<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934

     For the quarterly period ended March 31, 2002

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from _________ to _________

                        Commission File Number: 1-13263

                          Castle Dental Centers, Inc.
            (Exact name of registrant as specified in its charter)

                DELAWARE                                 76-0486898
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                 Identification No.)

        1360 Post Oak Boulevard, Suite 1300                77056
                  Houston, Texas                        (Zip Code)
     (Address of principal executive offices)

      Registrant's telephone number, including area code: (713) 479-8000

                                      N/A
(Former name, former address and former fiscal year, if changed since last year)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                   Yes    X                         No ______
                        ------

     The number of shares of Common Stock issued and outstanding, par value,
$0.001 per share, as of May 13, 2002 was 6,417,206.
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
                                     Index

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>                                                                                  <C>
PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements (Unaudited)

            Condensed Consolidated Balance Sheets
            December 31, 2001 and March 31, 2002..................................     3

            Condensed Consolidated Statements of Operations
            For the Three Months Ended March 31, 2001 and 2002....................     4

            Condensed Consolidated Statements of Cash Flows
            For the Three Months Ended March 31, 2001 and 2002....................     5

            Notes to Condensed Consolidated Financial Statements..................     6

         Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations.........................    12

         Item 3.  Quantitative and Qualitative Disclosures About Market Risks.....    17

PART II. OTHER INFORMATION

         Item 1. Legal Proceedings................................................    17

         Item 2. Changes in Securities and Use of Proceeds........................    18

         Item 3. Defaults Upon Senior Securities..................................    18

         Item 4. Submission of Matters to a Vote of Security Holders..............    18

         Item 5. Other Information................................................    18

         Item 6. Exhibits and Reports on Form 8-K.................................    18

SIGNATURES........................................................................    20
</TABLE>

                                       2
<PAGE>

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements

                          CASTLE DENTAL CENTERS, INC.
               CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                 December 31,           March 31,
                                                                                     2001                 2002
                                                                                --------------         -----------
<S>                                                                             <C>                    <C>
                                   ASSETS
Current assets:
  Cash and cash equivalents.................................................       $  3,979             $  3,209
  Patient receivables, net..................................................          4,810                5,749
  Unbilled patient receivables, net.........................................          2,869                2,828
  Prepaid expenses and other current assets.................................          1,373                1,708
                                                                                   --------             --------
        Total current assets................................................         13,031               13,494
                                                                                   --------             --------
  Property and equipment, net...............................................         14,746               14,063
  Goodwill and intangibles, net.............................................         54,994               54,978
  Other assets..............................................................          1,311                1,133
                                                                                   --------             --------
        Total assets........................................................       $ 84,082             $ 83,668
                                                                                   ========             ========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................................       $ 63,759             $ 63,711
  Accounts payable and accrued liabilities..................................         16,983               18,061
  Deferred compensation payable, related party..............................            132                  132
                                                                                   --------             --------
        Total current liabilities...........................................         80,874               81,904
                                                                                   --------             --------

Long-term debt, net of current portion......................................             16                   14
Commitments and contingencies
Stockholders' equity:
  Common stock, $.001 par value, 19,000,000 shares authorized,
   6,417,206 shares issued and outstanding..................................              6                    6
  Additional paid-in capital................................................         42,086               42,086
  Accumulated deficit.......................................................        (38,900)             (40,342)
                                                                                   --------             --------
        Total stockholders' equity..........................................          3,192                1,750
                                                                                   --------             --------
        Total liabilities and stockholders' equity..........................       $ 84,082             $ 83,668
                                                                                   ========             ========
</TABLE>

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

                                       3
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                           Three Months Ended
                                                                                                                March 31,
                                                                                                        ------------------------
                                                                                                          2001            2002
                                                                                                        --------        --------
<S>                                                                                                    <C>              <C>
Net patient revenues............................................................................        $ 27,723        $ 25,488
Expenses:
  Dentist salaries and other professional costs.................................................           7,352           7,249
  Clinical salaries.............................................................................           5,133           5,655
  Dental supplies and laboratory fees...........................................................           2,949           3,001
  Rental and lease expense......................................................................           1,732           1,522
  Advertising and marketing.....................................................................             783             840
  Depreciation and amortization.................................................................           1,726             915
  Other operating expenses......................................................................           1,902           1,955
  Bad debt expense..............................................................................           1,148             777
  Restructuring costs and other charges.........................................................             466             526
  General and administrative....................................................................           2,633           2,771
  Asset impairment..............................................................................               -             104
                                                                                                        --------        --------
   Total expenses...............................................................................          25,824          25,315
                                                                                                        --------        --------
Operating income................................................................................           1,899             173
Interest expense................................................................................           2,199           1,628
Other income....................................................................................              (9)            (13)
                                                                                                        --------        --------
Loss before income taxes and cumulative effect of change in
  accounting principle..........................................................................            (291)         (1,442)
Income taxes....................................................................................               -               -
                                                                                                        --------        --------
Loss before cumulative effect of change in accounting principle.................................            (291)         (1,442)
Cumulative effect of change in accounting principle.............................................            (250)              -
                                                                                                        --------        --------
Net loss........................................................................................        $   (541)       $ (1,442)
                                                                                                        ========        ========
Loss per common share:
  Loss before cumulative effect of change in accounting principle...............................        $  (0.05)       $  (0.22)
  Cumulative effect of change in accounting principle...........................................           (0.03)              -
                                                                                                        --------        --------
  Net loss......................................................................................        $  (0.08)       $  (0.22)
                                                                                                        ========        ========
Weighted average number of common and
common equivalent shares outstanding
  Basic.........................................................................................           6,417           6,417
                                                                                                        ========        ========
  Diluted.......................................................................................           6,417           6,417
                                                                                                        ========        ========
</TABLE>

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

                                       4
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                                     For the Three Months Ended
                                                                                                              March 31,
                                                                                                     ---------------------------
                                                                                                         2001            2002
                                                                                                     -----------      ----------
<S>                                                                                                  <C>              <C>
Cash flows from operating activities:
Net loss.........................................................................................    $      (541)     $   (1,442)
  Adjustments:
    Provisions for bad debts.....................................................................          1,148             777
    Depreciation and amortization................................................................          1,726             915
    Amortization of loan cost....................................................................            103             183
    Asset impairment.............................................................................              -             104
    Cumulative effect of change in accounting principle..........................................            250               -
    Changes in operating assets and liabilities:
      Patient receivables........................................................................           (382)         (1,726)
      Unbilled patient receivables...............................................................            (31)             51
      Prepaid expenses and other current assets..................................................           (218)           (335)
      Other assets...............................................................................              4              (5)
      Accounts payable and accrued liabilities...................................................            617           1,078
                                                                                                     -----------      ----------
         Net cash provided by (used in) operating activities.....................................          2,676            (400)
                                                                                                     -----------      ----------

