<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 FORM 10-K/A-1

[X]     Annual Report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the fiscal year ended December 31, 1996, or

[ ]     Transition Report pursuant to Section 13 or 15(d) of the
        Securities Exchange Act of 1934 for the transition period from
        ___________ to __________.

                         COMMISSION FILE NO.:  0-25256

                      ORTHODONTIC CENTERS OF AMERICA, INC.
                      ------------------------------------
             (Exact name of registrant as specified in its charter)

           DELAWARE                                            72-1278948
-------------------------------                            ---------------------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)
 
5000 SAWGRASS VILLAGE CIRCLE, SUITE 25
     PONTE VEDRA BEACH, FLORIDA                                     32082
----------------------------------------                   ---------------------
(Address of principal executive offices)                         (Zip Code)
 
Registrant's telephone number, including area code: (904) 280-4500
                                                    --------------

Securities registered pursuant to Section 12(b) of the Act:
                                                           Name of Each Exchange
         Title of Each Class                                on Which Registered
------------------------------------                       ---------------------
                NONE                                                NONE

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

                     COMMON STOCK, $.01 PAR VALUE PER SHARE
                     --------------------------------------
                                (Title of Class)

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

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

The aggregate market value of the shares of the Registrant's Common Stock held
by non-affiliates of the Registrant on March 17, 1997 was approximately
$535,110,000 based upon the closing price per share of the Registrant's Common
Stock as reported on the Nasdaq Stock Market on March 17, 1997.  As of March 17,
1997, there were 43,626,951 outstanding shares of the Registrant's Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's definitive Proxy Statement relating to the
  Annual Meeting of Stockholders of the Registrant to be held during 1997 are
  incorporated by reference into Part III of this Report.
<PAGE>
 
                          FORWARD-LOOKING STATEMENTS

        Statements contained in this Report which are not historical in nature
  are forward-looking statements within the meaning of the Private Securities
  Litigation Reform Act of 1995.  These forward-looking statements include
  statements in "Item 1. Business", "Item 3. Market for Registrant's Common
  Equity and Related Stockholder Matters" and "Item 7. Management's Discussion
  and Analysis of Financial Condition and Results of Operations" regarding the
  development and acquisition of additional Orthodontic Centers and affiliation
  with additional orthodontic practices, recruitment of additional Affiliated
  Orthodontists, advancement of funds to Affiliated Orthodontists, location of
  Orthodontic Centers in facilities not shared with a general dentist,
  projections of the Company's future earnings, funding of the Company's
  expansion, operations and capital expenditures, payment or nonpayment of
  dividends and cash outlays for income taxes.

        Such forward-looking statements involve certain risks and uncertainties
  that could cause actual results to differ materially from anticipated results.
  These risks and uncertainties include regulatory constraints, changes in laws
  regulating the practice of dentistry or the interpretation of such laws,
  competition from other orthodontists or practice management companies, the
  availability of suitable new markets and suitable locations within such
  markets, changes in the Company's operating or expansion strategy, failure to
  consummate proposed developments or acquisitions of Orthodontic Centers, the
  ability of the Company to effectively manage an increasing number of
  Orthodontic Centers, the general economy of the United States and the specific
  markets in which the Orthodontic Centers are located or are proposed to be
  located, and other factors as may be identified from time to time in the
  Company's filings with the Securities and Exchange Commission or in the
  Company's press releases.
<PAGE>
 
                                    PART I

  ITEM 1.  BUSINESS
  -------  --------

  GENERAL

        Orthodontic Centers of America, Inc. and its subsidiaries (the
  "Company") develop and manage orthodontic practices on a national basis
  pursuant to long-term agreements in the approximately $3.6 billion orthodontic
  industry.  The Company has grown from managing 11 orthodontic centers
  affiliated with the Company (the "Orthodontic Centers") in 1989 to managing
  247 Orthodontic Centers located in 28 states and staffed by 133 orthodontists
  who provide orthodontic services at the Orthodontic Centers ("Affiliated
  Orthodontists") at December 31, 1996.  Of the 247 Orthodontic Centers at
  December 31, 1996, 134 were developed by the Company and 113 were existing
  orthodontic practices whose assets were acquired by the Company.

        The Company provides capital for the development and growth of
  Orthodontic Centers and manages the business and marketing aspects of the
  Affiliated Orthodontists' practices, thereby allowing Affiliated Orthodontists
  to focus on delivering quality patient care.  Management believes that the
  Company's operating strategy has allowed the Affiliated Orthodontists to
  realize significantly greater productivity and profitability than traditional
  orthodontic practices, thereby presenting an attractive opportunity to
  orthodontists and allowing the Affiliated Orthodontists to compete more
  effectively than traditional local practices.

        The Orthodontic Centers' office design (which permits an Affiliated
  Orthodontist to treat patients without moving from room to room), scheduling
  system (which groups appointments by the type of procedure and dedicates
  certain days exclusively to new patients), and efficient use of an average of
  five orthodontic assistants per Orthodontic Center have enabled Affiliated
  Orthodontists practicing in Orthodontic Centers open throughout 1995 to treat
  an average of 77 patients per nine-hour patient treatment day during 1996.
  Orthodontists in the United States treated an average of 41.5 patients per
  operating day in 1994.

        The Company develops and implements aggressive and innovative marketing
  plans for the Orthodontic Centers, utilizing local television, radio and print
  advertising and internal marketing promotions.  During 1996, the Company spent
  an average of approximately $70,491 per Affiliated Orthodontist on direct
  marketing costs and advertising.  In contrast, the traditional orthodontist,
  who relies primarily on referrals from dentists and other patients, spent an
  average of approximately $4,400 on marketing and advertising in 1992.  As a
  result of this marketing strategy, during 1996, each Affiliated Orthodontist
  who had practiced orthodontics for at least one year generated an average of
  512 new case starts as compared to the 1994 national average of approximately
  170 new case starts per orthodontist.

        The Company has implemented an aggressive growth strategy to develop new
  Orthodontic Centers in conjunction with current and newly recruited Affiliated
  Orthodontists and to acquire the assets of, and enter into long-term
  agreements with, existing orthodontic practices in both new and existing
  markets.  The United States orthodontic industry is highly fragmented, with
  approximately 90% of the approximately 9,060 practicing orthodontists acting
  as sole practitioners.  Because Affiliated Orthodontists have generally
  experienced better financial performance than in their prior traditional
  practices, management believes that affiliating with the Company offers
  practicing orthodontists and recent graduates an attractive and profitable
  opportunity.

                                       
<PAGE>
 
  THE ORTHODONTIC INDUSTRY

        Industry Overview

        In 1994, orthodontists in the United States initiated treatment for
  approximately 1.5 million patients.  Of these patients, approximately 1.1
  million were between the ages of nine and 18 and the remaining patients were
  primarily adults between the ages of 25 and 35.  The number of adults seeking
  treatment has increased in recent years from 332,000 case starts in 1989 to
  approximately 400,000 case starts in 1994.  Based upon the results of a 1994
  study conducted by members of the Department of Orthodontics of the University
  of Florida and based upon management's experience in the orthodontic industry,
  management believes that the total market for orthodontic services
  substantially exceeds the number of patients currently seeking treatment.

        According to the 1995 Journal of Clinical Orthodontists Orthodontic
  Practice Study (the "1995 JCO Study"), the number of orthodontists practicing
  in the United States has remained at approximately the same level since 1989.
  The United States orthodontic industry includes approximately 9,060
  orthodontists and is currently highly fragmented, with approximately 90% of
  the practicing orthodontists acting as sole practitioners.  Orthodontists must
  complete up to three years of post graduate studies following completion of
  dental programs.  Many dentists who are not orthodontists also perform certain
  orthodontic services.  Data relating to these individuals are not included in
  the 1995 JCO Study.

        The table below presents certain information included in the 1995 JCO
  Study concerning the United States orthodontic industry in each of the years
  presented:

<TABLE>
<CAPTION>
 
                                         1990        1991        1992        1993        1994
                                      ----------  ----------  ----------  ----------  ----------
<S>                                   <C>         <C>         <C>         <C>         <C>
Number of practicing orthodontists..       8,720       8,760       8,856       8,958       9,060
Number of new patient cases.........   1,308,000   1,314,000   1,416,960   1,478,070   1,540,200
Average fee per case................  $    3,050  $    3,221  $    3,401  $    3,447  $    3,492
</TABLE>

        Management believes, based upon the 1995 JCO Study, that the total
  number of new patient cases has increased only moderately because of the
  reliance of orthodontists in traditional orthodontic practices on referrals
  from general dentists or existing patients for new patients.  Orthodontists in
  the United States spent an average of approximately $4,400 on marketing and
  advertising in 1992.  Therefore, to increase revenue many orthodontists have
  raised the fees they charge for their services.

