliated Practices resulting from,
among other things, development of satellite offices) and other purposes. Such
loans will generally bear interest at prime plus one percent and will be
repayable over varying periods of time not to exceed five years. 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.

The available proceeds from the Offering, after deducting specified uses of
proceeds, are estimated to be $6.2 million. 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 1998. The Company is also seeking
to establish a revolving bank credit facility and intends to register two
million additional shares of Common Stock which, when combined with the
Company's cash resources, will be used in the Company's planned acquisition
program. Following completion of the Acquisitions, the Company anticipates
refinancing approximately $1.0 million of indebtedness of certain Founding
Affiliated Practices.

20
<PAGE>
BUSINESS

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 the acquisition of
additional Affiliated Practices and the development of satellite offices that
complement existing geographic areas served by existing and future Affiliated
Practices. The Company will earn revenue by providing management,
administrative, development and other services to Affiliated Practices.

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
aggregate consideration that will be paid by Apple to acquire the Founding
Affiliated Practices consists of (i) approximately $6.4 million in cash and (ii)
3,025,634 shares of Common Stock.

The Founding Affiliated Practices include 31 orthodontists and 58 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. The Founding Affiliated
Practices were selected by Apple based on its management's extensive experience
with orthodontic practices in the United States and Canada. Of the 31 Founding
Affiliated Practices, nine are corporations (of which the orthodontist is a
stockholder and employee), 16 are professional corporations or professional
associations (of which the orthodontist is a stockholder and employee) and six
are sole proprietorships (owned and operated by the orthodontist). In connection
with the Acquisitions, each Founding Affiliated Practice has agreed to operate
through a professional corporation, which will employ, and will be owned by, the
orthodontist or orthodontists affiliated with such Founding Affiliated Practice.
For the year ended December 31, 1996, the Founding Affiliated Practices had
revenues ranging from approximately $200,000 to $1.9 million and had average
patient revenues of approximately $800,000. See "-- Summary of Terms of
Acquisitions."

INDUSTRY

INDUSTRY OVERVIEW. 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
existing public practice management company specializing in orthodontics. The
industry currently generates approximately $3.5 billion in annual gross
revenues, which have grown steadily at an average rate of 7.5% per year in
recent years. 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
involve 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 two years of post-graduate studies following graduation from dental
school. The number of orthodontists in the United States has grown slowly since
1990, which management believes can be attributed to the limited number of
schools offering post-graduate orthodontic programs and the small class size at
each of those schools. In

21
<PAGE>
addition to orthodontists, a number of dentists provide various orthodontic
services. The industry information set forth in this Prospectus 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>

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 and
involved a statistical sample of approximately 3,700 children in Florida,
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 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.

THE TRADITIONAL ORTHODONTIC PRACTICE. The traditional orthodontic practice
typically involves a single orthodontist, practicing at one primary location or
with an average of less than one satellite office, with a small number of
orthodontic assistants and business office personnel and, in some cases, an
orthodontic associate. According to the 1995 JCO Study, the average orthodontist
initiated treatment of 170 new patients in 1994 and maintained approximately 380
active patients. In addition, the 1995 JCO Study reports that only 1.3% of
orthodontists use television advertising to promote their practices. In the
traditional practice, the orthodontist manages all business aspects of the
practice. The use of third-party management services is not typical.

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 40% 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 380 per practice,
respectively, and the median case acceptance rate was 60%. Individual practices
on average generated over one-half of their referrals from dentists and less
than 7% of the practices utilized commercial advertising as a referral source.
Orthodontists believed they had the ability to increase case starts by 30%, yet
the median case starts have not increased significantly since 1981, the first
year of data presented in the study.

THE APPLE ORTHODONTIX APPROACH

The Company believes the traditional orthodontic practice is inefficient
and administratively burdensome to orthodontists, and can be financially
burdensome to patients, who traditionally pay approximately 25% of the total
contract amount as a down payment ($875 when applied to the average fee per case
in 1994, according to the 1995 JCO Study). The Company has developed a
comprehensive operating strategy designed to improve efficiency, increase the
number of new case starts and active cases handled by each orthodontist and
relieve orthodontists associated with Affiliated Practices of time-consuming
administrative responsibilities. As part of its operating strategy, the Company
will assist its Affiliated Practices in developing satellite offices to expand
the scope of the geographic areas they serve. The Company will also assist
Affiliated Practices in developing and implementing payment programs designed to
make orthodontic services more affordable to prospective patients, thereby
making their services available to a larger segment of the population in their
respective markets.

22
<PAGE>
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, which
management believes places it among the largest sole-practitioner orthodontic
practices in the United States. Among the factors contributing to this growth
have been the Company's practice-building program (consisting of a complete
training and operating program emphasizing clear, concise and consistent
communications to existing and prospective patients in order to maximize
satisfaction levels, generate referrals and increase new case acceptance rates)
and external marketing efforts, including television advertising focusing on
affordable payment plans offered by that practice. This prototype practice had a
case acceptance rate of approximately 71% in 1996.

The Company believes its approach provides unique benefits to orthodontists
who choose to affiliate with it by providing opportunities for the orthodontist
to: (i) drive internal growth by implementing the Company's operating strategy;
(ii) share in the increased profitability resulting from internal growth; (iii)
lower costs through economies of scale; (iv) participate in a cost-effective
national advertising program; (v) focus on patient care; and (vi) enhance
liquidity and diversification.

BUSINESS STRATEGY

OPERATING STRATEGY. The primary elements of the Company's operating
strategy are (i) implementing practice-building and external marketing programs
designed to generate new patient starts through increased referrals from
existing 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 improve their communications with patients and
potential patients 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. However, operating results at each Affiliated Practice will be largely
dependent upon the skills and personality of the orthodontists employed by that
Affiliated Practice.

Management believes that the results of the prototype practice owned by Dr.
Vondrak demonstrate the effectiveness of the Company's operating strategy. In
July 1996, Dr. Vondrak delegated the operating responsibilities of this practice
to a newly hired orthodontist who recently completed her education, so that he
could 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 a comparable number of case starts based on a comparison of the
six-month period ended December 31, 1996 to the corresponding period in the
prior year.

Over time, the Company plans to implement a regional management structure
aligned with the locations of its Affiliated Practices. Management believes a
regional structure will allow it to respond to the management and operational
issues within a particular region in a more timely and focused manner. In
addition, a regional structure will allow management to compare the operating
results of its Affiliated Practices to regularly published regional industry
statistics.

EXPANSION STRATEGY. The Company intends to pursue an aggressive expansion
strategy designed to strengthen its position in its current 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.

23
<PAGE>
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.

As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The Company intends to
register two million additional shares of Common Stock under the Securities Act
subsequent to completion of the Offering for use in connection with future
acquisitions. These shares will generally be freely tradeable by non-affiliates
after their issuance, unless the sale thereof is contractually restricted. The
Company anticipates that the agreements entered into in connection with its
future acquisitions will contractually restrict the resale of all or a portion
of the shares issued in those transactions for varying periods of time.