Cash flows used in investing activities:
  Capital expenditures...........................................................................           (102)           (320)
                                                                                                     -----------      ----------
         Net cash used in investing activities...................................................           (102)           (320)
                                                                                                     -----------      ----------

Cash flows from financing activities:
  Payments of long-term debt.....................................................................           (134)            (50)
                                                                                                     -----------      ----------
         Net cash used in financing activities...................................................           (134)            (50)
                                                                                                     -----------      ----------

Net change in cash and cash equivalents..........................................................          2,440            (770)
Cash and cash equivalents, beginning of period...................................................            901           3,979
                                                                                                     -----------      ----------
Cash and cash equivalents, end of period.........................................................    $     3,341      $    3,209
                                                                                                     ===========      ==========
</TABLE>

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

                                       5
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation:

Going Concern Basis

  The accompanying consolidated financial statements of Castle Dental Centers,
Inc. and subsidiaries (the "Company") have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net losses of
$19.1 million in 2000, $14.8 million in 2001 and $1.4 million for the three
months ended March 31, 2002 and, as a result, has not been in compliance with
the financial covenants of its debt agreements since June 30, 2000. At March 31,
2002, approximately $45.2 million in senior debt and $15.0 million in
subordinated debt were outstanding under its debt agreements in addition to
approximately $3.5 million in other outstanding subordinated debt. Since the
Company is in default under these agreements, all amounts outstanding are
subject to acceleration and have been classified as current liabilities. The
Company has continued to pay interest (other than cumulative default interest of
$2.2 million classified as a current liability) on the amounts outstanding under
its senior credit facility, but has not made scheduled principal payments of
$11.3 million as of March 31, 2002 under its senior credit facility, nor made
interest or principal payments of $6.3 million owed to subordinated creditors
since July 2000. The Company has requested a forbearance of scheduled principal
payments and is negotiating with its lenders to restructure the debt agreements.
However, these negotiations have not resulted in a forbearance agreement or
restructuring of the debt. The Company also has current liabilities, exclusive
of its bank and subordinated indebtedness, in excess of its current assets at
March 31, 2002. Given the financial position of the Company and the current
condition of financial markets, the Company believes that it is unlikely that
either a new lender group will be brought in to replace the existing lender
group or that an equity investment by a third party in the Company will be
obtained that would be sufficient to satisfy its capital needs.

  The Company has implemented a plan to improve operating results.  Components
of this plan include: (i) increased hiring of new dentists and improving dentist
retention; (ii) continuing to monitor and close unprofitable and under-
performing dental centers; (iii) refurbishing and modernizing existing dental
centers within capital expenditure constraints; (iv) upgrading dental office
management personnel; and (v) improving patient services in order to increase
patient retention rates.

  However, there can be no assurance that these efforts to improve operating
results and cash flows will be sufficient to allow the Company to meet its
obligations in a timely manner or that the Company's creditors will agree with
the plan.  Therefore, there is substantial doubt about the Company's ability to
continue in existence. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amount and classification of liabilities that might be necessary
should the Company be unable to continue in existence.

Corporate Organization and Basis of Presentation

  The Company provides administrative and management services, non-healthcare
personnel, facilities and equipment to professional corporations in Texas,
Florida, California and Tennessee ("affiliated dental practices") under long-
term management services agreements.

  The consolidated financial statements include the accounts of the Company and
all wholly-owned and beneficially-owned subsidiaries and the accounts of
affiliated dental practices in which the Company has a long-term controlling
financial interest.  Because of corporate practice of medicine laws in the
states in which the Company operates, the Company does not own dental practices
but instead enters into exclusive long-term management services agreements
("Management Services Agreements") with professional corporations that operate
the dental practices.  In addition, the Company has the contractual right to
designate, upon the

                                       6
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

occurrence of certain events, the licensed dentist who is the majority
shareholder of the capital stock of the professional corporation at a nominal
cost ("nominee arrangements"). At March 31, 2002, all of the affiliated dental
practices were owned by dentists with whom the Company had a nominee
arrangement. Under the Management Services Agreements, the Company establishes
annual operating and capital budgets for the professional corporations and
compensation guidelines for the licensed dental professionals. The Management
Services Agreements have initial terms of twenty-five years. The management fee
charged by the Company to an affiliated dental practice is intended to reflect
and is based on the fair value of the management services rendered by the
Company to the affiliated dental practice. Subject to applicable law, the
management fee earned by the Company, except from professional corporations
located in California, is generally comprised of three components: (i) the costs
incurred by it on behalf of the affiliated dental practice; (ii) a base
management fee ranging from 12.5% to 20.0% of net patient revenues; and, (iii) a
performance fee equal to the net patient revenues of the affiliated dental
practice less (a) the expenses of the affiliated dental practice and (b) the sum
of (i) and (ii), as described in the agreements. In California, the Company is
paid a monthly management fee comprised of two components: (i) the costs
incurred by it on behalf of the affiliated dental practice and (ii) a management
fee in an amount ranging from 15.0% to 30.0% of net patient revenues. With
respect to certain professional corporations in California, the Company is paid
a bonus equal to 30% of net patient revenues in excess of average monthly net
patient revenues over the prior two-year period. The amount of the management
fee is reviewed by the Company and the affiliated dental practice at least
annually in order to determine whether such fee should be adjusted to continue
to reflect the fair value of the management services rendered by the Company.

  Through the management services agreements and the nominee arrangements, the
Company has a significant long-term controlling financial interest in the
affiliated dental practices and, therefore, according to Emerging Issues Task
Force Issue No. 97-2, "Application of FASB Statement No. 94, Consolidation of
All Majority-Owned Subsidiaries, and APB No. 16, Business Combinations, to
Physician Practice Management Entities and Certain Other Entities with
Contractual Management Agreements," consolidates the results of the affiliated
practices with those of the Company.  Net patient revenues are presented in the
accompanying statement of operations because the Company must present
consolidated financial statements. All significant intercompany accounts and
transactions, including management fees, have been eliminated in consolidation.