        Traditional Orthodontic Practice

        The traditional orthodontic practice typically includes a sole
  orthodontist, who practices at a single primary location or at an average of
  less than one satellite office, with an average of approximately three
  orthodontic assistants and two business office personnel.  At a typical
  orthodontic office, chairs are arranged in an open room in a somewhat circular
  pattern.  Both the orthodontist and orthodontic assistant must complete
  treatment on a particular patient before treating the next patient.  The
  traditional orthodontic office is structured so that the orthodontist rotates
  from one patient to another, as an orthodontic assistant completes the
  orthodontic work.  In the traditional practice, the orthodontist manages all
  business aspects of the practice, as the use of third party management
  services is not typical.

        In a typical orthodontic practice, before braces are applied a patient
  is required to complete as many as four preliminary appointments, consisting
  of an initial examination and sessions for making impressions of the patient's
  teeth, taking x-rays and placing spacers between the patient's teeth.  The
  patient returns for monthly adjustments before the braces are removed and a
  retainer is made to maintain the orthodontic

                                       2
<PAGE>
 
  treatment.  In 1994, standard case fees in traditional orthodontic practices
  averaged approximately $3,450 for children and approximately $3,700 for
  adults.  The charges for preliminary appointments, including a required down
  payment, averaged approximately $875 to $925, or approximately 25% of the
  total fee.  Fees are paid each month by the patient for services performed at
  that visit.

        According to the 1995 JCO Study, the average orthodontist initiated
  treatment of approximately 170 patients in 1994, treated approximately 41.5
  patients per operating date and maintained approximately 380 active cases.  In
  addition, the average orthodontic practice consisted of one or two offices and
  generated gross fees of $475,000, with the orthodontists realizing net
  practice income of approximately $191,000.

  OPERATING STRATEGY

        The Company's operating strategy focuses on facilitating the provision
  of quality and affordable orthodontic care by Affiliated Orthodontists,
  attracting new patients through marketing and advertising, increasing the
  productivity and profitability of Affiliated Orthodontists, achieving
  economies of scale in marketing, administration and purchasing and
  capitalizing on the experience of the Company's senior management.

        Emphasizing Quality Patient Care.  All Affiliated Orthodontists are
  graduates of accredited orthodontic training programs and participate in
  advisory committees that meet twice a year to perform peer review studies and
  to consult with the Affiliated Orthodontists.  In addition, the Company
  provides operating systems and support that enhance the ability of Affiliated
  Orthodontists to provide quality patient care.  Senior clinical technicians
  and the clinical staff receive training in procedures which enhance the level
  of patient service.

        Stimulating Demand in Local Markets Through Aggressive Marketing.  The
  Company develops and implements aggressive and innovative marketing plans for
  each Orthodontic Center, utilizing local television, radio and print
  advertising and internal marketing promotions.  During 1996, the Company spent
  on average approximately $70,491 per Affiliated Orthodontist on direct
  marketing costs and advertising.  In contrast, the traditional orthodontist,
  who relies primarily on referrals from dentists and other patients, spent an
  average of approximately $4,400 on marketing and advertising in 1992.  During
  1996, each Affiliated Orthodontist who had been affiliated with the Company
  for at least one year generated an average of 512 new case starts as compared
  to the 1994 national average of approximately 170 new case starts per
  orthodontist.

        Achieving Operating Efficiencies and Economies of Scale.  The Company
  implements a variety of operating procedures and systems to improve the
  productivity and profitability of the Orthodontic Centers and to achieve
  economies of scale.  These include Orthodontic Center office designs which
  have increased the number of patients treated and enhanced patient comfort and
  privacy, a scheduling system which has increased capacity utilization,
  efficient use of orthodontic assistants and centralized purchasing and
  distribution systems.  During 1996, Affiliated Orthodontists practicing in
  Orthodontic Centers open throughout 1995 treated an average of 77 patients per
  nine-hour patient treatment day.  Orthodontists in the United States treated
  an average of 41.5 patients per operating day in 1994.

        Increasing Market Penetration with Affordable Payment Plans.  The
  Orthodontic Centers generally provide a payment plan recommended by the
  Company which consists of no down payment, equal monthly payments of $98 per
  month over the term of the treatment and a final payment of $398 at completion
  of the treatment.  In the event a patient has dental insurance, which, during
  1996, covered approximately 21% of the patients treated at the Orthodontic
  Centers, patients may co-pay from $49 to $79 per month.  Based upon

                                       3
<PAGE>
 
  the success of the Orthodontic Centers in attracting new patients, management
  believes that this payment plan and the Company's marketing activities have
  resulted in many patients receiving treatment who otherwise may not have
  sought orthodontic services.  For a standard case in which treatment continues
  for between 26 and 32 months, the total fees charged by the Affiliated
  Orthodontists averaged approximately $3,100 in 1996, which was below the 1994
  national average of $3,450 to $3,700 for the same period of treatment.  Since
  1991, approximately 1.3% of the Company's net revenue has been uncollectible.
  Management believes that the Orthodontic Centers are able to charge lower fees
  because of the operating efficiencies resulting from the office designs of
  Orthodontic Centers, the patient scheduling systems, efficient use of
  orthodontic assistants and centralized purchasing and distribution systems.

        Capitalizing on Management Expertise.  The members of the Company's
  senior management have over 41 years combined experience in the orthodontic
  industry.  In addition to providing marketing and operating expertise, the
  Company provides Affiliated Orthodontists with monthly operating data and
  quarterly financial statements for each Orthodontic Center, including
  management's analysis of the financial results and recommended changes to
  improve financial and operating performance.  The Company assists Affiliated
  Orthodontists in the selection of new sites for Orthodontic Centers and
  provides trained staff personnel to operate the Orthodontic Centers.

  EXPANSION STRATEGY

        The Company has implemented a growth strategy to develop new Orthodontic
  Centers and to affiliate with existing practices in both new and existing
  markets.  Based upon the Company's experience in negotiating with
  orthodontists, management believes that orthodontists choose to affiliate with
  the Company because the Company provides (i) the capital required to open an
  Orthodontic Center, (ii) the business and clinical systems and staffing
  required to operate a new Orthodontic Center, (iii) the opportunity to
  substantially increase practice income derived by the orthodontists, and (iv)
  the opportunity to increase the orthodontists' focus on patient care rather
  than administration.

        Development of New Orthodontic Centers.  The Company actively markets
  itself to orthodontists interested in opening new practices by targeting
  orthodontic students and military orthodontists and by advertising in
  professional journals.  The average cost of developing a new Orthodontic
  Center is approximately $230,000, including the cost of equipment, leasehold
  improvements, working capital and losses associated with the initial
  operations of the Orthodontic Center.  The costs of developing a new
  Orthodontic Center are shared by the Company and the particular Affiliated
  Orthodontist.  The Company assists Affiliated Orthodontists in obtaining
  financing of their share of such costs through the Company's primary lender.
  For new developments, the Company has discontinued financing Affiliated
  Orthodontists' share of losses associated with the initial operations of the
  Orthodontic Center, which were historically financed by the Company as an
  unsecured advance repayable by the Affiliated Orthodontist over a five-year
  period and bearing interest at 1.5% per annum above the prime rate, with
  repayment beginning upon the attainment of positive cash flow by the
  Orthodontic Center (which generally occurs approximately 12 months after an
  Orthodontic Center commences operations).  The Company intends, however, to
  continue to make advances of approximately $20,000 to newly-affiliated
  Affiliated Orthodontists during the first year of an Orthodontic Center's
  operations, which advances bear no interest and typically are repaid during
  the second year of the Orthodontic Center's operations.  The Company is
  assisting Affiliated Orthodontists in obtaining financing from the Company's
  primary lender to replace the Company's financing of such Affiliated
  Orthodontists' share of the costs of previously completed developments.

        At December 31, 1996, the Company had entered into agreements with 22
  orthodontists pursuant to which 48 Orthodontic Centers would be developed
  during 1997, many of which would be opened in states

                                       4
<PAGE>
 
  in which the Company does not currently manage an Orthodontic Center.  The
  development of an Orthodontic Center typically takes six to eight months
  following execution of such agreement.  The Company also intends to develop
  additional Orthodontic Centers with current Affiliated Orthodontists in 1997.
  There can be no assurance that any such proposed developments will be
  completed or that any such Orthodontic Centers will operate successfully.

        Acquisition of the Assets of Existing Orthodontic Practices. During the
  period January 1, 1989 through December 31, 1996, the Company acquired the
  assets of, and affiliated with, 113 existing orthodontic practices, following
  which such practices have experienced increased average quarterly gross
  revenue and operating income per center. The Company continues to evaluate
  additional potential acquisitions.