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.

PRACTICE-BUILDING PROGRAM. Management believes patient satisfaction
levels, practice productivity and profitability can be substantially enhanced
through a consistent training program emphasizing practice-building techniques.
The Company will implement programs designed to generate growth in case starts
by increasing (i) referrals from existing and former patients and (ii) case
acceptance rates. 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. 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. 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 of Affiliated Practices.

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

24
<PAGE>
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 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, which the Company believes is significantly higher than the industry
average for traditional orthodontic practices. 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
thirty-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.

AFFORDABLE PAYMENT PLANS. 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 the Affiliated
Practices 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. Those Affiliated Practices
that offer the affordable payment plans will experience an initial decrease in
working capital. However, the Company believes the decrease in working capital
caused by the change in payment plans will be offset by an increase in the
number of patients receiving orthodontic treatment due to the combined effect of
advertising, offering more affordable payment plans and the use of its
practice-building program. 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 be staffed either 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

25
<PAGE>
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 for
addressing questions and concerns of prospective and existing patients,
techniques 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. These systems are
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 problem areas and
opportunities for improvement and advise on corrective action in a timely
manner. Productivity measures to be monitored will include case acceptance
rates, treatment times 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, 12 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.............................. 6 2
California........................... 10 7
Colorado............................. 10 5
Connecticut.......................... 5 3
Illinois............................. 3 1
Montana.............................. 3 1
Nevada............................... 1 1
New Mexico........................... 2 1
New York............................. 2 1
Pennsylvania......................... 4 2
Texas................................ 8 4
Utah................................. 1 1
Virginia............................. 2 1
Canada............................... 1 1
--
-------
Totals..................... 58 31
======= ==

In some metropolitan areas, the Company has and may seek to affiliate with
more than one Affiliated Practice in order to maximize advertising efficiencies.

26
<PAGE>
SUMMARY OF TERMS OF ACQUISITIONS

The aggregate consideration that will be paid by Apple to acquire the
Founding Affiliated Practices consists of (i) approximately $6.4 million in cash
and (ii) 3,025,634 shares of Common Stock. The Company will also assume certain
indebtedness of the Founding Affiliated Practices of approximately $100,000.
Apple will acquire substantially all the assets necessary to operate the
business of each of the Founding Affiliated Practices, except as limited by
applicable restrictions on the corporate practice of dentistry. See Note 6 to
the Notes to Financial Statements and " -- Government Regulation."

The consideration being paid by Apple for each Founding Affiliated Practice
was determined by arm's-length negotiations between Apple and a representative
of that Founding Affiliated Practice. Apple used the same valuation method to
negotiate the consideration being paid to each of the Founding Affiliated
Practices, including the practice wholly owned by Dr. Vondrak, which method was
based upon the Founding Affiliated Practice's gross revenue, growth potential
and newly acquired satellite offices or equipment.

In connection with the acquisition agreements relating to four of the
Founding Affiliated Practices, the Company agreed to indemnify the owners of
those practices against possible assertions against those owners by federal or
applicable state income tax authorities with respect to certain tax liabilities
arising as a result of the Acquisitions of those practices. Based on appraisals
and other analyses obtained or completed by the Company with respect to those
practices, the Company does not believe that any such indemnification
obligations will be material.

The closing of each Acquisition is subject to customary conditions. These
conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties made by the Founding
Affiliated Practices and their stockholders and by the Company; the performance
of each of their respective covenants included in the agreements relating to the
Acquisitions; and the nonexistence of a material adverse change in the results
of operations, financial condition or business of each Founding Affiliated
Practice.

Any Founding Affiliated Practice's acquisition agreement may be terminated,
under certain circumstances, prior to the closing of the Offering: (i) by the
mutual consent of Apple and the Founding Affiliated Practice; (ii) if the
Offering and the acquisition of that Founding Affiliated Practice are not closed
by December 31, 1997; (iii) by the Founding Affiliated Practice or Apple if a
material breach or default is made by the other party in the observance or in
the due and timely performance of any of the covenants, agreements or conditions
contained in the acquisition agreement; or (iv) by Apple if the Founding
Affiliated Practice breaks its continuing obligation to promptly provide Apple
with specified supplemental information.

SERVICE AGREEMENTS

Upon consummation of the Acquisitions, the Company will enter into a
Service Agreement with each Founding Affiliated Practice and its orthodontist
employees 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.

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 arm's-length negotiations, for the nature
and amount of services provided. Except with respect to Service Agreements
providing for the payment of flat fees, the Service Fees earned by the Company
will be in accordance with the Company's two general types of Service
Agreements. The Standard Contract calls for a calculation of the monthly Service
Fee based on the total revenues earned by the Founding Affiliated Practices,
which is

27
<PAGE>

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 practices retain 31.5% of the Founding Affiliated Practices' 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 practices on a monthly basis. The Alternative Contract will be
used 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 Founding Affiliated Practice plus 13.5% of
revenues. The Company believes the fees to be generated by each of these
formulas will be reflective of the fair market value of the service provided and
will be comparable to the fees earned by other management service companies in
the respective jurisdictions where these arrangements will exist. In addition,
with respect to two of the Founding Affiliated Practices, the service fees will
be based on flat fees at levels negotiated between the Company and the
applicable Founding Affiliated Practice and are subject to adjustment on an
annual basis. The Company and the Founding Affiliated Practices have selected
the type of Service Fee in each jurisdiction based on (i) the historical
arrangements utilized by medical and dental professionals in that jurisdiction
to contract for management services and (ii) applicable regulations in that
jurisdiction governing medical and dental professionals. There can be no
assurance, however, that the Service Fee used in a particular jurisdiction will
comply with such regulations. 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, advertising programs.

Under each Service Agreement, the applicable 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. A Service
Agreement may be terminated by either party thereto if the other party (i) files
a petition in bankruptcy or other similar events occur or (ii) defaults in 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. Each orthodontist that is a
party to a Service Agreement may generally terminate his obligations thereunder
on the fifth anniversary of the date he entered into the Service Agreement.
Certain of the Service Agreements also provide that they may be terminated by
the

28
<PAGE>
applicable Founding Affiliated Practice if any governmental authority imposes
retrictions on the ability of any orthodontist employee to practice orthodontics
during the term of the Agreement.

During the term of the Service Agreement and, subject to certain exceptions
and limitations, for a period of two years thereafter, the Founding Affiliated
Practice and each of its orthodontist employees 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 (with the assets being
valued for those purposes at the fair market value thereof), 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 each
orthodontist who will receive cash or Common Stock in the Acquisition of such
Founding Affiliated Practice. Substantially all 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.

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). Certain of these competitors
have greater financial and other resources than the Company (including more
established trading histories for their shares of common stock, which may be
used as currency in making acquisitions). 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 ten persons and upon
consummation of the Acquisitions, the Company expects that it will have
approximately 284 employees of which approximately 15 will be employed at the
Company's headquarters and approximately 269 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.