  The accompanying unaudited consolidated financial statements as of March 31,
2002, and for the three months ended March 31, 2001 and 2002 include the
accounts of the Company and its majority owned management company subsidiaries
and the affiliated dental practices.  Pursuant to the rules and regulations of
the Securities and Exchange Commission, certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted.  The
unaudited consolidated financial statements have been prepared consistent with
the accounting policies reflected in the Company's annual financial statements
included in the Company's Form 10-K filed with the Securities and Exchange
Commission and should be read in conjunction therewith.  In management's
opinion, the unaudited consolidated financial statements include all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation of such financial statements.  Interim results are not
necessarily indicative of results for a full year.

Recent Accounting Pronouncements

  On August 16, 2001, the Financial Accounting Standards Board issued SFAS 143,
"Accounting for Asset Retirement Obligation".  SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. These
provisions of SFAS 143 are effective for financial statements issued for fiscal
years beginning after June 15, 2002.  Earlier application is encouraged.
Management believes the application of SFAS 143 will not have a material effect
on the Company.

  On October 3, 2001, the Financial Accounting Standards Board issued SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets".  SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets.  This Statement supercedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and

                                       7
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", both
of which address the disposal of a segment of a business. The provisions of SFAS
144 are effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years, with
early application encouraged. The Company is currently evaluating the impact of
the adoption of this Statement but does not believe it will have a material
impact on the Company's net income, cash flows, or financial condition.

  In May 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 (SFAS 145), "Rescission of FAS Nos.4, 44,
and 64, Amendment of FAS 13, and Technical Corrections as of April 2002."  This
Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions.  SFAS No. 145 is
effective for financial statements issued for fiscal years beginning after May
15, 2002.  SFAS No. 145 is not expected to affect our results of operations,
liquidity or financial position.

2.  Goodwill and Intangibles

  On July 20, 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 supercedes APB
Opinion No. 16, Business Combinations, to prohibit use of the pooling-of-
interest (pooling) method of accounting for business combinations initiated
after the issuance date of the final Statement. SFAS No. 142 supercedes APB
Opinion No. 17, Intangible Assets, by stating that goodwill will no longer be
amortized, but will be tested for impairment in a manner different from how
other assets are tested for impairment. SFAS No. 142 establishes a new method of
testing goodwill for impairment by requiring that goodwill be separately tested
for impairment using a fair value approach rather than an undiscounted cash flow
approach.  The provisions of SFAS No. 141 and SFAS No. 142 are effective for
fiscal years beginning after December 15, 2001.

  The Company adopted SFAS 142 effective January 1, 2002, and has reclassified
approximately $54.9 million from management services agreements to goodwill,
and as required by SFAS 142, the Company no longer records amortization expenses
related to this goodwill. The effect of this change reduced the net loss by
approximately $0.7 million, or $0.10 per share for the three months ended March
31, 2002. Had the Company adopted SFAS 142 effective January 1, 2001, the effect
would have been to reduce the net loss by approximately $0.7 million, or $0.11
per share for the three months ended March 31, 2001. The Company is currently in
the process of determining the effect of implementing SFAS 142 on goodwill. It
is likely that the Company will record a significant impairment charge as a
change in accounting principle related to certain of its markets upon completion
of the initial impairment review. Management of the Company expects to complete
the assessment by the end of the second quarter 2002.

3.  Long-term Debt and Capital Lease Obligations:

  The Company maintains a credit agreement with a bank group (the "Credit
Agreement") that provides for borrowings up to $55.0 million and matures in
November 2002. Advances under the Credit Agreement required quarterly interest
payments only through March 2001 at which time principal became payable
quarterly based on a five-year amortization with final payment at maturity.
Borrowings under the Credit Agreement may at no time exceed a specified
borrowing base, which is calculated as a multiple of the Company's earnings
before interest, income taxes, depreciation and amortization ("EBITDA"), as
adjusted. The bank credit facility bears interest at variable rates, which are
based upon either the bank's base rate or LIBOR, plus, in either case, a margin
which varies according to the ratio of the Company's funded debt to the EBITDA,
each as defined in the Credit Agreement. A commitment fee is payable quarterly
at rates ranging from 0.125 percent to 0.5 percent of the unused amounts for
such quarter. The Credit Agreement contains affirmative and negative covenants
that require the Company to maintain certain financial ratios, limit the amount
of additional indebtedness, limit the creation or existence of liens, set
certain restrictions on

                                       8
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

acquisitions, mergers and sales of assets and restrict the payment of dividends.
At March 31, 2002, the Company was not in compliance with the financial
covenants of the Credit Agreement. In November 2001, the Credit Agreement became
a term note, therefore additional borrowings under the agreement are not
available.

  In January 2000, the Company amended the Credit Agreement and entered into a
senior subordinated note agreement  ("Subordinated Note Agreement") and a
subordinated convertible note agreement ("Convertible Note Agreement") with two
lenders. The Subordinated Note Agreement and Convertible Note Agreement provide
for borrowings of $13.7 million and $1.3 million, respectively.  Loans under the
Subordinated Note Agreement bear interest at the 90-day LIBOR rate plus five and
one-half percent, payable quarterly, and are due in eight quarterly installments
beginning in the sixty-third month following the closing date.  Loans under the
Convertible Note Agreement bear interest at the same rate as loans under the
Subordinated Note Agreement and are due on demand beginning seven years after
the closing date with a final maturity date of January 30, 2009. The convertible
note is convertible at any time into 442,880 shares of Company common stock at
the request of the holders at a fixed conversion price of $3.1125 per share.
The Subordinated Note Agreement and Convertible Note Agreement contain
affirmative and negative covenants that require that the Company maintain
certain financial ratios, limit the amount of additional indebtedness, limit the
creation or existence of liens, set certain restrictions on acquisitions,
mergers and sales of assets and restrict the payment of dividends. At March 31,
2002, the Company was not in compliance with the financial covenants of the
Subordinated Note Agreement and Convertible Note Agreement.