        Affiliation with Non-Advertising Practices.  The Company recently
  commenced operations of a new division within the Company that will focus on
  affiliations with traditional, non-advertising orthodontic practices that
  generate a relatively large amount of revenue.  The Company has engaged the
  services of Dr. Ronald M. Roncone, who operates a successful non-advertising
  orthodontic practice in California, to assist the Company in developing this
  new division.  Dr. Roncone is considered one of the country's leading
  orthodontists and lectures internationally on methods of expanding orthodontic
  practices.  Management expects that the terms of the service or consulting
  agreements between non-advertising orthodontists and the Company will be
  similar to those currently used by the Company.  According to the 1995 JCO
  Study, most orthodontists practicing in the United States do not advertise
  through mass media.  Management believes that affiliating with selected non-
  advertising orthodontic practices will provide the Company with additional
  opportunities for growth.  In addition, management believes that its
  association with Dr. Roncone will enhance the reputation of the Company
  within the orthodontic industry.

  ORTHODONTIC CENTERS

        Location

        At December 31, 1996 there were 247 Orthodontic Centers located in 28
  states.  The following table sets forth information regarding these 247
  Orthodontic Centers:

 
                                                     Number of
State             ADI(1)                              Centers
-----             ------                             ---------

Alabama           Birmingham....................             2
                  Montgomery....................             1
Arizona           Lake Havasu...................             1
                  Phoenix.......................             5
                  Tucson........................             2
California        Fresno........................             2
                  Palm Desert...................             1
                  San Diego.....................             9
                  San Jose......................             1
Colorado          Colorado Springs..............             2
                  Denver........................             4
                  Fort Collins..................             1
                  Grand Junction................             1
Connecticut       Hartford......................             5

                                       5
<PAGE>
 
                                                     Number of
State             ADI(1)                              Centers
-----             ------                             ---------

Florida           Fort Lauderdale/Miami.........            11
                  Fort Myers....................             2
                  Gainesville...................             3
                  Jacksonville..................             4
                  Orlando.......................             7
                  Panama City...................             1
                  Pensacola.....................             1
                  Tallahassee...................             1
                  Tampa.........................            10
                  West Palm Beach...............             4
Georgia           Albany........................             3
                  Atlanta.......................             9
                  Augusta.......................             1
                  Columbus......................             1
                  Savannah......................             2
Illinois          Chicago.......................             3
                  Rockford......................             1
Indiana           Indianapolis..................             3
                  Louisville, KY................             1
Kentucky          Louisville....................             2
Louisiana         Alexandria....................             1
                  Baton Rouge...................             1
                  Lafayette.....................             1
                  Monroe........................             1
                  New Orleans...................             8
                  Shreveport....................             1
Maryland          Baltimore.....................             6
                  Rockville/Washington, D.C.....             5
Massachusetts     Providence, RI................             2
                  Springfield...................             3
Minnesota         Minneapolis...................             5
Mississippi       Gulfport......................             4
                  Hattiesburg...................             1
                  Jackson.......................             1
                  Meridian......................             1
                  New Orleans, LA...............             1
New Jersey        Philadelphia, PA..............             1
North Carolina    Charlotte.....................             3
                  Greenville....................             4
                  Greenville, SC................             1
                  Raleigh-Durham................             4
                  Winston-Salem.................             4
Nevada            Reno..........................             1

                                       6
<PAGE>
 
                                                     Number of
State             ADI(1)                              Centers
-----             ------                             ---------

Ohio              Charleston, WV................             1
                  Wheeling,WV...................             1
                  Cincinnati....................             3
                  Cleveland.....................             2 
                  Columbus......................             2
                  Youngstown....................             2
Oregon            Bend..........................             3
                  Portland......................             2
Pennsylvania      Baltimore, MD.................             1
                  Hershey.......................             2
                  Johnstown-Altoona.............             2
                  Philadelphia..................             4
                  Pittsburgh....................             1
Rhode Island      Providence....................             1
South Carolina    Charleston....................             3
                  Columbia......................             2
                  Greenville....................             1
Tennessee         Chattanooga...................             2
                  Johnson City/Bristol/Kingsport             3
                  Knoxville.....................             2
                  Nashville.....................             3
Texas             Austin........................             2
                  Dallas/Ft. Worth..............             3
                  El Paso.......................             2
                  Houston.......................             2
                  San Antonio...................             3
                  Waco..........................             2
Virginia          Norfolk.......................             4
                  Richmond......................             3
                  Arlington/Washington, D.C.....             4
Washington        Portland, OR..................             1
                  Seattle.......................             7
West Virginia     Charleston....................             2
                  Wheeling......................             2
                                                           ---
Total
                                                           247
                                                           ===
---------------------------
  (1)   "ADI" refers to an "area of dominant influence" (as defined by Arbitron
        Ratings Company) and is the broadcast coverage area of television and
        radio stations in a given market area.


        Design

        The Orthodontic Centers are generally located either in shopping centers
or professional office buildings. Substantially all of the Orthodontic Centers
include private treatment rooms and large patient waiting areas (rather than one
large treatment area). This allows the Orthodontic Centers to locate in a

                                       7
<PAGE>
 
  broader range of office space than a traditional orthodontic practice.  The
  Orthodontic Centers typically include up to six treatment rooms.

        Of the 247 Orthodontic Centers at December 31, 1996, 244 are located in
  offices used only by the Affiliated Orthodontists and three are located in
  space shared with a general dentist.  The Company intends to relocate these
  three Orthodontic Centers to free-standing locations as soon as practicable.
  In its development of additional Orthodontic Centers, the Company intends to
  establish only free-standing Orthodontic Centers and does not intend to share
  office space with general dentists.

        The Company has opened three Orthodontic Centers with approximately
  twice the number of square feet as the other Orthodontic Centers.  This new
  larger configuration is intended to improve operating efficiency and is being
  evaluated for additional markets.

        Staffing and Scheduling

        For days on which patients are scheduled, an Orthodontic Center is
  generally open for business from 8:30 a.m. to 6:30 p.m., and at least one
  Saturday every month.  In markets in which there are two or more Orthodontic
  Centers, each Orthodontic Center in that market is fully staffed only for days
  on which the Affiliated Orthodontist is scheduled to work, ranging from two to
  20 days per month.  Staff members dedicated to the Orthodontic Centers in that
  market, including the business personnel and the orthodontic assistants,
  rotate with the Affiliated Orthodontist among the Orthodontic Centers in the
  market.  On all other days, the Orthodontic Center is staffed only with a
  receptionist who answers the telephone and books appointments.

        Patients are scheduled based upon this rotation schedule, if applicable.
  Therefore, a particular Orthodontic Center will have appointments available
  only for pre-established days each month.  To promote efficiency, appointments
  for particular types of procedures are grouped together on designated days,
  with each Orthodontic Center scheduling specified days on which new patients
  are treated and other days each month during which current patients are
  treated.  This system permits utilization of an Orthodontic Center by a
  greater number of patients each day patients are treated.

        New patient days.  Certain days each month are dedicated solely to
  seeing new patients.  Longer appointments are scheduled for new patient days
  to allow for the initial consultation, preliminary procedures (including teeth
  impressions and x-rays) and the placing of spacers between the patient's teeth
  in anticipation of the application of the braces at the next appointment.  If
  orthodontic treatment is recommended by the Affiliated Orthodontist, the
  patient then signs a contract for the treatment.  The grouping of new patient
  appointments separately from the monthly appointments for existing patients
  avoids certain inefficiencies which might be created by the longer
  appointments required for new patients.

        Regular treatment days.  Within two weeks after a patient's initial
  visit, a patient typically returns to an Orthodontic Center for application of
  braces and returns each month thereafter for adjustments to the braces.  The
  patient makes a monthly payment prior to receiving his or her chart and
  proceeding to an inner waiting room.  The Affiliated Orthodontist then reviews
  the status of the treatment and prescribes any necessary adjustments to the
  braces.  The patient then proceeds to a private treatment room, where an
  orthodontic assistant makes the prescribed adjustments.  The patient then
  returns to the Affiliated Orthodontist for final examination and adjustments
  that must be made by an orthodontist.  Before leaving the Orthodontic Center,
  the patient makes an appointment for the next month and receives appropriate
  written information or instructions regarding his or her activities during the
  interim period.

                                       8
<PAGE>
 
        Payment Plan; Case Fees

        The Orthodontic Centers generally provide a payment plan recommended by
  the Company, which consists of no initial down payment, equal monthly payments
  of $98 per month during the term of the treatment and a final payment of $398
  at the completion of treatment. At the initial treatment, the patient signs a
  contract outlining the terms of the treatment, including the anticipated
  length of treatment and the total fees. The number of required monthly
  payments is fixed at the beginning of the case and corresponds to the
  anticipated term of treatment, which averages 26 months. Payment is required
  from patients at the beginning of each month.

        In the event the treatment period exceeds the period originally
  estimated by the orthodontist, the patient is not required to pay for the
  additional months of treatment.  In the event the treatment is completed prior
  to the scheduled completion date, the patient is required to pay 75% of the
  remaining balance of the contract.  If a patient terminates the treatment
  prior to the completion of the treatment period, the patient is required to
  pay the balance due for all services rendered to date pursuant to the
  contract.  Patients may transfer to another Orthodontic Center for the
  completion of the treatments.  In such an event the patient would continue to
  pay the required monthly fees under the contract.  Since 1991, approximately
  1.3% of the Company's net revenue have proven to be uncollectible.