29
<PAGE>
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. The Founding Affiliated
Practices have agreed to maintain comprehensive professional liability
insurance, generally with limits of not less than $1.0 million per claim and
with aggregate policy limits of not less than $3.0 million per orthodontist and,
in the event a Founding Affiliated Practice employs more than one orthodontist,
the Founding Affiliated Practices will maintain such insurance with a separate
limit for claims against that Founding Affiliated Practice in an amount
acceptable to Apple. 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.

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 JGVAOI, 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). OCA's complaint states that OCA is
seeking monetary damages in excess of $75,000. The Company intends to vigorously
defend against the claims made by OCA, which the Company believes, based on
advice of counsel, 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

30
<PAGE>
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. Pursuant to the agreements entered into in connection with the
Acquisitions, Apple will neither acquire any professional assets nor employ any
orthodontists who will provide orthodontic services at any of the Founding
Affiliated Practices' locations. Although John G. Vondrak, D.D.S., the Company's
Chief Executive Officer, is the sole shareholder of JGVAOI, a Founding
Affiliated Practice, it is not contemplated that he will be providing any
orthodontic services at JGVAOI or any other Affiliated Practice. As provided in
the Service Agreements, 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. There can be no assurance 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. See "Risk Factors -- Government Regulation."

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

31
<PAGE>
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.

EXTENT OF PROTECTION OF PROPRIETARY RIGHTS

32
<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information concerning the Company's
directors, the executive officers and key employees of the Company (ages are as
of March 31, 1997):

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
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
H. Steven Walton............................... 39 Vice President of Acquisitions
W. Daniel Cook................................. 41 Chief Administrative Officer and a Director
William W. Sherrill............................ 70 Director
LeeAnn Peniche*................................ 36 Director of Training
Wm. Randol Womack, D.D.S.*..................... 58 Director of Business Development
Charles W. Sommer*............................. 32 Controller
</TABLE>
- ------------

* Key Employee

The executive officers of the Company are elected annually by the Board of
Directors of the Company and serve at the discretion of the Board.

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 JGVAOI, 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 the 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., an international
environmental services company, 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.

H. STEVEN WALTON is Vice President of Acquisitions. Mr. Walton served as
Vice President -- Government Affairs and General Counsel of Sanifill, Inc., an
international environmental services company, from June 1994 to August 1996.
Sanifill was acquired by USA Waste Services, Inc. in August 1996, and Mr. Walton
served as Vice President -- Business Development for USA Waste from August 1996
to March 1997. Before joining Sanifill, Mr. Walton was Senior Vice President and
General Counsel of Catalyst

33
<PAGE>
Energy Corporation, an independent power company, and Of Counsel to the law firm
Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Missouri.

W. DANIEL COOK has served as a director of the Company since October 1996
and as Chief Administrative Officer since February 1997. From December 1996 to
January 1997 Mr. Cook 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).

WILLIAM W. SHERRILL has served as a director of the Company since October
1996. He 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. Mr. 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.

34
<PAGE>
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 to add two additional directors, neither of whom will 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.

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

The following table sets forth the total compensation paid by the Company
during the fiscal year 1996 for its Chairman of the Board and Chief Executive
Officer.

ANNUAL
COMPENSATION
NAME SALARY
- ------------------------------------- -------------
John G. Vondrak, D.D.S. ............. $75,000(1)

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

(1) Dr. Vondrak received no cash bonus or other form of annual compensation
other than salary during 1996.

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 1997 its most highly compensated executive
officers will be Dr. Vondrak and Messrs. Syverson, Harlan, Walton and Cook (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,
$130,000, $130,000 and $120,000, respectively, and providing that they be
full-time employees of Apple. 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, and Mr. Walton is entitled to receive certain commissions upon the
consummation of future acquisitions.

In April 1997, the Company granted options to purchase 135,000 shares,
100,000 shares, 90,000 shares, 179,295 shares and 70,000 shares of Common Stock
to Dr. Vondrak, Mr. Syverson, Mr. Harlan, Mr. Walton and Mr. Cook, 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. Such
options will expire in April 2007 and will vest, with respect to all but one
option to acquire 94,295 shares granted to Mr. Walton, as to 25% of the
underlying shares on the date the Offering is consummated and with respect to
the remaining underlying shares on the next three anniversaries of such date in
25% increments. With respect to the option to acquire 94,295 shares granted to
Mr. Walton, such option vests as to 50% of the underlying shares on the date the
Offering is consummated and as to the remaining underlying shares on the first
anniversary of such date. See "-- 1996 Stock Option Plan."

35
<PAGE>
EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Dr. Vondrak and
Messrs. Syverson, Harlan, Walton and Cook. 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 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, non-employee directors, advisors and
orthodontists with practice management contracts with the Company or a
subsidiary 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 760,000 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.

36
<PAGE>
All of the Company's employees, non-employee directors, advisors and
orthodontists with practice management contracts with the Company or a
subsidiary 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 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 per share exercise price for
nonqualified options granted under the 1996 Stock Option Plan will be in the
discretion of the Committee, but may not be less than the fair market value of a
share of Common Stock on the date of grant.

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 date of exercise or within two years after the
date of grant of the option generally will result in the recognition of
long-term capital gain or loss by the optionee in an amount equal to 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 amount of 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 760,000 shares
of Common Stock under the 1996 Stock Option Plan and (ii) options to purchase
240,000 additional shares available for grant under the 1996 Stock Option Plan.

On the date the Offering closes, each nonemployee director automatically
will be granted nonqualified stock options ("NSOs") to purchase 10,000 shares
of Common Stock. In addition, on the first business day of the month following
the date on which each annual meeting of the Company's stockholders is held
(each an "Annual Director Award Date"), each nonemployee director
automatically will be granted NSOs to purchase 5,000 shares of Common Stock. Any
person who first becomes a nonemployee director after the date the Offering
closes otherwise than by election at an annual meeting of stockholders
automatically will be granted, on the date of his or her election, NSOs to
purchase 10,000 shares of Common Stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

37
<PAGE>
CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

The following table provides certain information concerning the issuance of
the outstanding shares of Class B Stock, which the Company issued on October 11,
and December 9, 1996:

DATE OF NUMBER OF PURCHASE PRICE
NAME ISSUANCE SHARES PER SHARE
- ---------------------------------- --------- ----------- ---------------
John G. Vondrak, D.D.S............ 10-11-96 1,667,217 $.001
TriCap Funding I, L.L.C........... 10-11-96 1,685,274 $.001
Robert J. Syverson................ 10-11-96 160,502 $.001
W. Daniel Cook.................... 10-11-96 210,659 $.001
Michael W. Harlan................. 12- 9-96 94,295 $.001

The number of shares of Class B Stock issued on October 11, 1996 to each of
the founding stockholders shown in the table was determined by negotiations
among those founding stockholders. The number of shares of Class B Stock issued
to Michael W. Harlan on December 9, 1996 was determined by negotiations between
the Board of Directors and Mr. Harlan.

All outstanding shares of Class B Stock are convertible into shares of
Common Stock under certain circumstances. See "Description of Capital
Stock -- Common Stock and Class B Stock." The purchase prices paid for the
foregoing shares of capital stock were the fair market value on the date of
issuance as determined by the Board of Directors.