  As a result of the losses incurred during the past two years and for the three
months ended March 31, 2002, the Company has not been in compliance with the
financial covenants of the Credit Agreement, Subordinated Note Agreement and
Convertible Note Agreement ("Debt Agreements") since June 30, 2000. At March 31,
2002, approximately $45.2 million in senior debt and $15.0 million in
subordinated debt were outstanding under the Debt Agreements in addition to
approximately $3.5 million in other outstanding subordinated debt. The Company
has continued to pay interest (other than cumulative default interest of $2.2
million) on the amounts outstanding under the Debt Agreements, but has not made
scheduled principal payments of $11.3 million as of March 31, 2002 due under the
Credit Agreement, nor made interest or principal payments of $6.3 million owed
to subordinated creditors since July 2000.  Since the Company is in default
under these agreements, all amounts outstanding are subject to acceleration and
have been classified as current liabilities.  The Company has requested a
forbearance of scheduled principal payments and is negotiating with its lenders
to restructure the Debt Agreements. However, these negotiations have not
resulted in a forbearance agreement or restructuring of the debt. There can be
no assurance that the Company's lenders will consent to a forbearance agreement
and the restructuring necessary to allow the Company to continue to operate. If
the Company and the lenders cannot reach an agreement, it may be necessary for
the Company to seek protection under Chapter 11 of the Bankruptcy Code.

4.  Commitments and Contingencies:

Litigation

  In June 2000, the Company recorded litigation expenses of $1,495,000 resulting
from an arbitration award against two subsidiaries of the Company in an
arbitration proceeding in Los Angeles, California.  The arbitrator found that
the subsidiaries had breached a contractual agreement to acquire a dental
practice and awarded the plaintiffs actual damages and costs of $442,000.  In
August 2000, the arbitrator awarded the plaintiffs an additional $666,000 for
attorney fees and costs, resulting in a total judgment of $1,108,000 against the
Company's subsidiaries.  None of the judgment amount awarded to the plaintiffs
has been paid as of May 13, 2002.

  In October 2001, the former owners of Dental Centers of America filed suit in
Bexar County, Texas alleging that the Company breached a letter agreement
offering payment as settlement for past due amounts on two subordinated
promissory notes that were part of the purchase consideration for Dental Centers
of America.  In March 2002, the plaintiffs obtained a judgment for $625,000 plus
interest and attorneys' fees, against the

                                       9
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company. The Company is currently involved in settlement negotiations with the
plaintiffs and none of the judgment award has been paid as of May 13, 2002.

   The Company also is a defendant in a lawsuit with a landlord of a leased
property that was abandoned by the Company in 2001 as part of its restructuring
plan. The lease had remaining term of 42 months at monthly rental rates of
$3,800 at the time the Company stopped paying rent on the lease. The Company is
attempting to negotiate a settlement with the landlord. In April 2002, the
Company paid $45,000 in settlement of another lease that it had abandoned and
that had been the subject of a lawsuit.

   The Company carries insurance with coverages and coverage limits that it
believes to be customary in the dental industry. Although there can be no
assurance that such insurance will be sufficient to protect the Company against
all contingencies, management believes that its insurance protection is
reasonable in view of the nature and scope of the Company's operations.

   The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.

5. Restructuring Costs and Other Charges and Asset Impairment

   In the first quarter of 2001, the Company announced plans to restructure the
Credit Agreement (Note 3).  At May 13, 2002, the Company is still in negotiation
with the lender.  Restructuring costs and other charges for the three months
ended March 31, 2001 include legal and other professional fees of $0.4 million
and $0.1 million in severance costs. Restructuring costs and other charges for
the three months ended March 31, 2002, include legal and other professional fees
of $0.3 million and $0.2 million for estimated future rent accrued on dental
offices closed during the first quarter of 2002.

   The $0.1 million asset impairment for the three months ended March 31, 2002,
results primarily from the write-off of leasehold improvements associated with
the closing of one dental office in Texas and three dental offices in Florida
during the period.

6. Earnings Per Share:

   Basic earnings per share for all periods presented equals net loss divided by
the weighted average number of shares of common stock outstanding during each
period. The effect of stock options and convertible debt was excluded from the
calculation of diluted loss per share for both periods because their effect
would have been anti-dilutive.

7. Derivative Instruments and Hedging Activities

   During June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
requires that companies recognize all derivative instruments as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," deferred the
implementation of SFAS 133 until the fiscal year ending December 31, 2001.  The
Company implemented SFAS 133 effective January 1, 2001.  During the three month
period ended March 31, 2001, the Company accrued $0.1 million in additional
interest expense under a hedging arrangement.  The cumulative effect of
accounting change as of January 1, 2001, was a charge of $0.3 million, or $0.03
per common share, that was reflected in the first quarter of 2001. The term of
the swap contract expired July 10, 2001.

                                       10
<PAGE>

                          CASTLE DENTAL CENTERS, INC.
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


8.   Segment Information

     The following table sets forth the financial information with respect to
the Company and its reportable segments:

<TABLE>
<CAPTION>
                                                                                                     Three Months Ended
                                                                                                         March 31,
                                                                                              ------------------------------
                                                                                                  2001               2002
                                                                                              ------------       -----------
                                                                                                      (in thousands)
<S>                                                                                          <C>                 <C>
Net patient revenues:
     Texas................................................................................    $     18,865       $    16,377
     Florida..............................................................................           2,857             2,951
     Tennessee............................................................................           2,960             3,182
     California...........................................................................           3,041             2,978
                                                                                              ------------       -----------
     Total net patient revenues...........................................................    $     27,723       $    25,488
                                                                                              ------------       -----------

Operating expenses:
     Texas................................................................................    $     16,057       $    15,350
     Florida..............................................................................           2,819             2,799
     Tennessee............................................................................           2,608             2,607
     California...........................................................................           2,365             2,331
     Corporate, general and administrative expenses.......................................           1,509             1,702
     Restructuring costs and other charges................................................             466               526
                                                                                              ------------       -----------
     Total operating expenses.............................................................    $     25,824       $    25,315
                                                                                              ------------       -----------
Operating income:
     Texas................................................................................           2,808             1,027
     Florida..............................................................................              38               152
     Tennessee............................................................................             352               575
     California...........................................................................             676               647
     Corporate, general and administrative expenses.......................................          (1,509)           (1,702)
     Restructuring costs and other charges................................................            (466)             (526)
                                                                                              ------------       -----------
     Total operating income...............................................................           1,899               173
Interest expense..........................................................................           2,199             1,628
Other income..............................................................................              (9)              (13)
                                                                                              ------------       -----------
Loss before benefit for income taxes and cumulative
  change in accounting principle..........................................................    $       (291)      $    (1,442)
                                                                                              ============       ===========
</TABLE>

                                       11
<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Securities Act of 1933 and Section 21B of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include, among others, the changing environment for
dental health care, the pace of the Company's development and acquisition
activities, the reimbursement rates for dental services, and other risk factors
detailed in the Company's Securities and Exchange Commission filings, including
the Company's Form 10-K for the year ended December 31, 2001, as filed with the
U.S. Securities and Exchange Commission.