        The Orthodontic Centers do not accept payment by Medicare or Medicaid
  for services provided.  Other payment plans with lower total payments by the
  patient are available for patients who have insurance coverage for the
  treatment.  During 1996, approximately 21% of the patients treated at the
  Orthodontic Centers had some form of insurance coverage and approximately 14%
  of the patient revenue of the Affiliated Orthodontists was paid by a third
  party payor.  The portion of the fee not covered by insurance is the
  responsibility of the patient.

  SERVICES AND OPERATIONS

        The Company generally manages all of the operations of an Orthodontic
  Center other than the provision of orthodontic services.  The Company provides
  financial, accounting, billing and collection services for an Orthodontic
  Center and employs the Orthodontic Center's business personnel.  Where
  permitted by applicable statutes or regulations, the Company also employs the
  orthodontic assistants.

        Advertising and Marketing

        The Company advertises and markets the services of Orthodontic Centers
  through television, radio and print media advertising.  The Company produces
  internally all broadcast advertising and tailors such advertising to the
  particular local market.  The names of the Orthodontic Center and the
  Affiliated Orthodontist are prominently featured in each advertisement.
  Advertising and direct marketing expenditures averaged approximately $70,491
  per Affiliated Orthodontist in 1996 as compared to a national average of
  approximately $4,400 per orthodontist for traditional practices in 1992.

        The general public traditionally has had little information about
  orthodontic fees prior to consultations with an orthodontist.  The advertising
  produced by the Company stresses an Orthodontic Center's affordable payment
  plan and that the Affiliated Orthodontists are specialists in the field of
  orthodontics (not general dentists practicing orthodontics).  The
  advertisements also emphasize the importance of utilizing a specialist for
  orthodontic care and that the Orthodontic Centers are conveniently located in
  each market and operate for extended hours and on some weekend days to
  accommodate working parents.  The advertisements include a toll free national
  800 number which routes incoming calls to an

                                       9
<PAGE>
 
  Orthodontic Center located in the caller's area.  The Orthodontic Centers
  typically receive increased inquiries from prospective patients following a
  broadcast of the advertisements.  Accordingly, the scheduling of television
  and radio advertisements is coordinated to achieve optimal use of
  advertisement expenditures, with the level of advertising coordinated with
  available Orthodontic Center capacity to achieve desired demand levels at a
  particular Orthodontic Center.

        Recruiting and Training

        The Company actively markets its services to the approximately 200
  orthodontists who graduate each year from accredited United States orthodontic
  programs, and to experienced orthodontists who may consider affiliating with
  the Company.  Orthodontists who select the Company for affiliation are
  generally given their choice of markets in the United States in which to
  locate where the Company does not have another Orthodontic Center.  The
  Company also performs market studies to determine the advantages of locating
  Orthodontic Centers in new markets.

        Affiliated Orthodontists receive initial training regarding the
  Company's operating systems at the Company's training offices in Orlando and
  Jacksonville, Florida and in Denver, Colorado to enable an Affiliated
  Orthodontist to take advantage of the efficiencies created by the Company's
  systems.  The Company also employs training teams which travel to each new
  Orthodontic Center to train the Orthodontic Center's clinical and business
  staff with respect to the Company's operating systems.  Follow-up visits by
  the training team are conducted six months following the opening of an
  Orthodontic Center to maintain operating efficiencies.

        The Affiliated Orthodontists maintain full control over their
  orthodontic practices, determine which personnel, including orthodontic
  assistants, to hire or terminate and set their own standards of practice in
  order to promote quality orthodontic care.  The Company is not engaged in the
  practice of orthodontics.  The Affiliated Orthodontists are responsible for
  compliance with state and local regulations governing the practice of
  orthodontics and with licensure or certification requirements.  In addition,
  each Affiliated Orthodontist acquires and pays for malpractice insurance, and
  is required to use reasonable efforts to have the Company named as an
  additional insured party.  Quality of care is monitored through internal peer
  review procedures administered by the Affiliated Orthodontists through their
  advisory committee.

        The Company maintains an incentive-based compensation program for its
  employees which rewards employees based upon their performance and the
  operating results of the Orthodontic Centers, including increased collections
  and case starts and cost containment efforts.

        The Company has engaged the services of three former practicing dentists
  to assist the Company in recruiting orthodontists to affiliate with the
  Company.  The Company intends to maintain its recruiting efforts internally,
  rather than through outside recruitment services.

        Management Information Systems

        The Company provides Affiliated Orthodontists with management and
  financial information systems which have improved Orthodontic Center
  efficiencies and have provided cost savings for Orthodontic Center operations.
  These systems have also maintained greater uniformity in the manner in which
  services have been provided at the Orthodontic Centers.  The Company utilizes
  information systems which track important data related to the Orthodontic
  Centers' operations and financial performance.  The Company monitors all
  expenditures on advertising and reallocates resources between markets where
  advertising expenditures need to be increased or decreased.  The Company's
  systems also track new patient cases for each of the

                                       10
<PAGE>
 
  Orthodontic Centers to allow programs to be initiated to better ensure that
  new patient cases at the Orthodontic Centers are within projected levels.
  Billing and collection information is sent daily by the Orthodontic Centers to
  the Company for processing.

        The Company also provides Affiliated Orthodontists with monthly
  operating data and quarterly financial statements.  With the quarterly
  financial statements, the Company provides an analysis of the financial
  results and recommends changes to improve financial performance of the
  Orthodontic Center.  This analysis allows the Affiliated Orthodontist and the
  Company to make periodic adjustments in marketing and operating the
  Orthodontic Center.

        Purchasing and Distribution

        Because of the number of Orthodontic Centers, the Company is able to
  make bulk purchases of equipment, office furniture, inventory and supplies in
  order to reduce per unit costs.  The Company negotiates arrangements with
  suppliers that provide cost savings to each of the Orthodontic Centers.
  Inventory and supplies are purchased by the Company and distributed on a just-
  in-time basis to each Orthodontic Center, thereby limiting storage of unused
  inventory and supplies.

  AGREEMENTS WITH AFFILIATED ORTHODONTISTS

        The Company provides comprehensive management and marketing services to
  Affiliated Orthodontists pursuant to a service agreement or, in very limited
  circumstances, a consulting agreement.  The selection of either the service
  agreement or consulting agreement structure is based upon regulatory
  provisions of the particular state in which an Orthodontic Center is located.

        Service Agreement

        Service agreements are between the Company and an Affiliated
  Orthodontist and the Affiliated Orthodontist's professional corporation or
  other entity.  Pursuant to the service agreement, the Company manages the
  business and marketing aspects of Orthodontic Centers, provides capital,
  facilities and equipment (including utilities, maintenance and rental),
  implements a marketing program, prepares budgets and financial statements,
  orders and purchases inventory and supplies, provides a patient scheduling
  system and staff, bills and collects patient fees, maintains files and records
  and arranges for certain legal and accounting services.  The Affiliated
  Orthodontist subleases from the Company the facility occupied by the
  Orthodontic Center and leases the equipment used at the Orthodontic Center
  from the Company. Service agreements are generally for a term of 40 years.

        Under a service agreement, the Affiliated Orthodontist pays the Company
  a fee equal to approximately 24% of new patient contract balances in the first
  month of treatment plus the balance ratably over the remainder of the patient
  contracts, less amounts retained by the Affiliated Orthodontist.  In addition,
  a $25,000 annual fee is earned by the Company for 42 free-standing Orthodontic
  Centers with respect to which long-term service agreements were entered into
  with the Company in connection with the combination of the Company's
  predecessor entities.  Operating expenses of the Orthodontic Centers are
  expenses of the Company and are recognized as incurred.  The amounts retained
  by an Affiliated Orthodontist are dependent on the Affiliated Orthodontist's
  financial performance, based in significant part on the Affiliated
  Orthodontist's profitability on a cash basis, as provided in the service
  agreements.

                                       11
<PAGE>
 
        Consulting Agreements

        The terms of consulting agreements differ significantly from the terms
  of service agreements and will vary depending upon the regulatory requirements
  of the particular state in which an Orthodontic Center is located.  Currently,
  in one state, the Company may only provide consulting services to the
  Affiliated Orthodontists and may not manage the Affiliated Orthodontist's
  practice.  The consulting fee payable to the Company is determined at the time
  of affiliation, is limited to the consulting services performed and is based
  on criteria such as the number of hours of operations of the applicable
  Orthodontic Centers.

  GOVERNMENT REGULATION

        General

        The field of orthodontics is highly regulated, and there can be no
  assurance that the regulatory environment in which the Company operates will
  not change significantly in the future.  In general, regulation of health care
  companies is increasing.  Every state imposes licensing and other requirements
  on individual orthodontists, and orthodontic facilities and services.  In
  addition, federal and state laws regulate health maintenance organizations and
  other managed care organizations for which orthodontists may be providers.  In
  connection with its entry into new markets, the Company may become subject to
  compliance with additional regulations.