Apple entered into agreements with Messrs. Syverson, Harlan and Cook
pursuant to which the Company sold to such officers 160,502 shares, 94,295
shares and 210,659 shares of Class B Stock, respectively, at the purchase price
per share set forth in the foregoing table. 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. Neither the Offering nor the Acquisitions will result in a
change in control as defined in each Subscription Agreement.

With respect to Messrs. Syverson and Harlan, the Subscription Agreements
provide that the restrictions will 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 will lapse on the first anniversary of the
consummation date of the Offering. The Subscription Agreement between Apple and
Mr. Cook provides that the restrictions will lapse immediately upon issuance
with respect to approximately 24% of his shares and that the restrictions on the
remaining shares shall lapse in two equal installments upon consummation of the
Offering and on the first anniversary of the consummation date of the Offering.

In connection with the Acquisition of JGVAOI, Dr. Vondrak will receive
approximately 214,102 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 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 "Risk Factors -- Control By Existing
Management and Stockholders; Potential Conflicts of Interest" "Use of
Proceeds."

38
<PAGE>
The following table provides certain information concerning the
Acquisitions:

<TABLE>
<CAPTION>
CONSIDERATION TO BE
RECEIVED
------------------------
ASSETS TO BE NUMBER OF CASH
FOUNDING AFFILIATED PRACTICES CONTRIBUTED(1) SHARES(2) DIVIDEND
- ---------------------------------------- -------------- --------- ------------
<S> <C> <C> <C>
California
Robert C. Frantz, D.D.S., P.C...... $ 463 39,328 $ 83,572
Bruce S. Harris, D.D.S., Inc....... (39,966) 81,655 173,515
Budd Rubin, D.D.S., M.S., Inc...... (61,435) 97,130 206,401
John Dell Sauter, D.D.S., M.D.S.,
Inc............................... (8,127) 72,851 154,808
Michael C. Theurer, D.D.S.......... 599,150 238,044 505,843
Ira S. Wiedman, D.D.S.............. (52,743) 62,871 133,600
Ronald H. Roth and Brian W. Wong,
D.D.S., P.C....................... 89,698 40,366 85,778
Western
Orthodontics Exclusively, Ltd...... 194,833 113,059 240,249
Duncan Y. Brown, P.C............... 412,882 173,985 369,716
Roger L. Bumgarner, D.D.S., P.C.... 218,264 76,161 161,841
Thomas K. Chubb, D.D.S............. 156,732 92,935 197,486
Stanley D. Crawford D.D.S., P.C.... (196,089) 85,954 182,652
Andrew Girardot, D.D.S., P.C....... 94,631 108,013 229,526
James H. Jennings, D.D.S., P.A..... 88,505 49,132 104,405
Philip J. Milanovich, D.D.S.,
M.S............................... 371,163 103,530 220,000
Bowen D. Miles, D.M.D.............. 126,636 98,824 210,000
Mark J. Mills, D.D.S., P.C......... 241,625 151,696 322,353
Donald D. Schmitz, D.D.S., M.S.,
Ltd............................... 348,498 96,203 204,430
Darrell G. Smith, D.D.S., P.C...... 165,985 95,225 202,351
Central
Robert Dennington, D.D.S.,
M.S.D............................. 48,156 30,362 64,518
Carlos F. Navarro, D.D.S., M.S.D.,
P.C............................... 172,961 38,400 81,600
Dr. Charles L. Schnibben, Ltd...... 596,764 136,659 290,400
Thomas A. Tiller, Inc., D.D.S.,
Inc............................... 132,837 70,305 149,397
John G. Vondrak/Apple Orthodontix,
Inc............................... 642,984 214,102 454,965
East Coast
Western New York Orthodontic Care,
P.C............................... (292,863) 93,159 197,962
Philip DePasquale, D.D.S........... 20,645 50,619 107,564
Robert S. Fields, D.M.D., P.C...... 133,166 102,325 217,440
Paul H. Rigali, D.D.S., P.C........ 49,315 137,392 291,957
Carl P. Roy, D.D.S., M.S., P.C..... 297,172 122,015 259,280
Ronald N. Speigal, D.M.D., Inc..... 27,040 50,862 108,082
Jack D. Utley Jr., D.M.D., P.C..... 119,537 102,472 217,752
-------------- --------- ------------
Total......................... $4,698,419 3,025,634 $ 6,429,443
============== ========= ============
</TABLE>
- ------------

(1) Assets to be contributed reflects the historical book value of the assets of
each practice, including their patient receivable balance, net of
prepayments. The nonmonetary assets are reflected at historical cost in
accordance with SAB No. 48. All monetary assets are recorded at fair value,
which is approximated by the historical costs recorded by the practices.

(2) Assumes an initial offering price of $8.50 per share.

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

39
<PAGE>
following the Offering. The consulting agreement provides for, among other
things, the payment by Apple to TriCap Partners of (i) $500,000 upon
consummation of the Offering and (ii) a warrant to purchase approximately
324,280 shares of Common Stock with an exercise price per share equal to the
price to public per share set forth on the cover page of this Prospectus, which
warrant provides that the number of underlying shares will be determined based
upon the initial public offering price per share. In connection with the
warrant, the Company granted TriCap Partners certain demand and piggyback
registration rights. Under the terms of the consulting agreement, TriCap
Partners will provide financial advisory services to the Company in connection
with the evaluation of the businesses and operations of the Founding Affiliated
Practices, the selection of investment banking, legal, financial and other
professionals, and the timing, structure and pricing of the Offering. See
"Shares Eligible for Future Sale."

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 piggyback 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.

40
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows, as of April 1, 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%

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 PERCENT OF CLASS B PERCENT OF
NAME STOCK CLASS 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............... 247,852(2)(3) 4.6% 1,586,966 38.6%
W. Daniel Cook....................... 17,500(3) * 210,659 5.1%
Robert J. Syverson................... 25,000(3) * 160,502 3.9%
Michael W. Harlan.................... 22,500(3) * 94,295 2.3%
H. Steven Walton..................... 68,398(3) 1.3%
William W. Sherrill.................. 327,405(3)(4) 5.7% -- --
All executive officers and directors
as a group
(6 persons)........................ 708,655(3)(4) 12.1% 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 of April 1, 1997.

(2) Includes 214,102 shares issued in connection with the acquisition of JGVAOI.

(3) Includes shares that may be acquired pursuant to outstanding options within
60 days of April 1, 1997: 33,750 shares in the case of Dr. Vondrak; 17,500
shares in the case of Mr. Cook; 25,000 shares in the case of Mr. Syverson;
22,500 shares in the case of Mr. Harlan; 3,125 shares in the case of Mr.
Sherrill; 68,398 shares in the case of Mr. Walton; and 170,273 shares in the
case of all executive officers and directors as a group.

(4) Includes 324,280 shares that may be acquired pursuant to an outstanding
warrant within 60 days of April 1, 1997 held of record by TriCap Partners,
which Mr. Sherrill co-owns.