Overview

  The Company develops, manages and operates integrated dental networks through
contractual affiliations with general, orthodontic and multi-specialty dental
practices in Texas, Florida, California and Tennessee. The Company does not
engage in the practice of dentistry but rather establishes integrated dental
networks through affiliations with dental practices providing quality care in
selected markets with a view to establishing broad geographic coverage within
those markets. The Company seeks to achieve operating efficiencies by
consolidating and integrating affiliated practices into regional networks,
realizing economies of scale in such areas as marketing, administration and
purchasing and enhancing the revenues of its affiliated dental practices by
increasing both patient visits and the range of specialty services offered. At
March 31, 2002, the Company managed 85 dental centers with approximately 210
affiliated dentists, orthodontists and specialists.

Components of Revenues and Expenses

  Net patient revenues represent amounts billed by the affiliated dental
practices to patients and third-party payors for dental services rendered.
Net patient revenues are reported at established rates reduced by contractual
amounts based on agreements with patients, third-party payors and others
obligated to pay for services rendered.

  Under the terms of the typical management services agreement with an
affiliated dental practice, the Company becomes the exclusive manager and
administrator of all non-dental services relating to the operation of the
practice. While actual terms of the various management service agreements may
vary from practice to practice, material aspects of all the management service
agreements, including the ability of the Company to nominate the majority
shareholder and the calculation of the management fees, are consistent. The
obligations of the Company include assuming responsibility for the operating
expenses incurred in connection with managing the dental centers. These expenses
include salaries, wages and related costs of non-dental personnel, dental
supplies and laboratory fees, rental and lease expenses, advertising and
marketing costs, management information systems, and other operating expenses
incurred at the dental centers. In addition to these expenses, the Company
incurs general and administrative expenses related to the billing and collection
of accounts receivable, financial management and control of the dental
operations, insurance, training and development, and other general corporate
expenditures.

Results of Operations

  The following table sets forth the percentages of net patient revenues
represented by certain items reflected in the Company's Statement of Operations.
The information that follows should be read in conjunction with the Annual
audited Financial Statements and notes thereto of the Company included in the
Company's Form 10-K filed with the Securities and Exchange Commission, as well
as the Unaudited Consolidated Financial Information, included in this Form 10-Q.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Three Months Ended
                                                                                                 March 31,
                                                                                      --------------------------------
                                                                                          2001                2002
                                                                                      -----------         ------------
<S>                                                                                   <C>                 <C>
Net patient revenues...............................................................         100.0%               100.0%
Expenses:
  Dentist salaries and other professional costs....................................          26.5%                28.4%
  Clinical salaries................................................................          18.5%                22.2%
  Dental supplies and laboratory fees..............................................          10.6%                11.8%
  Rental and lease expense.........................................................           6.2%                 6.0%
  Advertising and marketing........................................................           2.8%                 3.3%
  Depreciation and amortization....................................................           6.2%                 3.6%
  Other operating expenses.........................................................           6.9%                 7.7%
  Bad debt expense.................................................................           4.1%                 3.0%
  Restructuring costs and other charges............................................           1.7%                 2.1%
  General and administrative.......................................................           9.5%                10.9%
  Asset impairment.................................................................            --                  0.4%
                                                                                      -----------         ------------
      Total expenses...............................................................          93.2%                99.3%
                                                                                      -----------         ------------
Operating income...................................................................           6.8%                 0.7%
Interest expense...................................................................           7.9%                 6.4%
Other income.......................................................................           0.0%                -0.1%
                                                                                      -----------         ------------
Loss before income taxes and cumulative effect of
  change in accounting principle...................................................          -1.0%                -5.7%
Income taxes.......................................................................           0.0%                 0.0%
                                                                                      -----------         ------------
Loss before cumulative effect of change in accounting principle....................          -1.0%                -5.7%
Cumulative effect of change in accounting principle................................          -0.9%                  --
                                                                                      -----------         ------------
Net loss...........................................................................          -2.0%                -5.7%
                                                                                      ===========         ============
</TABLE>

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

     Net Patient Revenues - Net patient revenues decreased from $27.7 million
for the three months ended March 31, 2001, to $25.5 million for the same period
of 2002, a decrease of $2.2 million or 8.1%. Patient revenues from dental
centers opened for more than one year decreased approximately $0.6 million, or
2.3%. The decrease is attributable to the slowdown in general economic activity
compared to the prior year. The closing of nine dental centers between April 1,
2001 and March 31, 2002 accounted for $1.6 million of the decrease in revenues.

     Dentist Salaries and Other Professional Costs - Dentist salaries and other
professional costs consist primarily of compensation paid to dentists,
orthodontists, and hygienists employed by the affiliated dental practices. For
the three months ended March 31, 2002, dentist salaries and other professional
costs were $7.2 million, $0.1 million, or 1.4% lower than dentist compensation
in the prior year period. The decrease is attributable to the closing of nine
dental centers in the past year. Expressed as a percentage of net patient
revenues, dentist salaries and other professional costs increased from 26.5% to
28.4% for the three months ended March 31, 2001 and 2002, respectively.

     Clinical Salaries - Clinical salaries increased from $5.1 million for the
three months ended March 31, 2001 to $5.7 million for the three months ended
March 31, 2002, an increase of $0.5 million or 10.2%. The increase is
attributable to the upgrading of dental office management and other personnel.
Expressed as a

                                       13
<PAGE>

percentage of net patient revenues, clinical salaries increased from 18.5% for
the three months ended March 31, 2001 to 22.2% for the comparable 2002 period.

  Dental Supplies and Laboratory Fees - Dental supplies and laboratory fees
increased slightly, from $2.9 million for the three months ended March 31, 2001
to $3.0 million for the three months ended March 31, 2002, an increase of 1.8%.
Higher laboratory fees as a result of price increases and improved quality of
lab products accounted for the increase. Expressed as a percentage of patient
revenues, dental supplies and laboratory fees increased from 10.6% for the three
months ended March 31, 2001 to 11.8% for the three months ended March 31, 2002.