        The operations of the Orthodontic Centers must meet federal, state and
  local regulatory standards in the areas of safety and health.  Historically,
  those standards have not had any material adverse effect on the operations of
  the Orthodontic Centers.  Based on its familiarity with the operations of the
  Orthodontic Centers and the activities of the Affiliated Orthodontists,
  management believes that the Orthodontic Centers are in compliance in all
  material respects with all applicable federal, state and local laws and
  regulations relating to safety and health.

        State Legislation

        The laws of many states prohibit orthodontists from splitting fees with
  non-orthodontists and prohibit non-orthodontic entities (such as the Company)
  from practicing dentistry, including orthodontics (which in certain states
  includes managing or operating an orthodontic office), and from employing
  orthodontists or, in certain circumstances, orthodontic assistants.  The laws
  of some states prohibit advertising of orthodontic services under a trade or
  corporate name and require that all advertisements be in the name of the
  orthodontist.  A number of states also regulate the content of advertisements
  of orthodontic services and the use of promotional gift items.  A number of
  states limit the ability of a non-licensed dentist or non-orthodontist to own
  or control equipment or offices used in an orthodontic practice.  Some of
  these states allow leasing of equipment and office space to an orthodontic
  practice, under a bona fide lease, if the equipment and office remain in the
  complete care and custody of the orthodontist.  Management believes, based on
  its familiarity with the operations of the Orthodontic Centers and the
  activities of the Affiliated Orthodontists, that the Company's current and
  planned activities do not violate these statutes and regulations.  There can
  be no assurance, however, that future interpretations of such laws, or the
  enactment of more stringent laws, will not require structural and
  organizational modifications of the Company's existing contractual
  relationships with the Affiliated Orthodontists or the operation of the
  Orthodontic Centers.  In addition, statutes in some states could restrict
  expansion of Company operations in those jurisdictions.  In response to
  particular state regulatory provisions, the Company is required to utilize the
  consulting agreement structure in at least one state.  Management plans to use
  a form of one of its operating agreements in each of the states in which a
  development or acquisition proposal is pending.

                                       12
<PAGE>
 
        Regulatory Compliance

        The Company regularly monitors developments in laws and regulations
  relating to dentistry.  The Company may be required to modify its agreements,
  operations and marketing from time to time in response to changes in the
  business and regulatory environment.  The Company plans to structure all of
  its agreements, operations and marketing in accordance with applicable law,
  although there can be no assurance that its arrangement will not be
  successfully challenged or that required changes may not have a material
  adverse effect on operations or profitability.

  COMPETITION

        The business of providing orthodontic services is highly competitive in
  each of the markets in which the Orthodontic Centers operate.  Each Affiliated
  Orthodontist competes with orthodontists who maintain single offices or
  operate a single satellite office, as well as with orthodontists who maintain
  group practices or operate in multiple offices.  The Orthodontic Centers also
  compete with dentists who provide certain orthodontic services.  The provision
  of orthodontic services by such persons has increased in recent years.

        There are several companies pursuing similar strategies in the health
  care industry, and companies with similar objectives and substantially greater
  financial resources may enter the Company's markets and compete with the
  Company.

  EMPLOYEES

        At December 31, 1996, the Company employed 1,287 persons, including 949
  full-time employees and 49 employees in the Company's corporate offices.  None
  of the Company's employees are represented by a collective bargaining
  agreement.  The Company considers its relationship with its employees to be
  good.

  INSURANCE

        The Company maintains general liability and property insurance.  The
  costs of insurance coverage varies, and the availability of certain coverage
  has fluctuated in recent years.  While management believes, based upon its
  claims experience, that the Company's current insurance coverage is adequate
  for its current operations, there can be no assurance that the coverage will
  be sufficient for all future claims or will continue to be available in
  adequate amounts or at reasonable rates.  The Affiliated Orthodontists
  purchase and maintain their own malpractice liability insurance coverage, and
  are required to use reasonable efforts to have the Company named as an
  additional insured party on their respective insurance policies.

  TRADENAMES

        The Company registered the tradenames "The Dentist Place" and
  "Orthodontic Specialist Network" with the United States Patent and Trademarks
  Office in 1990 and 1993, respectively.  Of the 247 Orthodontic Centers at
  December 31, 1996, 218 use a tradename which combines the state, region or
  city in which the center is located and "Orthodontic Specialists", such as
  "Middle Tennessee Orthodontic Specialists".  The tradename "The Dentist Place"
  is utilized in the four centers in the Jacksonville, Florida area.

                                       13
<PAGE>
 
  EXECUTIVE OFFICERS OF THE COMPANY

        The following table sets forth certain information with respect to the
  executive officers of the Company:

NAME                             AGE            POSITIONS WITH THE COMPANY
----                             ---            --------------------------

Dr. Gasper Lazzara, Jr.........   54  Chairman of the Board, President, Chief
                                      Executive Officer, Director

Bartholomew F. Palmisano, Sr...   50  Chief Financial Officer, Senior Vice
                                      President,
                                      Secretary, Treasurer, Director

Geoffrey L. Faux...............   41  Executive Vice President, Chief 
                                      Administrative Officer, Director
 
Michael C. Johnsen.............   44  Vice President of Operations, Director


        DR. GASPER LAZZARA, JR.  Dr. Lazzara has served as Chairman of the
  Board, President and Chief Executive Officer of the Company since its
  inception in July 1994.  From 1989 to 1994, Dr. Lazzara served as president or
  managing partner of certain of the Company's predecessor entities.  He is a
  licensed orthodontist and, prior to founding the Company, maintained a private
  orthodontic practice for over 25 years.  He is a member of the American
  Association of Orthodontists and is a Diplomat of the American Board of
  Orthodontists.

        BARTHOLOMEW F. PALMISANO, SR.  Mr. Palmisano has served as Chief
  Financial Officer, Senior Vice President, Secretary and Treasurer of the
  Company since its inception in July 1994.  From 1989 to 1994, Mr. Palmisano
  served as the chief financial officer of certain of the Company's predecessor
  entities.  Mr. Palmisano is a licensed certified public accountant and
  attorney.  He was previously served as an accountant with the firm of
  Palmisano & Vignes, Certified Public Accountants, in New Orleans, Louisiana
  from 1977 to 1989, and with Main Lafrenz & Co. from 1969 to 1976.

        GEOFFREY L. FAUX.  Mr. Faux has served as Executive Vice President and
  Chief Administrative Officer of the Company since September 1996.  From 1992
  to September 1996, Mr. Faux served as Director, Investment Banking Group for
  Prudential Securities Incorporated.

        MICHAEL C. JOHNSEN.  Mr. Johnsen has served as Vice President of
  Operations of the Company since its inception in July 1994.  From 1988 to
  1994, Mr. Johnsen served as Vice President of Operations of certain of the
  Company's predecessor entities.  Mr. Johnsen is Dr. Lazzara's brother-in-law.


                                       14
<PAGE>
 
 
                                    PART II
                                    -------

  ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

  GENERAL
 
        The Company's business was established in 1989 by Dr. Gasper Lazzara,
  Jr. and Mr. Bartholomew F. Palmisano, Sr., the Chief Executive Officer and
  Chief Financial Officer, respectively, of the Company.  There were 247
  Orthodontic Centers in 28 states at December 31, 1996.

        The following table sets forth certain information relating to the
  growth in the number of Orthodontic Centers for the periods shown:
<TABLE>
<CAPTION>
                                                           Year ended December 31,
                                                ----------------------------------------------
                                                1990  1991   1992   1993   1994   1995   1996
                                                ----  -----  -----  -----  -----  -----  -----
<S>                                             <C>   <C>    <C>    <C>    <C>    <C>    <C>
Number of centers at beginning of period......    11    18     31     47     55     75    145
Number of centers developed during period.....     4     9      5      4     22     44     53
Number of centers acquired during period......     3     5     17      5      1     29     68
Number of centers consolidated during period..    --    (1)    (6)    (1)    (3)    (3)   (19)
                                                ----  ----   ----   ----   ----   ----   ----
Number of centers at end of period............    18    31     47     55     75    145   247 
                                                ----  ----   ----   ----   ----   ----   ----
</TABLE>

       At December 31, 1991, 26 of the 31 Orthodontic Centers at that time were
  located in general dentists' offices.  During 1992, the Company began pursuing
  a strategy of relocating Orthodontic Centers to free-standing locations,
  pursuant to which each of these 26 Orthodontic Centers was relocated to free-
  standing locations.  At December 31, 1996, only three of the 247 Orthodontic
  Centers were located in a general dentist's office.  The Company intends to
  relocate these three remaining Orthodontic Centers to free-standing locations
  as soon as practicable. In developing additional Orthodontic Centers, the
  Company intends to locate the Orthodontic Centers only in free-standing
  locations.  By locating in free-standing locations, Orthodontic Centers have
  been able to increase available operating days and thereby enhance their
  revenue producing capability.