41
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 25,000,000 shares of
Class A Common Stock, par value $0.001 per share, 4,106,852 shares of Class B
Common Stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 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

Upon consummation of the Offering, holders of the Class B Stock will have
the ability to elect as a class one member of the Board of Directors and the
holders of the Common Stock will have the ability to elect as a class all other
members of the Board of Directors. In the event of a change in the number of
directors, holders of Class A Common Stock have the ability to elect at least
80% of the Board of Directors (rounded up to the nearest whole number) elected
by the holders of Common Stock and, subject to the rights of the holders of any
series of preferred stock, the holders of the Class B Common Stock will have the
right to elect the remaining directors. The Common Stock and Class B Stock
possess ordinary voting rights and vote together as a single class 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 are entitled to three-tenths ( 3/10ths) of a vote per share. The Common
Stock and Class B Stock afford 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 therefor. 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.

Directors may be removed, with or without cause, by the holders of the
class or classes of stock that elected them. Directors may be removed by the
Board of Directors only for cause. Vacancies in a directorship may be filled by
the vote of the class or classes of shares that had previously filled that
vacancy, or by the remaining directors or director elected by such class or
classes; however, if there are no such directors, the vacancy may be filled by
the other directors.

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 (excluding dispositions to such holder's
affiliates), (ii) in the event any person not affiliated with Apple acquires
beneficial ownership of 15% or more of the outstanding shares of capital stock
of the Company, (iii) in the event any person not affiliated with Apple 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 a majority of the outstanding shares of Common Stock 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 as of the date of this Prospectus have
previously been converted into shares of 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.

42
<PAGE>
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 time 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
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 two thirds 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's
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

43
<PAGE>
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 Certificate of Incorporation and 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,Executive Officers and Key
Employees."

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 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 seventh 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 ChaseMellon
Shareholder Services, L.L.C.

44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Acquisitions and the Offering, the Company will
have outstanding (i) 5,375,634 shares of Common Stock (5,728,134 if the
Underwriters' over-allotment option is exercised in full) of which the 2,350,000
shares sold in the Offering (2,702,500 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 3,025,634 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 amended effective April 29, 1997, if a
minimum of one year 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 two 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 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 proposed certain amendments to Rule 144 that would, among other things,
eliminate the manner of sale requirements and revise the notice provisions of
that rule. The SEC has also solicited comments on other possible changes to Rule
144, including possible revisions to the one- and two-year holding periods and
the volume limitations referred to above.

As of February 28, 1997, options to purchase an aggregate of approximately
760,000 shares of Common Stock were outstanding under the Company's 1996 Stock
Option Plan. See " Management -- 1996 Stock Option Plan." 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 20,000 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 (although the holders
of those shares have agreed not to offer or sell any of those shares during the
180-Day Lockup Period). In addition, the Company intends to file a registration
statement covering the 980,000 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 Securities
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 Bear, Stearns & Co. Inc., except that the Company may issue,
subject to certain conditions, Common Stock in connection with acquisitions and
may grant Awards (or Common Stock upon exercise of Awards) under the 1996 Stock
Option Plan. 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 one year following the closing

45
<PAGE>
of the Offering. Substantially all the outstanding shares of Class B Stock will
become eligible for resale pursuant to Rule 144 in October 1997.

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 separate registration rights
agreements with TriCap, Dr. Vondrak and TriCap Partners, TriCap, Dr. Vondrak and
TriCap Partners have 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.
Furthermore, the registration rights agreement to which TriCap Partners is a
party provides for a single demand registration right pursuant to which Apple
will file a registration statement under the Securities Act to register the sale
of the shares issuable to TriCap Partners on exercise of the warrant described
under "Certain Transactions -- Agreements with TriCap." The demand request may
be made at any time before May 31, 2002, subject to certain conditions and
limitations.

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 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."

The Company intends to register 2,000,000 shares of Common Stock under the
Securities Act during the second quarter of 1997 for use in connection with
future acquisitions. These shares generally will be freely tradable after their
issuance by persons not affiliated with the Company unless the Company
contractually restricts their sale. The Company anticipates that the agreements
entered into in connection with its future acquisitions will contractually
restrict the resale of all or a portion of the shares issued in those
transactions for varying periods of time.

46
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement among the
Company, Bear, Stearns & Co. Inc. and Equitable Securities Corporation as the
Representatives of the Underwriters, each of the Underwriters named below has
severally agreed to purchase from the Company, and the Company has agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite its name below.

NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- -----------
Bear, Stearns & Co. Inc. ...............
Equitable Securities Corporation........

-----------
Total......................... 2,350,000
===========

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. 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
of Common Stock covered by the over-allotment option described below) must be so
purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per share
of Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of $ per share to certain
other dealers. After the public offering, the offering price and other selling
terms may be changed by the Underwriters. The Common Stock will be listed on the
American Stock Exchange.

The Underwriters have been granted a 30-day over-allotment option to
purchase up to 352,500 additional shares of Common Stock of the Company
exercisable at the public offering price less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it as shown in the above table bears to the 2,350,000
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the shares of
Common Stock offered hereby.

The officers and directors of the Company and certain holders of the Common
Stock have agreed not to offer, sell, transfer, assign or otherwise dispose of,
any shares of Common Stock owned by them for a period of 180 days after the date
of the final Prospectus relating to the Offering, without the prior written
consent of Bear, Stearns & Co. Inc.

The Company has agreed that it will not issue, sell or grant options to
purchase or otherwise dispose of any shares of its Common Stock or securities
convertible into or exchangeable for its Common Stock, except, subject to
certain conditions, with respect to acquisitions or pursuant to the 1996 Stock
Option Plan, for a period of 180 days after the date of the final prospectus
relating to the Offering without the prior written consent of Bear, Stearns &
Co. Inc.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain civil liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters or any such controlling persons may be required to make in
respect thereof.

The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales in excess of five percent of the
number of shares of Common Stock offered hereby to accounts over which they
exercise discretionary authority.

Prior to the Offering, there was no public market for the Common Stock of
the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company and the

47
<PAGE>
Representatives. The factors considered in making such determination will
include the prevailing market conditions, the financial condition and operating
history of the Company and the Founding Affiliated Practices, their prospects
and the prospects for the orthodontic services industry in general, the
management of the Company and the market price of securities for companies in
businesses similar to that of the Company. There can be no assurance, however,
that an active or orderly 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 offering price.

In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares of
Common Stock previously distributed in the Offering are repurchased in
connection with stabilizing transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions, if commenced, may be discontinued at any time.

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 Baker & Botts, L.L.P., Houston, Texas.

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, which is
included herein in reliance upon the authority of said firm as experts in giving
said report.

48
<PAGE>
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 describe 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 Common Stock subject to a Put Option
and 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

F-1
<PAGE>
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 common stock subject to a put option and stockholders'
equity (deficit) and cash flows for the period from inception, July 15, 1996,
through December 31, 1996, as restated, see Note 1. 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.