  Rent and Lease Expense - Rent and lease expense of $1.5 million for the three
months ended March 31, 2002 decreased by $0.2 million, or 12.1%, from the first
quarter of 2001. The closing of nine dental centers over the past year accounted
for the decrease. Expressed as a percentage of net patient revenues, rent and
lease expense decreased from 6.2% for the three months ended March 31, 2001 to
6.0% for the three-month period ended March 31, 2002.

  Advertising and Marketing - Advertising and marketing expenses of $0.8 million
in the first quarter of 2002 was relatively unchanged from the same period of
2001. Expressed as a percentage of net patient revenues, advertising and
marketing expenses increased from 2.8% in the prior year period to 3.3% for the
three months ended March 31, 2002.

  Depreciation and Amortization - Depreciation and amortization decreased from
$1.7 million for the three months ended March 31, 2001, to $0.9 million for the
three months ended March 31, 2002, a decrease of 0.8 million or 47.0%. Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standard
No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets and reclassified
approximately $54.9 million from management services agreements to goodwill, and
as required by SFAS 142, the company no longer records amortization expenses
related to this goodwill. The effect of this change reduced the net loss by
approximately $0.7 million, or $0.10 per share for the three months ended March
31, 2002. Had the Company adopted SFAS 142 effective January 1, 2001, the effect
would have been to reduce the net loss by approximately $0.7 million, or $0.11
per share for the three months ended March 31, 2001. The Company is currently in
the process of determining the effect of implementing SFAS 142 on goodwill. It
is likely that the Company will record a significant impairment charge as a
change in accounting principle related to certain of its markets upon completion
of the initial impairment review. Management of the Company expects to complete
the assessment by the end of the second quarter 2002. The remainder of the
decrease resulted from the closing of nine centers over the past year. Expressed
as a percentage of net patient revenues, depreciation and amortization decreased
from 6.2% in the prior year period to 3.6% for the three months ended March 31,
2002 .

  Other Operating Expenses - Other operating expenses increased slightly from
$1.9 million for the three months ended March 31, 2001, to $2.0 million for the
three months ended March 31, 2002, an increase of $0.1 million or 2.8%. Other
operating expenses represent expenses related to the operation of the Company's
dental centers. The increase is attributable primarily to recruiting for new
dentists and increased communication costs. Expressed as a percentage of net
patient revenues, other operating expenses increased from 6.9% for the three
months ended March 31, 2001 to 7.7% for the comparable 2002 period.

  Bad Debt Expense - Bad debt expense of $0.8 million for the three months ended
March 31, 2002 decreased by $0.4 million, or 32.3%. Expressed as a percentage of
net patient revenues, bad debt expense decreased from 4.1% for the three months
ended March 31, 2001 to 3.0% for the same period of 2002. The decrease is
attributable to improved collection efforts and increased collection staff.

  Restructuring Costs and Other Charges - For the three months ended March 31,
2002 the Company recorded restructuring costs and other charges of $0.5 million
including remaining lease obligations on closed offices and legal and
professional fees related to the restructuring of the Company's senior credit
facility. For the three months ended March 31, 2001 the Company recorded
restructuring costs and other charges of $0.5 million including severance costs
and legal and professional fees related to the implementation of the plan to
improve operating results and restructure the Company's credit facilities.

  General & Administrative Expense - General and administrative expenses of $2.8
million for the three months ended March 31, 2002 increased by 5.2% from general
and administrative expenses of $2.6 million in the first quarter of 2001.
Expressed as a percentage of net patient revenues, general and administrative

                                       14
<PAGE>

expense increased from 9.5% for the three months ended March 31, 2001 to 10.9%
for the comparable period of 2002. This increase in general and administrative
expenses is attributable to additional support staff in the corporate office and
increased legal expenses.

  Interest Expense - Interest expense decreased from $2.2 million for the three
months ended March 31, 2001 to $1.6 million for the three months ended March 31,
2002, a decrease of $0.6 million or 26.0%. The decrease resulted from a decrease
in the variable interest rate under the bank credit facility and senior
subordinated note agreements.

  Cumulative Effect of Change in Accounting Principle - During June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which requires that companies
recognize all derivative instruments as either assets or liabilities on the
balance sheet and measure those instruments at fair value. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," deferred the implementation of SFAS
133 until the fiscal year ending December 31, 2001. The Company implemented SFAS
133 effective January 1, 2001, resulting in a cumulative effect adjustment of
$0.3 million during the first quarter of 2001.

Liquidity and Capital Resources

  At March 31, 2002 the Company had a net working capital deficit of $68.4
million, resulting primarily from the classification as a current liability of
$45.2 million of outstanding borrowings under the Company's senior bank credit
facility, $15.0 million in senior subordinated note and convertible note
agreements (see below) and $3.5 million in other subordinated notes. Current
assets consisted of cash and cash equivalents of $3.2 million, billed and
unbilled accounts receivable of $8.6 million and prepaid expenses and other
current assets of $1.7 million. Current liabilities totaled $81.9 million,
consisting of $18.1 million in accounts payable and accrued liabilities, $63.7
million in current maturities of long-term debt and $0.1 million of deferred
compensation payable to a stockholder.

  For the three months ended March 31, 2001, cash provided by operating
activities was $2.7 million. In the three months ended March 31, 2002, cash used
in operating activities amounted to $0.4 million. For the three months ended
March 31, 2001 and 2002 cash used in investing activities was $0.1 million and
$0.3 million, respectively, consisting primarily of capital expenditures. For
the three months ended March 31, 2001 and 2002, cash used in financing
activities totaled $0.1 million and $50,000, respectively, representing
repayments of long-term debt and capital lease obligations.

  During the first three months of 2002, the Company's principal sources of
liquidity consisted primarily of cash and cash equivalents and net accounts
receivable. The Company incurred losses of $19.1 million in 2000, $14.8 million
in 2001 and $1.4 million for the three months ended March 31, 2002, and, as a
result, has not been in compliance with certain financial covenants of the
Credit Agreement, the Subordinated Note Agreement and the Convertible Note
Agreement since June 30, 2000 (collectively the "Debt Agreements").