       Of the 247 Orthodontic Centers at December 31, 1996, 134 were developed
  by the Company and 113 were existing orthodontic practices whose assets were
  acquired by the Company.  The Company expects that future growth in
  Orthodontic Centers will come from both developing Orthodontic Centers with
  existing and newly-recruited Affiliated Orthodontists and acquiring the assets
  of, and entering into long-term agreements with, existing practices.

       The average cost of developing a new Orthodontic Center is approximately
  $230,000, including the cost of equipment, leasehold improvements, working
  capital and losses associated with the initial operations of the Orthodontic
  Center.  The costs of developing a new Orthodontic Center are shared by the
  Company and the particular Affiliated Orthodontist.  The Company assists
  Affiliated Orthodontists in obtaining financing of their share of such costs
  through the Company's primary lender.  For new developments, the Company has
  discontinued financing Affiliated Orthodontists' share of losses associated
  with the initial operations of the Orthodontic Center, which were historically
  financed by the Company as an unsecured advance repayable by the Affiliated
  Orthodontist over a five-year period and bearing interest at 1.5% per annum
  above the prime rate, with repayment beginning upon the attainment of positive
  cash flow by the Orthodontic Center (which generally occurs approximately 12
  months after an Orthodontic Center commences operations).  The Company
  intends, however, to continue to make advances of approximately $20,000 to
  newly-affiliated Affiliated Orthodontists during the first year of an
  Orthodontic Center's operations, which advances bear no interest and typically
  are repaid during the second year of the Orthodontic Center's operations.  The
  Company is assisting Affiliated Orthodontists in obtaining financing from the
  Company's primary lender to replace the Company's


                                       15

<PAGE>
 
  financing of such Affiliated Orthodontists' share of the costs of previously
  completed developments.

       Typically, when the Company develops a new Orthodontic Center, all
  patients treated at the Orthodontic Center are new patients and, in the first
  several months after commencing operations, the Orthodontic Center is open
  only for a limited number of days each month as new patients are added.  The
  Orthodontic Centers have typically become increasingly more productive and
  profitable as more new patients are added and existing patients return for
  monthly follow-up visits.  After 26 months of operations, the Orthodontic
  Centers' growth in patient base has typically begun to stabilize as the
  initial patients complete treatment.  An Orthodontic Center can increase the
  number of patients treated by improving the efficiency of its clinical staff
  and by adding operating days or orthodontists.  The Orthodontic Centers may
  also increase revenue by implementing periodic price increases.  Established
  practices whose assets were acquired by the Company have typically increased
  their revenue by applying the Company's operating strategies, including
  increased advertising and efficient patient scheduling.

       The financial statements of the Company prior to October 18, 1994
  recognized revenue as services were performed and the associated costs were
  incurred, in accordance with the proportional performance method of accounting
  for service contracts.  Approximately 24% of the orthodontic services were
  performed and their associated costs incurred in the first month of treatment.
  Accordingly, approximately 24% of the revenue associated with a patient
  contract was historically recognized in the first month, with the remaining
  revenue recognized in equal monthly installments over the balance of the
  contract period, which averaged 26 months.  Expenses were recognized as
  incurred.

       Since October 18, 1994, the Company earns its revenue from long-term
  service or consulting agreements entered into with Affiliated Orthodontists.
  Pursuant to the service agreement, an Affiliated Orthodontist pays a fee to
  the Company equal to approximately 24% of new patient contract balances of the
  Affiliated Orthodontist in the first month of treatment plus the balance
  ratably over the remainder of the patient contract, less amounts retained by
  the Affiliated Orthodontist.  The amounts retained by an Affiliated
  Orthodontist are dependent on his or her financial performance, based in
  significant part on the Affiliated Orthodontist's profitability on a cash
  basis, as provided in the service agreements.  Amounts retained by an
  Affiliated Orthodontist which operates a newly developed Orthodontic Center
  are typically reduced by operating losses on a cash basis because of start-up
  expenses.  An Affiliated Orthodontist's share of these operating losses is
  added to the Company's fee in the period during which the operating losses are
  incurred, while the Affiliated Orthodontist's share of capital expenditures is
  recovered through the Company's fee over a period which approximates the
  useful life of the related capital assets.  In addition, a $25,000 annual fee
  is earned by the Company for 42 free-standing Orthodontic Centers with respect
  to which long-term agreements were entered into with the Company in the
  Combination Transaction.  In exchange for its service fees, the Company
  provides capital for the development and growth of Orthodontic Centers and
  manages the business and marketing aspects of Orthodontic Centers, including
  implementing advertising and marketing programs, preparing budgets, purchasing
  inventory, providing patient scheduling systems, billing and collecting fees
  and maintaining records.  Operating expenses of the Orthodontic Centers are
  expenses of the Company and are recognized as incurred.

       The terms of consulting agreements differ significantly from the terms of
  service agreements and vary depending upon the regulatory requirements of the
  particular state in which an Orthodontic Center is located.  Currently, in one
  state, the Company may only provide consulting services to the orthodontists
  and may not manage the orthodontist's practice.  The consulting fee payable to
  the Company is determined at the time of affiliation, is limited to
  compensation for the specific consulting services performed and is based on
  criteria such as the number of hours of operations of the applicable
  Orthodontic Centers.

                                       16

<PAGE>
 
       Employee costs consist of wages, salaries and benefits paid to all
  employees of the Company, including orthodontic assistants, business staff and
  management personnel.  General and administrative expenses consist of
  provision for losses on patient contracts and receivables, professional
  service fees, maintenance and utility costs, office supply expense, telephone
  expense, taxes, license fees, and printing and shipping expense.

       Patient contracts are for terms averaging 26 months and are payable in
  equal monthly installments throughout the term of treatment, except for the
  last month when a final payment is made.  During 1996, the Orthodontic Centers
  generally instituted a price increase recommended by the Company for
  orthodontic services from $89 per month to $98 per month for new patients with
  an increase in the final payment from $366 to $398.

  RESULTS OF OPERATIONS

  The following table sets forth the percentages of net revenue represented by
  certain items in the Company's consolidated statements of income.

                                    Year ended December 31,
                                   --------------------------
                                     1994     1995     1996
                                   --------  -------  -------

Net Revenue......................    100.0%   100.0%   100.0%
Direct expenses:
   Employee costs................     27.0     28.4     27.9
   Orthodontic supplies..........      7.5      7.6      7.6
   Rent..........................      8.1      8.4      8.6
   Advertising and marketing.....      8.5     10.4      9.3
                                     -----    -----    -----
   Total direct expenses.........     51.1     54.8     53.4
General and administrative.......     10.8     12.3     12.2
Depreciation and amortization....      3.6      3.5      4.0
                                     -----    -----    -----
Operating profit.................     34.5     29.4     30.4
Interest (expense) income, net...     (1.0)     4.8      2.7
Nonrecurring litigation expense..    (14.8)      --       --
                                     -----    -----    -----
Income before income taxes.......     18.7     34.2     33.1
Provision for income taxes.......     10.7     12.5     12.9
                                     -----    -----    -----
Net income.......................      8.0%    21.7%    20.2%
                                     =====    =====    =====

    1996 Compared to 1995

      Net Revenue.  Net revenue increased 71.5% from $41.6 million for 1995 to
  $71.3 million for 1996.  Approximately $6.9 million of this increase was
  attributable to the growth in net revenue of the 74 Orthodontic Centers open
  throughout both periods, $12.1 million was attributable to the 57 Orthodontic
  Centers (net of consolidations) opened during 1995, $11.0 million was
  attributable to the 116 Orthodontic Centers opened during 1996 and
  approximately $546,000 was attributable to the Affiliated Orthodontists' share
  of the operating losses of newly-developed Orthodontic Centers, which amounts
  were advanced by the Company.  The remaining difference resulted primarily
  from the fact that revenue recognized from the sale of ownership interests in
  Orthodontic Centers obtained by the Company in the Combination Transaction
  were lower in 1996 than in 1995.  The number of patient contracts increased
  from approximately 53,000 at December 31, 1995 to approximately 83,000 at
  December 31, 1996.

      Employee Costs.  Employee costs increased 68.8% from $11.8 million for
  1995 to $19.9 million for 1996.  This increase was caused by an increase in
  the number of patient contracts, which resulted in additional

                                       17


<PAGE>
 
  employee time required to service these contracts.  As a percentage of net
  revenue, however, employee costs decreased from 28.4% for 1995 to 27.9% for
  1996.  The decrease in employee costs as a percentage of net revenue resulted
  from increased efficiency in scheduling and monitoring employee productivity
  for all patient days.

      Orthodontic Supplies.  Orthodontic supplies expense increased 71.4% from
  $3.2 million for 1995 to $5.4 million for 1996.  As a percentage of net
  revenue, orthodontic supplies remained constant at 7.6%.  Cost improvements
  attained through bulk purchasing were offset by increased expense associated
  with an increased percentage of new patient treatment days, which require
  greater orthodontic supplies per patient, associated with the opening of
  additional Orthodontic Centers.