ARTHUR ANDERSEN LLP

Houston, Texas
February 28, 1997
(except with respect to the stock split
discussed in Note 2, as to
which the date is April 24, 1997)

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

ASSETS

Cash and cash equivalents .................................... $ 21,254
Long-term assets:
Deferred issuance costs ................................. 1,395,350
Organization costs, net of accumulated
amortization of $4,510 ................................. 44,687
------------
Total long-term assets ............................. 1,440,037
------------
Total assets ....................................... $ 1,461,291
============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................ $ 1,439,565
Accrued bonuses ......................................... 325,000
Other accrued liabilities ............................... 35,000
Amounts due to a founding affiliated practice ........... 30,444
Amounts due to venture capital investors ................ 515,000
------------
Total current liabilities .......................... 2,345,009
Class B Common Stock subject to a put option, $.001
par value, 724,267 shares issued and outstanding,
includes related additional paid-in capital of
$6,155,545 ................................................. 6,156,269
Stockholders' equity (deficit):
Class A Common Stock, $.001 par value, no
shares authorized, issued and outstanding .............. --
Class B Common Stock, $.001 par value,
4,106,852 shares authorized; 3,382,585
shares issued and outstanding .......................... 3,383
Additional paid-in capital .............................. 28,744,659
Retained deficit ........................................ (35,788,029)
------------
Total stockholders' equity (deficit) ............... (7,039,987)
------------
Total liabilities and stockholders'
equity (deficit) .................................. $ 1,461,291
============

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
General and administrative ................................. 232,232
Special compensation expense related to issuance of stock .. 20,580,991
Special consulting expense related to issuance of stock .... 14,323,144
------------
Total costs and expenses .............................. 35,788,029
PROVISION FOR INCOME TAXES ...................................... --
------------
NET LOSS ........................................................ $(35,788,029)
============
NET LOSS PER SHARE .............................................. $ (8.69)
============
NUMBER OF SHARES USED IN CALCULATING NET LOSS PER SHARE ......... 4,119,793
============

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

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

<TABLE>
<CAPTION>
COMMON STOCK
SUBJECT TO A
PUT OPTION COMMON STOCK ADDITIONAL
---------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ---------- ----------- ------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 15, 1996............... -- $ -- -- $ -- $ -- $ --
Issuance of stock............... 724,267 6,156,259 3,382,585 3,383 28,744,659 --
Net loss........................ -- -- -- -- -- (35,788,029)
--------- ---------- ----------- ------ ----------- ---------------
BALANCE, December 31, 1996........... 724,267 $6,156,269 3,382,585 $3,383 $28,744,659 $ (35,788,029)
========= ========== =========== ====== =========== ===============
</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 ................................................ $(35,788,029)
Amortization of organization costs ...................... 4,510
Special compensation and consulting
expense paid in stock ................................. 34,904,135
Increase in accounts payable and accrued
liabilities not related to issuance costs ............. 404,215
------------
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 (Acquisitions). Apple plans to complete an initial public offering of
its Class A common stock and simultaneously exchange cash and shares of its
Class A common stock for selected assets and liabilities associated with 31
orthodontic practices (the Founding Affiliated Practices). The completion of the
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. For further discussion of the various
risks associated with Apple's operations and the proposed transaction, including
the absence of a combined operating history, reliance on Affiliated Practices
and orthodontists, the need for additional financing, government regulation,
dependence on key personnel, competition, and other risks, please refer to the
discussion of risk factors in the Company's registration statement.

RESTATEMENT

In connection with the initial public offering process, the Company elected
to restate its previous financial statements as of December 31, 1996 and for the
period from inception, July 15, 1996, through December 31, 1996. The restatement
involves valuing stock issued to founders, management and advisors of the
Company, in October and December 1996, at the initial public offering price
(estimated to be $8.50 per share). The impact of this adjustment is to increase
special compensation expense related to issuance of stock by $20,580,991, to
increase special consulting expense related to issuance of stock by $14,323,144,
to increase the additional paid-in capital account by $28,744,659 and increase
Class B Common Stock, subject to a put option and the related additional paid-in
capital account by $6,156,126.

The overall impact of the restatement on the Company's Balance Sheet as of
December 31, 1996 was to increase Class B Common Stock subject to a put option,
the related additional paid-in capital and the additional paid-in capital
related to Class A and B Stock by a total of $34,900,785 and to increase the
retained (deficit) by $34,900,785.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DEFERRED ISSUANCE COSTS

Salaries and general and administrative expenses and other internal costs
associated with seeking and negotiating with orthodontists to enter into the
transaction have been expensed. Various external costs resulting from the
provision of legal, accounting and other professional services and other costs
incurred for the transactions are a requirement of the Offering and accordingly
have been recorded as deferred issuance costs. All deferred issuance costs will
be charged against the proceeds of the initial public offering upon its
successful completion. As of December 31, 1996, no deferred issuance costs
associated with the Offering have been paid.

ORGANIZATION COSTS

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

F-7
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

STOCKHOLDERS' EQUITY (DEFICIT)

On October 11, 1996, 3,884,155 shares of Class B common stock were issued
at a total price of $9.68. On December 9, 1996, 222,697 additional shares were
issued in exchange for $166 of consideration. The shares issued through December
31, 1996 have been restated to reflect the effect of a 4,013-for-one stock split
approved on April 24, 1997. After considering the effects of the stock split,
the effective per share consideration paid was $.0000025 per share on October
11, 1996 and $.00075 per share on December 9, 1996. In conjunction with the
stock split approved on April 24, 1997, additional amounts were contributed to
bring the aggregate purchase price per share up to the par value of $.001 per
share. The Class B common stock will be entitled to a three-tenths ( 3/10ths) of
a vote per share. The Class B common stock automatically converts to one vote
per share in the event of the disposition of the stock by the stockholder
(excluding dispositions to the holder's affiliates), any person offers to or
acquires 15% or more of the outstanding capital stock of the Company, any person
acquires beneficial ownership of 15% or more of the outstanding shares of
capital stock of the Company, the stockholder elects to convert at any time
after the second anniversary of the effective date of this Offering, the holders
of that number of shares of Class A common stock and Class B common stock,
voting together as a single class, with a majority of the outstanding voting
power approve conversion, or on the fifth anniversary of the effective date of
the Offering. In the event that 80 percent or more of the currently outstanding
shares of Class B common stock have been converted into shares of Class A common
stock, the Company may elect to convert the remaining outstanding shares of
Class B common shares into shares of Class A common stock. The Class A common
stock to be issued to the Founding Affiliated Practices and in the Offering will
be entitled to one vote per share. As discussed in Note 1, the shares issued on
October 11, 1996 and December 9, 1996, have been valued at the assumed offering
price. Special compensation and consulting expense related to issuance of stock
has been recorded for the difference between the amount paid for the stock and
the estimated offering price of $8.50 per share.