  The Credit Agreement provides for borrowings up to $55.0 million and matures
November 2002. Advances under the Credit Agreement required quarterly interest
payments only through March 2001 at which time principal became payable
quarterly based on a five-year amortization with final payment at maturity.
Borrowings under the Credit Agreement may at no time exceed a specified
borrowing base, which is calculated as a multiple of the Company's earnings
before interest, income taxes, depreciation and amortization ("EBITDA"), as
adjusted. The Credit Agreement bears interest at variable rates, which are based
upon either the bank's base rate or LIBOR, plus, in either case, a margin which
varies according to the ratio of the Company's funded debt to EBITDA, each as
defined in the Credit Agreement. A commitment fee is payable quarterly at rates
ranging from 0.125 percent to 0.5 percent of the unused amounts for such
quarter. The Credit Agreement contains affirmative and negative covenants that
require the Company to maintain certain financial ratios, limit the amount of
additional indebtedness, limit the creation or existence of liens, set certain
restrictions on acquisitions, mergers and sales of assets and restrict the
payment of dividends. At March 31,

                                       15
<PAGE>

2002, $45.2 million was outstanding under the Credit Agreement. In November
2001, the Credit Agreement became a term note, therefore additional borrowings
under the agreement are not available.

  The Subordinated Note Agreement and Convertible Note Agreement provided
borrowings of $13.7 and $1.3 million, respectively. Proceeds from these notes
were used to reduce borrowings under the bank credit facility, to acquire a 20%
minority interest in the Company's California subsidiary and to reduce other
accrued liabilities and accounts payable. Loans under the Subordinated Note
Agreement bear interest at the 90-day LIBOR rate plus five and one-half percent,
payable quarterly, and are due in eight quarterly installments beginning in the
sixty-third month following the closing date. Loans under the Convertible Note
Agreement bear interest at the same rate as loans under the Subordinated Note
Agreement and are due on demand beginning seven years after the closing date
with a final maturity date of January 30, 2009. The convertible note is
convertible at any time into 442,880 shares of Company common stock at the
request of the holders at a fixed conversion price of $3.1125 per share. The
Subordinated Note Agreement and Convertible Note Agreement contain affirmative
and negative covenants that require the Company to maintain certain financial
ratios, limit the amount of additional indebtedness, limit the creation or
existence of liens, set certain restrictions on acquisitions, mergers and sales
of assets and restrict the payment of dividends .

  As a result of losses incurred in the past two years and the three months
ended March 31, 2002, the Company has not been in compliance with the financial
covenants of the Debt Agreements since June 30, 2000. At March 31, 2002,
approximately $45.2 million in senior debt and $15.0 million in subordinated
debt were outstanding under the Debt Agreements in addition to approximately
$3.5 million in other outstanding subordinated debt. Since the Company is in
default under these agreements, all amounts outstanding are subject to
acceleration and have been classified as current liabilities.

  The Company has continued to pay interest (other than default interest) on the
amounts outstanding under the Credit Agreement, but has not made scheduled
principal payments of $11.3 million under the Credit Agreement, nor made
interest or principal payments of $6.3 million owed to subordinated creditors
since July 2000. During the last half of 2001, the Company negotiated with its
creditors and an unrelated third party concerning a potential equity investment
and the restructuring of the Debt Agreements and other Company debt. However,
due to the deterioration in operating results in the fourth quarter 2001, the
discussions concerning the potential equity investment were terminated in
January 2002 and the Company has continued negotiations with the senior and
subordinated lenders concerning a forbearance agreement or a restructuring of
the Company's debt. However, these negotiations have not resulted in a
forbearance agreement or restructuring of the debt as of May 13, 2002. There can
be no assurance that the Company's lenders will consent to the restructuring
necessary to allow the Company to continue to operate. If the Company and its
lenders cannot reach an agreement, it may be necessary for the Company to seek
protection under Chapter 11 of the Bankruptcy Code. These factors, among others,
indicate that the Company may be unable to continue as a going concern.

  The Company has implemented a plan to improve operating results. Components of
this plan include (i) increased hiring of new dentists and improving dentist
retention; (ii) continuing to monitor and close unprofitable and under
performing dental centers; (iii) refurbishing and modernizing existing dental
centers within capital expenditure constraints of $1.5 million; (iv) upgrading
dental office management personnel; and (v) improving patient services in order
to increase patient retention rates.

  However, there can be no assurance that the these efforts to improve operating
results and cash flows will be sufficient to allow the Company to meet its
obligations in a timely manner or that the Company's creditors will agree with
the plan. Therefore, there is substantial doubt about the Company's ability to
continue in existence.

Recent Accounting Pronouncements

  On August 16, 2001, the Financial Accounting Standards Board issued SFAS 143,
"Accounting for Asset Retirement Obligation". SFAS 143 addresses financial
accounting and reporting for obligations

                                       16
<PAGE>

associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. These provisions of SFAS 143 are effective for financial
statements issued for fiscal years beginning after June 15, 2002. Earlier
application is encouraged. Management believes the application of SFAS 143 will
not have a material effect on the Company.

  On October 3, 2001, the Financial Accounting Standards Board issued SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement supercedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", both of which address the disposal of a segment of a business.
The provisions of SFAS 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years, with early application encouraged. The Company is currently
evaluating the impact of the adoption of this Statement but does not believe it
will have a material impact on the Company's net income, cash flows, or
financial condition.

  In May 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 (SFAS 145), "Rescission of FAS Nos.4, 44,
and 64, Amendment of FAS 13, and Technical Corrections as of April 2002." This
Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for financial statements issued for fiscal years beginning after May 15, 2002.
SFAS No. 145 is not expected to affect our results of operations, liquidity or
financial position.


Item 3. Quantitative and Qualitative Disclosures About Market Risks

  The Company's financial instruments with market risk exposure are revolving
credit borrowings under its Debt Agreements, which total $60.2 million at March
31, 2002. Based on this balance, a change of one percent in the interest rate
would cause a change in interest expense of approximately $602,000, or $0.09 per
share, on an annual basis. The bank credit facility was not entered into for
trading purposes and carries interest at a pre-agreed upon percentage point
spread from either the prime interest rate or Eurodollar interest rate.

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings.

  In June 2000, the Company recorded litigation expenses of $1,495,000 resulting
from an arbitration award against two subsidiaries of the Company in an
arbitration proceeding in Los Angeles, California. The arbitrator found that the
subsidiaries had breached a contractual agreement to acquire a dental practice
and awarded the plaintiffs actual damages and costs of $442,000. In August 2000,
the arbitrator awarded the plaintiffs an additional $666,000 for attorney fees
and costs, resulting in a total judgment of $1,108,000 against the Company's
subsidiaries. This amount, as well as additional legal expenses incurred by the
Company, was included in the litigation expenses recorded in June 2000. None of
the judgment amount awarded to the plaintiffs has been paid as of May 13, 2002.