      Rent.  Rent expense increased 74.5% from $3.5 million for 1995 to $6.1
  million for 1996.  As a percentage of net revenue, rent expense increased from
  8.4% to 8.6%.  The increase in this expense as a percentage of net revenue was
  attributable to the relatively fixed nature of the expense in conjunction with
  the opening of additional Orthodontic Centers, which typically generate less
  net revenue during their initial operations.

      Advertising and Marketing.  Advertising and marketing expense increased
  53.7% from $4.3 million for 1995 to $6.6 million for 1996.  The increase in
  this expense resulted primarily from the addition of Orthodontic Centers in
  new advertising markets after December 31, 1995.  As a percentage of net
  revenue, however, advertising and marketing decreased from 10.4% for 1995 to
  9.3% for 1996. The decrease in this expense as a percentage of net revenue is
  the result of cost improvements achieved through bulk media and production
  purchases.

      General and Administrative.  General and administrative expense increased
  70.4% from $5.1 million for 1995 to $8.7 million for 1996. This increase
  resulted from the increase in Orthodontic Centers. As a percentage of net
  revenue, however, general and administrative expense remained relatively
  unchanged, at 12.3% in 1995 compared to 12.2% in 1996.

      Depreciation and Amortization.  Depreciation and amortization expense
  increased 94.3% from $1.4 million for 1995 to $2.8 million for 1996.  As a
  percentage of net revenue, depreciation and amortization increased from 3.5%
  to 4.0%.  The increase in this expense is a result of the fixed assets
  acquired for Orthodontic Centers developed or relocated after December 31,
  1995 and amortization of service agreements acquired during 1996.

      Operating Profit.  Operating profit increased 77.3% from $12.2 million for
  1995 to $21.7 million for 1996.  As a percentage of net revenue, operating
  profit increased from 29.4% to 30.4%, as a result of the factors discussed
  above.

      Interest.  Net interest income decreased 3.0% from $2.0 million for 1995
  to $1.9 million for 1995.  The decrease resulted from a decrease in
  the Company's average investment balances.

      Provision for Income Taxes.  Provision for income taxes increased 77.7%
  from $5.2 million for 1995 compared to $9.2 million for 1996.  The Company's
  effective tax rate increased from 36.4% to 39.0% to reflect the Company's 
  higher income tax bracket for federal purposes and its blended state tax rate.

                                       18


<PAGE>
 
      1995 Compared to 1994

      Net Revenue.  Net revenue increased 63.9% from $25.4 million for 1994 to
  $41.6 million for 1995.  Approximately $3.9 million of this increase was
  attributable to the growth in net revenue of the 53 Orthodontic Centers open
  throughout both periods, $4.1 million was attributable to the 22 Orthodontic
  Centers (net of consolidations) opened during 1994, $5.3 million was
  attributable to the 70 Orthodontic Centers opened during 1995 and
  approximately $1.7 million was attributable to the Affiliated Orthodontists'
  share of the operating losses of newly-developed Orthodontic Centers, which
  amounts were advanced by the Company.  The remaining increase resulted
  primarily from the sale of ownership interests in Orthodontic Centers obtained
  by the Company in the Combination Transaction.  The number of patient
  contracts increased from approximately 33,000 at December 31, 1994 to
  approximately 53,000 at December 31, 1995.

      Employee Costs.  Employee costs increased 72.2% from $6.8 million for 1994
  to $11.8 million for 1995.  As a percentage of net revenue, employee costs
  increased from 27.0% for 1994 to 28.4% for 1995.  This increase was caused
  primarily by an increased percentage of new patient treatment days, which
  require additional staff time per patient, associated with the opening of
  additional Orthodontic Centers.

      Orthodontic Supplies.  Orthodontic supplies expense increased 66.0% from
  $1.9 million for 1994 to $3.2 million for 1995.  As a percentage of net
  revenue, orthodontic supplies increased from 7.5% to 7.6%.  Cost improvements
  attained through bulk purchasing were offset by increased expense associated
  with an increased percentage of new patient treatment days, which require
  greater orthodontic supplies per patient, associated with the opening of
  additional Orthodontic Centers.

      Rent.  Rent expense increased 70.9% from $2.1 million for 1994 to $3.5
  million for 1995.  As a percentage of net revenue, rent expense increased from
  8.1% to 8.4%.  The increase in this expense as a percentage of net revenue was
  attributable to the relatively fixed nature of the expense in conjunction with
  the opening of additional Orthodontic Centers, which typically generate less
  net revenue during their initial operations.

      Advertising and Marketing.  Advertising and marketing expense increased
  101.4% from $2.1 million for 1994 to $4.3 million for 1995.  Advertising and
  marketing expense increased as a percentage of net revenue from 8.5% to 10.4%.
  The increase in this expense as a percentage of net revenue is the result of
  advertising for Orthodontic Centers opened in new markets (including
  metropolitan areas with relatively higher advertising rates), additional grand
  opening promotions for Orthodontic Centers relocated in existing markets and
  an overall increase in the quality of advertising.

      General and Administrative.  General and administrative expense increased
  87.1% from $2.7 million for 1994 to $5.1 million for 1995.  As a percentage of
  net revenue, general and administrative expense increased from 10.8% to 12.3%
  as a result of an increase in bad debt expense from $342,000 to $958,000,
  expenses associated with being a publicly held company and administrative
  expenses associated with the opening of additional Orthodontic Centers.

      Depreciation and Amortization.  Depreciation and amortization expense
  increased 57.4% from $920,000 for 1994 to $1.4 million for 1995.  The increase
  in this expense is a result of the fixed assets acquired for Orthodontic
  Centers developed or relocated after December 31, 1994.  As a percentage of
  net revenue, however, depreciation and amortization expense decreased from
  3.6% to 3.5%.  The decrease resulted from the full amortization in 1994 of the
  patient contracts acquired in 1993.

                                       19

<PAGE>
 
      Operating Profit.  Operating profit increased 39.5% from $8.8 million for
  1994 to $12.2 million for 1995.  As a percentage of net revenue, however,
  operating profit decreased from 34.5% to 29.4%, as a result of the factors
  discussed above.

      Interest.  Net interest expense was $266,000 for 1994 compared to net
  interest income of $2.0 million for 1995.  The interest income resulted from
  the investment of the unexpended proceeds from the Company's prior public
  offerings.

      Nonrecurring Litigation Expense.  The Company incurred a nonrecurring
  litigation expense of approximately $3.7 million during the second quarter of
  1994 in connection with the acquisition by the Company of the practice assets
  of two orthodontists as part of the Combination Transaction and as part of the
  settlement of the litigation initiated by those orthodontists against the
  Company.  The $3.7 million consisted of approximately $300,000 in cash and
  $3.4 million in promissory notes.  In addition, the Company issued to the two
  orthodontists an aggregate of 1,186,124 shares of Common Stock (after giving
  effect to the Company's two subsequent two-for-one stock splits effected in
  the form of a 100% stock dividend).  The two previously affiliated
  orthodontists alleged in the action, among other matters, that such
  orthodontists had an interest in all of the Predecessor Entities and that Dr.
  Lazzara and Mr. Palmisano had breached their fiduciary duties.  The two
  orthodontists claimed that the value offered to them in the Combination
  Transaction was insufficient in view of their claim of ownership interest in
  all of the Predecessor Entities.  It is the Company's view, therefore, that
  this litigation was unrelated to the operating activities of the Company,
  which provides business operations and financial, marketing and administrative
  services to Affiliated Orthodontists.  Accordingly, the nonrecurring
  litigation expense is not reflected in the Company's operating profit.

      Provision for Income Taxes.  Provision for income taxes increased 90.9%
  from $2.7 million for 1994 compared to $5.2 million for 1995.  The Company's
  effective tax rate decreased from 57.2% to 36.4%.  The 1994 provision
  reflected a one-time, non-cash charge of $2.6 million for deferred income
  taxes resulting from the change in tax status of the operations of the Company
  upon completion of the Combination Transaction.


                                       20

<PAGE>
 
 
  QUARTERLY OPERATING RESULTS

      The following table sets forth certain unaudited quarterly operating
  information of the Company for 1995 and 1996.  The Company believes that the
  following information includes all of the adjustments, consisting of normal
  recurring accruals and adjustments necessary to convert cash basis accounting
  records of the Company to an accrual basis, considered necessary for a fair
  presentation of the Company's consolidated financial position and its
  consolidated results of operations for these periods in accordance with
  generally accepted accounting principles.