Approximately 724,267 of the issued and outstanding shares are subject to
subscription agreements that include a provision that in the event of a change
in control of the Company, the executive officers and other stockholders holding
the subject shares will be entitled to put to the Company all shares purchased
pursuant to such subscription agreements that such person then owns, 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. As long as
the put options are outstanding, the stock subject to the put option is
presented outside of stockholder's equity (deficit).

The shares used in calculating net loss per share include all shares of
capital stock 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 an assumed offering
price of $8.50 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 the greater
of 1,000,000 or 12% of the number of shares of Class A common stock outstanding
on the last day of the preceding calendar quarter. 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 760,000 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 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

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

accordingly no compensation cost will be recognized. The Company will provide
the pro forma disclosure of net 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 generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of liabilities and disclosures of
contingent assets 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 entered into an agreement with TriCap
Funding I, 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. The Company also entered into an agreement on such
date with TriCap Partners, L.L.C. (TriCap Partners) that extends through the
date of the consummation of the first public offering of Common Stock (or a
security convertible or exchangeable for Common Stock) by the Company following
the Offering. This agreement provides for (a) the payment by Apple to TriCap
Partners of approximately $500,000 upon consummation of the Offering and (b) the
issuance to TriCap Partners of a warrant with a value of $1,700,000 to purchase
approximately 324,280 shares of Common Stock, assuming an exercise price per
share of $8.50, to be adjusted based on the actual initial offering price to
public per share. The determination of number of shares to be equal to the
$1,700,000 value of the warrant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: (i) expected
dividend yield -- 0.0%; (ii) expected stock price volatility -- 67.5%; (iii)
risk-free interest -- 6.2%; and (iv) expected life of the warrant -- 5 years.

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-9
<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 transfers,
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 Class A common stock. The Founding Affiliated
Practices will receive Class A 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 transferred nonmonetary
assets and assumed liabilities will be accounted for at the historical cost
basis of the Founding Affiliated Practices. Each of the Founding Affiliated
Practices is a promoter of the Offering. 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
transferred and liabilities to be assumed is as follows:

COMBINED PRESENTATION OF ASSETS TO BE TRANSFERRED 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
-----------
Assets transferred ............................................. 4,698,000
Accounts payable and accrued liabilities ....................... (1,627,000)
Current portion of capital lease obligations ................... (121,000)
Long-term portion of capital lease obligations ................. (312,000)
-----------
Assets transferred, net of liabilities assumed ................. $ 2,638,000
===========

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. In addition, with respect to two of the New
PCs, the service fees are based on flat fees that are subject to adjustment on
an annual basis.

F-10
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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.................. $ 17,490,000 $ 17,521,000 $ 10,809,000
Practices participating under the
Alternative Contract............... 5,358,000 5,519,000 2,935,000
Practices participating under flat
fee agreements..................... 2,209,000 2,365,000 1,226,000
---------------- ---------------- ------------------
Totals for Founding Affiliated
Practices.......................... $ 25,057,000 $ 25,405,000 $ 14,970,000
================ ================ ==================
</TABLE>

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 based on the estimated
costs incurred as compared to the total estimated treatment cost, with
approximately 24 percent being recognized at the time of initial treatment which
is related to the costs incurred at the time of initial treatment. The balance
of the contract revenue is realized pro rata each month 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 precedes 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
===========

F-11
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 due to the
significant relationships between Apple and the Founding Affiliated Practices.
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 the Company's 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. The Founding Affiliated Practices were not operated under common
control or management during the fiscal year ended December 31, 1996.

UNAUDITED PRO FORMA MANAGEMENT SERVICES FEES

Except with respect to service agreements providing for the payment of flat
fees, 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). The determination of which service agreement will be
used for a practice has been based on (i) the historical arrangements utilized
by medical and dental professionals in that jurisdiction to contract for
management services and (ii) 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 31.5 percent 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 PCs 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 13.5 percent of revenues. The Company believes the fees to be generated by
each of these formulas will be reflective of the fair market value of the
services provided and will be

F-12
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

comparable to the fees earned by other management service companies in the
respective jurisdictions where these arrangements will exist. In addition, with
respect to two of the New PCs, the service fees are based on flat fees that are
subject to adjustment on an annual basis.

The pro forma management service fee for practices that have agreed to the
Standard Contract is based on the accrual basis revenues of the Founding
Affiliated Practices ($17,490) less 31.5 percent of the cash collections of the
practices ($5,519) appropriately adjusted for various provisions of the service
fee agreement (taken together, a net increase of $926). The resulting pro forma
management service fee for the year ended December 31, 1996 is $12,897.

The pro forma management service fee for practices that have agreed to the
Alternative Contract represents 13.5 percent 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 ........ $12,897
Practices participating under the Alternative Contract ..... 3,659
Practices participating under flat fee arrangements ........ 1,582
-------
Total pro forma management service revenues ...... $18,138
=======

Apple will be managed on a regional basis. The following information on the
pro forma management service fee is provided on a regional basis as supplemental
information.

HISTORICAL PRO FORMA
PATIENT MANAGEMENT
REGION REVENUES SERVICE FEES
- ------------------------------------- ----------- -------------
California........................... $ 5,358 $ 3,659
Western.............................. 10,709 7,640
East Coast........................... 5,392 4,094
Central.............................. 3,598 2,745
----------- -------------
$25,057 $18,138
=========== =============

F-13
<PAGE>
================================================================================

NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
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 UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, 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, UNDER ANY CIRCUMSTANCES, 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 THE DATE HEREOF.

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

TABLE OF CONTENTS

Page
----
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 8
The Company .............................................................. 15
Use of Proceeds .......................................................... 15
Dividend Policy .......................................................... 15
Dilution ................................................................. 16
Capitalization ........................................................... 17
Selected Financial Data .................................................. 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 19
Business ................................................................. 21
Management ............................................................... 33
Certain Transactions ..................................................... 38
Security Ownership of Certain Beneficial Owners and Management ........... 41
Description of Capital Stock ............................................. 42
Shares Eligible for Future Sale .......................................... 45
Underwriting ............................................................. 47
Legal Matters ............................................................ 48
Experts .................................................................. 48
Additional Information ................................................... 49
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 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.

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

2,350,000 SHARES

[LOGO APPLE ORTHODONTIX]
COMMON STOCK

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

BEAR, STEARNS & CO. INC.
EQUITABLE SECURITIES CORPORATION

, 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 .......................................... $ 9,828
NASD Filing Fee ............................................... 3,615
American Stock Exchange Listing Fee ........................... 42,500
Blue Sky Fees and Expenses .................................... 10,000
Printing Costs ................................................ 200,000
Legal Fees and Expenses ....................................... 1,450,000
Accounting Fees and Expenses .................................. 3,300,000
Transfer Agent and Registrar Fees and Expenses ................ 5,000
Premiums for D&O Insurance .................................... 125,000
Miscellaneous ................................................. 354,057
----------
Total ............................................... $5,500,000
==========

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 application that, despite the adjudication of liability but in view of all
the circumstances of the case, such

II-1
<PAGE>
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

II-2
<PAGE>
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 $0.01 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.