  In October 2001, the former owners of Dental Centers of America filed suit in
Bexar County, Texas alleging that the Company breached a letter agreement
offering payment as settlement for past due amounts on two subordinated
promissory notes that were part of the purchase consideration for Dental Centers
of America. In March 2002, the plaintiffs obtained a judgment for $625,000 plus
interest and attorneys' fees, against the Company. The Company is currently
involved in settlement negotiations with the plaintiffs and none of the judgment
award has been paid as of May 13, 2002.

                                       17
<PAGE>

  The Company also is a defendant in a lawsuit with the landlord of a leased
property that was abandoned by the Company in 2001 as part of its restructuring
plan. The lease had a remaining term of 42 months at a monthly rental rate of
$3,800 at the time the Company stopped paying rent on the lease. The Company is
attempting to negotiate a settlement with the landlord. In April 2002, the
Company paid $45,000 in settlement of another lease that it had abandoned and
that had been the subject of a lawsuit.

  The Company carries insurance with coverages and coverage limits that it
believes to be customary in the dental industry. Although there can be no
assurance that such insurance will be sufficient to protect the Company against
all contingencies, management believes that its insurance protection is
reasonable in view of the nature and scope of the Company's operations.

  The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.

Item 2. Changes in Securities and Use of Proceeds.

  Not applicable.

Item 3. Defaults Upon Senior Securities.

  As a result of losses incurred in 2000, 2001 and the three months ended March
31, 2002, the Company has not been in compliance with the financial covenants of
the Credit Agreement, Subordinated Note Agreement and Convertible Note Agreement
("Debt Agreements") since June 30, 2000. At March 31, 2002, approximately $45.2
million in senior debt and $15.0 million in subordinated debt were outstanding
under the Debt Agreements in addition to approximately $3.5 million in other
outstanding subordinated debt. The Company has continued to pay interest (other
than cumulative default interest of $2.2 million) on the amounts outstanding
under the Debt Agreements, but has not made scheduled principal payments of
$11.3 million as of March 31, 2002 due under the Credit Agreement, nor made
interest or principal payments of $6.3 million owed to subordinated creditors
since July 2000. Since the Company is in default under these agreements, all
amounts outstanding are subject to acceleration and have been classified as
current liabilities. The Company has requested a forbearance of scheduled
principal payments and is negotiating with its lenders to restructure the Debt
Agreements. However, these negotiations have not resulted in a forbearance
agreement or restructuring of the debt. There can be no assurance that the
Company's lenders will consent to forbearance agreement and restructuring
necessary to allow the Company to continue to operate. If the Company and the
lenders cannot reach an agreement, it may be necessary for the Company to seek
protection under Chapter 11 of the Bankruptcy Code.

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

  None

Item 5. Other Information.

  Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

  The following exhibits are filed with this report:

        (a) Exhibits

            2. Plan of Acquisition, Reorganization, Arrangement, Liquidation of
               Succession*

            3. Articles of Incorporation and By-laws

               3.1 Amended and Restated Certificate of Incorporation of Castle
                   Dental Centers, Inc. (incorporated by reference from Exhibit
                   3.1 of the Company's

                                       18
<PAGE>

                      Annual Report on Form 10-K for the period ended December
                      31, 2001, File No. 001-13263)

               3.2    Bylaws of Castle Dental Centers, Inc. (incorporated by
                      reference to Exhibit 3.3 of the Company's Registration
                      Statement on Form S-1, filed September 3, 1996, Reg. No.
                      333-1335)

               3.3  Amendment to Bylaws of Castle Dental Centers, Inc. dated
                    August 16, 1996 (incorporated by reference to Exhibit 3.4 of
                    the Company's Registration Statement on Form S-1, filed
                    September 3, 1996, Reg. No. 333-1335)

           4.  Instruments defining the rights of security holders, including
               indentures.

               4.1    Form of Certificate representing the Common Stock, par
                      value $.001 per share, of Castle Dental Centers, Inc.
                      (incorporated by reference to Exhibit 4.1 of the Company's
                      Registration Statement on Form S-1, filed September 3,
                      1996, Reg. No. 333-1335)

               4.2    Registration Rights Agreement dated December 18, 1995,
                      among Castle Dental Centers, Inc. and Delaware State
                      Employees' Retirement Fund, Declaration of Trust for
                      Defined Benefit Plan of ICI American Holdings, Inc.,
                      Declaration of Trust for Defined Benefit Plan of Zeneca
                      Holdings, Inc. and certain stockholders and investors in
                      the Company (incorporated by reference to Exhibit 4.2 of
                      the Company's Registration Statement on Form S-1, filed
                      September 3, 1996, Reg. No. 333-1335)

           4.3 Stockholders Agreement dated as of January 31, 2000, by and
                      among Castle Dental Centers, Inc., Heller Financial, Inc.,
                      Midwest Mezzanine Fund II, L.P., and certain stockholders
                      and investors in the Company (incorporated by reference to
                      Exhibit 4.3 of the Company's Form Annual Report on Form
                      10-K for the period ended March 31, 2000, File No. 001-
                      13263)

               4.4    Registration Rights Agreement dated as of January 31,
                      2000, by and among Castle Dental Centers, Inc., Heller
                      Financial, Inc., Midwest Mezzanine Fund II, L.P., and
                      certain stockholders and investors in the Company.
                      (incorporated by reference to Exhibit 4.4 of the Company's
                      Form Annual Report on Form 10-K for the period ended March
                      31, 2000, File No. 001-13263)

           10. Material Contracts*

           11. Statement re computation of per share earnings*

           15. Letter re unaudited interim financial information*

           18. Letter re change in accounting principles*

           19. Report furnished to security holders*

           22. Published report regarding matters submitted to vote of security
               holders*

           23. Consents of experts and counsel*

           24. Power of attorney*

           99. Additional exhibits*

                                       19
<PAGE>

--------------------
               *Inapplicable to this filing

     (b) Reports on Form 8-K

         None

                                  SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                     CASTLE DENTAL CENTERS, INC.


Date: May 20, 2002                      /s/ JAMES M.USDAN
                                     -----------------------------
                                        James M. Usdan
                                        Chief Executive Officer

Date: May 20, 2002                      /s/ JOSEPH P. KEANE
                                     -----------------------------
                                        Joseph P. Keane
                                        Chief Financial Officer

                                       20