<TABLE>
<CAPTION>
 
                                                 Quarters ended
                                                 --------------
                                   1995                                  1996
                                   ----                                  ----       
                    Mar. 31  June 30  Sept. 30  Dec. 31  Mar. 31  June 30  Sept. 30  Dec. 31
                    -------  -------  --------  -------  -------  -------  --------  -------
<S>                 <C>      <C>      <C>       <C>      <C>      <C>      <C>       <C>
                                                 (in thousands)
Net revenue.......   $8,465   $9,236   $11,490  $12,365  $13,719  $15,517   $18,881  $23,156
Operating profit..    2,719    2,577     3,318    3,609    3,914    4,592     6,185    6,984
 
</TABLE>

  SEASONALITY

      The Orthodontic Centers have experienced their highest volume of new cases
  in the summer and certain other periods when schools are not typically in
  session.  During these periods, children have a greater opportunity to visit
  an orthodontist to commence treatment.  Consequently, the Orthodontic Centers
  have experienced higher revenue during the first and third quarters of the
  year as a result of increased patient starts.  During the Thanksgiving and
  Christmas seasons, the Orthodontic Centers have experienced reduced volume and
  fourth quarter revenue for the Orthodontic Centers has been generally lower as
  compared to other periods.  Seasonality in recent periods has been mitigated
  by the impact of additional Orthodontic Centers.

  LIQUIDITY AND CAPITAL RESOURCES

      Development and acquisition costs, capital expenditures and working
  capital needs have been, and will continue to be, financed through a
  combination of cash flow from operations, bank borrowings and the issuance of
  notes and shares of Common Stock.  The Company intends to continue to lease,
  rather than purchase, facilities for the Orthodontic Centers, to maximize the
  Company's available capital.

      Net cash provided by operations for the year ended December 31, 1996 was 
  $6.8 million. Net cash used in the Company's investing activities was $13.2 
  million and included the purchases of property, equipment and improvements,
  the acquisition of intangible assets and advances to orthodontic entities,
  offset by the proceeds from sales and maturities of investments and payments
  from orthodontic entities. Net cash used in the Company's financing activities
  for the year ended December 31, 1996 was $520,000, and consisted of payments
  of long-term debt, offset by proceeds from the exercise of certain stock
  options under the Company's three stock option plans.

                                       21

<PAGE>
 
      The Company completed an initial public offering of 7,600,000 shares of
  Common Stock at a public offering price of $2.75 per share in December 1994,
  resulting in net proceeds to the Company of approximately $18.0 million.  In
  January 1995, the underwriters of the Company's initial public offering
  exercised their over-allotment option for an additional 1,140,000 shares of
  Common Stock, which provided the Company with additional net proceeds of
  approximately $2.6 million.  In June 1995, the Company completed a public
  offering of 7,200,000 shares of Common Stock at a public offering price of
  $5.75 per share, resulting in net proceeds to the Company of approximately
  $38.7 million.  In April 1996, in connection with a public offering by certain
  selling stockholders, the Company issued 390,868 shares of Common Stock upon
  the exercise of stock options under the Company's three stock option plans,
  resulting in aggregate net proceeds to the Company of $693,000 from the
  exercise price of such options.  At December 31, 1996, the Company had used
  approximately $29.9 million of the aggregate of approximately $60.0 million in
  net proceeds received by the Company in these public offerings, including
  approximately $1.5 million used to repay bank indebtedness and promissory
  notes to Affiliated Orthodontists.  The Company intends to utilize the
  remaining proceeds of approximately $30.1 million to fund the expansion of its
  business through the development of new Orthodontic Centers and the
  acquisition of assets of, and the entering into long-term agreements with,
  existing orthodontic practices, and for working capital and general corporate
  purposes.

      The Company's revolving line of credit with First Union National Bank of
  Florida, which was entered into on October 18, 1994, provides an aggregate of
  $5.0 million for general working capital needs and expansion of the number of
  Orthodontic Centers, all of which is currently available for borrowing.  The
  revolving line of credit bears interest at 0.5% per annum above First Union's
  prime rate and amounts borrowed are secured by a security interest in all of
  the Company's assets, including its accounts receivable and equipment, and are
  to be repaid over a period of four years.

      As of October 18, 1994, in connection with the acquisition of the
  ownership interests of two orthodontists in the Combination Transaction and as
  a part of the settlement of litigation filed by such orthodontists, the
  Company paid $318,000 in cash and issued promissory notes in the aggregate
  principal amount of approximately $3.4 million to the two orthodontists.
  These notes are payable in 84 equal monthly installments, commencing November
  1, 1994, bear interest at 8.0% per annum and mature on November 1, 2001. At
  December 31, 1996, the outstanding principal balance of such notes was an
  aggregate of approximately $2.5 million.

      Of the 247 Orthodontic Centers at December 31, 1996, 113 were acquired
  through the acquisition of the assets of and the affiliation with existing
  orthodontic practices.  During 1996, the Company acquired the assets of and
  affiliated with 40 existing orthodontic practices operating at 64 locations
  (net of consolidations) at a cost of approximately $32.4 million, of which the
  cash portion was approximately $11.4 million (including $4.6 million which was
  due to orthodontic entities at December 31, 1996 and paid shortly after year
  end) and the balance consisted of promissory notes issued by the Company in an
  aggregate principal amount of $120,000 and an aggregate of 1,718,236 shares of
  Common Stock. Outstanding indebtedness at December 31, 1996 under promissory
  notes issued by the Company to Affiliated Orthodontists to acquire the assets
  of existing orthodontic practices was approximately $920,000, with maturities
  ranging from one to five years and interest rates ranging from 8.0% to 10.0%
  per annum.

                                       22

<PAGE>
 
      The Company intends to develop additional Orthodontic Centers in 1997.
  The average cost of developing a new Orthodontic Center is approximately
  $230,000, including the cost of equipment, leasehold improvements, working
  capital and losses associated with the initial operations of the Orthodontic
  Center.  The costs of developing a new Orthodontic Center are shared by the
  Company and the particular Affiliated Orthodontist.  The Company assists
  Affiliated Orthodontists in obtaining financing of their share of such costs
  through the Company's primary lender.  For new developments, the Company has
  discontinued financing Affiliated Orthodontists' share of losses associated
  with the initial operations of the Orthodontic Center, which were historically
  financed by the Company as an unsecured advance repayable by the Affiliated
  Orthodontist over a five-year period and bearing interest at 1.5% per annum
  above the prime rate, with repayment beginning upon the attainment of positive
  cash flow by the Orthodontic Center (which generally occurs approximately 12
  months after an Orthodontic Center commences operations).  The Company
  intends, however, to continue to make advances of approximately $20,000 to
  newly-affiliated Affiliated Orthodontists during the first year of an
  Orthodontic Center's operations, which advances bear no interest and typically
  are repaid during the second year of the Orthodontic Center's operations.  The
  Company is assisting Affiliated Orthodontists in obtaining financing from the
  Company's primary lender to replace the Company's financing of such Affiliated
  Orthodontists' share of the costs of previously completed developments.  The
  Company intends to fund such advances and any continued financing through a
  combination of bank borrowings, cash from operations and the remaining net
  proceeds from the Company's prior public offerings.

      The level of these cash needs could significantly change depending upon
  the Company's ability to recruit orthodontists, find appropriate sites, enter
  into long-term service or consulting agreements, and acquire the assets of
  existing orthodontic practices.  Based upon the Company's anticipated capital
  needs for 1997, management believes that the combination of the funds
  available under the Company's revolving line of credit, cash flow from
  operations, and the proceeds remaining from the Company's prior public
  offerings will be sufficient to meet the Company's funding requirements for
  the foreseeable future.

      Unbilled patient receivables of Affiliated Orthodontists increased from
  $12.3 million at December 31, 1995 to $18.4 million at December 31, 1996,
  which increases are consistent with the increase in the number of patient
  contracts.  Property, equipment and leasehold improvements increased from
  $14.0 million at December 31, 1995 to $24.2 million at December 31, 1996
  primarily as a result of the development of 48 new Orthodontic Centers.  Total
  current liabilities increased from $10.7 million at December 31, 1995 to $16.0
  million at December 31, 1996 primarily as a result of an increase in accounts
  payable and other accrued liabilities of $5.3 million.

      The Company was able to use the cash basis of accounting for income tax
  purposes through its tax year ended September 30, 1995.  Beginning with the
  tax year ended September 30, 1996, the Company is required to use the accrual
  basis of accounting for income tax purposes.  All deferred tax liabilities and
  assets related to differences between the cash and accrual basis of accounting
  which existed on October 1, 1995 will reverse over the two-year period ending
  September 30, 1997.  As a result, the Company estimates that its cash outlays
  for income taxes will exceed its provision for income taxes in 1997 by
  approximately $2.3 million.



                                       23
<PAGE>
 
                                  SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
   Ponte Vedra Beach, State of Florida, on April 21, 1997.


                                  ORTHODONTIC CENTERS OF AMERICA, INC.


                                  By: /s/ Gasper Lazzara, Jr., D.D.S.
                                     --------------------------------------
                                          Gasper Lazzara, Jr., D.D.S.
                                          Chairman of the Board, President
                                          and Chief Executive Officer





                                      24