II-3
<PAGE>
In April 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
3,025,621 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 Agreement and Plan of Reorganization
2.2 + -- Form of Uniform Provisions relating to Agreement and Plan of Reorganization
2.3 + -- Form of Uniform Provisions relating to Contribution Agreement with Sole Proprietorships
2.4 + -- Form of Uniform Provisions relating to Contribution Agreement with Professional
Corporations or Professional Associations
2.5 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Orthodontics
Exclusively, Ltd. and Paul Bonham, D.D.S.
2.6 + -- Contribution Agreement among Apple Orthodontix, Inc., Duncan Y. Brown P.C. and Dr. Duncan
Y. Brown.
2.7 + -- Contribution Agreement among Apple Orthodontix, Inc., Roger L. Bumgarner, D.D.S., P.C.,
Roger Bumgarner, D.D.S., P.C. and Roger L. Bumgarner, D.D.S.
2.8 + -- Contribution Agreement between Apple Orthodontix, Inc. and Thomas K. Chubb, D.D.S.
2.9 + -- Contribution Agreement among Apple Orthodontix, Inc., Stanley D. Crawford, D.D.S., P.C.
and Stanley D. Crawford, D.D.S.
2.10 + -- Contribution Agreement among Apple Orthodontix, Inc., Western New York Orthodontic Care,
P.C. and Anthony G. Deluke, D.D.S.
2.11 + -- Contribution Agreement between Apple Orthodontix, Inc. and Robert J. Dennington, D.D.S.,
M.S.D.
2.12 + -- Contribution Agreement between Apple Orthodontix, Inc. and Philip DePasquale, D.D.S.
2.13 + -- Contribution Agreement among Apple Orthodontix, Inc., Robert S. Fields, D.M.D., P.C. and
Robert S. Fields, D.M.D.
2.14 + -- Contribution Agreement among Apple Orthodontix, Inc. and Robert C. Frantz, D.D.S., P.C.
and Robert C. Frantz, D.D.S.
2.15 + -- Contribution Agreement among Apple Orthodontix, Inc., Andrew Girardot, Jr., D.D.S., P.C.
and Andrew Girardot, Jr., D.D.S.
2.16 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Bruce S. Harris,
D.D.S., Inc. and Bruce S. Harris, D.D.S.
2.17 + -- Contribution Agreement among Apple Orthodontix, Inc., James H. Jennings, D.D.S., P.A. and
James H. Jennings, D.D.S.
2.18 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Phillip Milanovich,
D.D.S., M.S., P.C. and Phillip Milanovich, D.D.S., M.S.
2.19 + -- Contribution Agreement between Apple Orthodontix, Inc. and Bowen D. Miles, D.M.D.
2.20 + -- Contribution Agreement among Apple Orthodontix, Inc., Mark J. Mills, D.D.S., P.C. and Mark
J. Mills, D.D.S.
2.21 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Carlos F. Navarro,
D.D.S., M.S.D., P.C. and Carlos F. Navarro, D.D.S., M.S.D.
2.22 + -- Contribution Agreement among Apple Orthodontix, Inc., Paul Rigali, D.D.S., P.C. and Paul
Rigali, D.D.S.
2.23 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Carl P. Roy, D.D.S.,
M.S., P.C. and Carl P. Roy, D.D.S., M.S.
</TABLE>

II-4

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
2.24 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Budd Rubin, D.D.S.,
M.S., Inc. and Budd Rubin, D.D.S., M.S.
2.25 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., John Dell Sauter,
D.D.S., M.D.S., P.C. and John Dell Sauter, D.D.S., M.D.S.
2.26 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Donald D. Schmitz,
D.D.S., M.S., Ltd. and Donald D. Schmitz, D.D.S., M.S.
2.27 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Dr. Charles L.
Schnibben, Ltd. and Charles L. Schnibben, D.D.S.
2.28 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Darrell G. Smith,
D.D.S., P.C. and Darrell G. Smith, D.D.S.
2.29 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Ronald N. Spiegel,
D.M.D., Inc. and Ronald N. Spiegel, D.M.D.
2.30 + -- Contribution Agreement between Apple Orthodontix, Inc. and Michael C. Theurer, D.D.S.
2.31 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Thomas A. Tiller,
D.D.S., Inc. and Thomas A. Tiller, D.D.S.
2.32 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Jack D. Utley, Jr.,
D.M.D., P.C. and Jack D. Utley, Jr., D.M.D.
2.33 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., John G. Vondrak Apple
Orthodontix, Inc. and John G. Vondrak, D.D.S.
2.34 + -- Contribution Agreement between Apple Orthodontix, Inc. and Ira S. Wiedman, D.D.S.
2.35 + -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Ronald H. Roth, D.D.S.
and Brian W. Wong, D.D.S., P.C. and Brian W. Wong, D.D.S.

The schedules and exhibits to the foregoing acquisition agreements have not been filed as
exhibits to this Registration Statement. Pursuant to Item 601(b)(2) of Regulation S-K,
Apple agrees to furnish a copy of such schedules and exhibits to the Commission upon
request.

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.
4.4 + -- Registration Rights Agreement between TriCap Partners, L.L.C. and Apple Orthodontix, Inc.
5.1 + -- Opinion of Jackson & Walker, L.L.P.
10.1 + -- Apple Orthodontix, Inc., 1996 Stock Option Plan
10.2 + -- Employment Agreement 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 California Service Agreement
10.7 + -- Employment Agreement of H. Steven Walton
10.8 + -- Form of Service Agreement
10.9 + -- Consulting Agreement between TriCap Partners, L.L.C. and Apple Orthodontix, Inc.
10.10 + -- Amendment to Consulting Agreement between TriCap Partners and Apple Orthodontix, Inc.
10.11 + -- Form of Flat Fee Service Agreement
23.1 -- Consent of Arthur Andersen LLP
23.2 + -- Consent of Jackson & Walker, L.L.P. (contained in Exhibit 5.1)
24.1 + -- Power of Attorney (contained on the signature page of this Registration Statement)
</TABLE>

- ------------
+ Previously filed.

II-5
<PAGE>
(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 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.

II-6
<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 MAY 13, 1997.

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

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 MAY 13, 1997.

SIGNATURES TITLE
- ------------------------------------ ----------------------------------------
/s/JOHN G. VONDRAK, D.D.S. Chairman of the Board and Chief
JOHN G. VONDRAK, D.D.S. Executive Officer (Principal Executive
Officer)

/s/MICHAEL W. HARLAN* Vice President and Chief Financial
MICHAEL W. HARLAN Officer (Principal Financial and
Accounting Officer)

/s/W. DANIEL COOK* Director
W. DANIEL COOK

/s/WILLIAM W. SHERRILL* Director
WILLIAM W. SHERRILL

*By /s/MICHAEL W. HARLAN
MICHAEL W. HARLAN,
INDIVIDUALLY AND AS
ATTORNEY-IN-FACT

II-7

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 No. 333-22785 by Apple Orthodontix, Inc.

ARTHUR ANDERSEN LLP
May 13, 1997