UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

[X]  Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the quarterly period ended MARCH 31, 1999 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 number              1-12977

                             APPLE ORTHODONTIX, INC.
--------------------------------------------------------------------------------
              (exact name of Registrant as specified in its charter)

            Delaware                                            74-2795193
--------------------------------------------------------------------------------
      (State or other jurisdiction of                         (I.R.S. Employer
       incorporation or organization)                        Identification No.)

         2777 Allen Parkway, Suite 700, Houston, Texas           77019
--------------------------------------------------------------------------------
    (Address of principal executive offices)                   (zip code)

       Registrant's telephone number, including area code:   (713) 852-2500


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

     The number of shares of Class A Common Stock and Class B Common Stock of
the Registrant, par value $.001 per share, outstanding at May 14, 1999 was
11,272,434 and 2,258,018, respectively.
<PAGE>
                             FORM 10-Q REPORT INDEX

10-Q PART AND ITEM NO.



                                                                            PAGE
PART I - FINANCIAL INFORMATION

     Item 1 -- Financial Statements..........................................  3

     Item 2 --  Management's Discussion and Analysis of Financial 
                Condition and Results of Operations.......................... 10

PART II - OTHER INFORMATION

     Item 1 -- Legal Proceedings............................................. 14

     Item 6 -- Exhibits and Reports on Form 8-K.............................. 15


Signature.................................................................... 17


                                      -2-
<PAGE>
                                     PART I
ITEM 1. FINANCIAL STATEMENTS

                    APPLE ORTHODONTIX, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                      MARCH 31,      DECEMBER 31,
                                                                        1999            1998
                                                                     ------------    ------------
                             ASSETS                                  (UNAUDITED)
<S>                                                                  <C>             <C>         
Current assets:
   Cash and cash equivalents .....................................   $        394    $        755
   Restricted cash ...............................................           --             2,140
   Receivable from orthodontic practices, net ....................          7,167           5,521
   Prepaid expenses and other current assets .....................            887             919
                                                                     ------------    ------------
      Total current assets .......................................          8,448           9,335
                                                                     ------------    ------------
Property and equipment, net ......................................          7,089           6,649
Intangible assets, net ...........................................         48,316          49,347
Receivable from orthodontic practices, net of current portion ....          3,962           3,890
Notes receivable .................................................          1,451           1,451
Receivable from third parties ....................................            636             634
Other assets .....................................................            135             156
                                                                     ============    ============
      Total assets ...............................................   $     70,037    $     71,462
                                                                     ============    ============
                    LIABILITIES AND
                  STOCKHOLDERS' EQUITY
Current liabilities:
   Consideration payable to orthodontic practices ................   $       --      $      2,098
   Accounts payable and accrued expenses .........................          2,907           4,065
   Payable to orthodontic practices ..............................          1,335             454
   Current maturities of long-term debt ..........................             87             105
                                                                     ------------    ------------
      Total current liabilities ..................................          4,329           6,722
                                                                     ------------    ------------
Long-term debt, net of current maturities ........................         24,139          23,654
Deferred income taxes ............................................         11,385          11,394
Other long-term obligations ......................................              1               4
                                                                     ------------    ------------
      Total liabilities ..........................................         39,854          41,774
                                                                     ------------    ------------
Stockholders' equity
   Class A common stock , $0.001 par value, 25,000 shares
      authorized, 11,714 and 11,699 shares
      issued and outstanding, respectively .......................             12              12
   Class B common stock, $0.001 par value, 4,107 shares
      authorized, 2,312 and 2,325 shares issued and
      outstanding, respectively ..................................              2               2
   Additional paid-in capital ....................................         64,315          64,310
   Warrants ......................................................          1,086           1,086
   Retained deficit ..............................................        (33,421)        (33,922)
   Treasury stock, at cost .......................................           (121)           --
   Foreign currency translation adjustment .......................         (1,690)         (1,800)
                                                                     ------------    ------------
      Total stockholders' equity .................................         30,183          29,688
                                                                     ============    ============
      Total liabilities and stockholders' equity .................   $     70,037    $     71,462
                                                                     ============    ============
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                      -3-
<PAGE>
                    APPLE ORTHODONTIX, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                          (IN THOUSANDS AND UNAUDITED)

                                                            THREE MONTHS ENDED
                                                                MARCH 31,
                                                          ---------------------
                                                            1999         1998
                                                          --------     --------
Management service fee revenues ......................    $ 12,183     $ 11,218
Costs and expenses:
   Salaries and benefits .............................       5,035        3,930
   Orthodontic supplies ..............................       1,596        1,443
   Rent ..............................................       1,359        1,047
   Advertising and marketing .........................         267          437
   General and administrative ........................       2,100        1,890
   Depreciation and amortization .....................         770          446
                                                          --------     --------
      Total costs and expenses .......................      11,127        9,193
                                                          --------     --------
      Operating income ...............................       1,056        2,025

Interest expense .....................................         372           17
Interest income ......................................        (141)         (88)
Other  expense (income), net .........................          21          (10)
                                                          --------     --------
      Income before income tax provision .............         804        2,106

Income tax provision .................................         303          800
                                                          --------     --------
      Net income .....................................    $    501     $  1,306
                                                          ========     ========
Earnings per common and common equivalent share
       Basic (in whole dollars) ......................    $   0.04     $   0.10
                                                          ========     ========
       Diluted (in whole dollars) ....................    $   0.04     $   0.10
                                                          ========     ========
Number of shares used in calculating earnings per
  common and common equivalent share
       Basic .........................................      14,026       13,375
                                                          ========     ========
       Diluted .......................................      14,080       13,667
                                                          ========     ========

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

                                      -4-
<PAGE>
                    APPLE ORTHODONTIX, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (IN THOUSANDS AND UNAUDITED)

                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                           --------------------
                                                             1999        1998
                                                           --------    --------

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income ............................................ $    501    $  1,306
    Adjustments to reconcile net income to net cash used
      in operating activities:
      Depreciation and amortization ......................      770         446
      Deferred income tax expense ........................       (9)         62
      Provision for doubtful accounts ....................      315          42
   Changes in assets and liabilities, excluding effects of
     acquisitions:
      Receivable from orthodontic practices ..............   (1,368)     (3,193)
      Prepaid expenses and other current assets ..........       43       1,075
      Payables and other accrued liabilities .............     (157)       (822)
                                                           --------    --------
                  Net cash used in operating activities ..       95      (1,084)
                                                           --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures ..................................     (546)     (1,638)
   Payments for new affiliated practices .................      (29)     (2,660)
   Advances related to affiliates ........................     (336)        (17)
   Repayment of advances related to affiliates ...........      108          74
                                                           --------    --------
                  Net cash used in investing activities ..     (803)     (4,241)
                                                           --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from borrowings ...........................      500       5,000
      Repayments of borrowings ...........................      (32)       (920)
      Purchase of treasury stock .........................     (121)       --
      Costs related to issuance of common stock ..........     --          (531)
                                                           --------    --------
            Net cash provided by financing activities ....      347       3,549
                                                           --------    --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................     (361)     (1,776)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .........      755       2,114
                                                           ========    ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $    394    $    338
                                                           ========    ========
SUPPLEMENTAL CASH FLOW INFORMATION:
      Cash paid for income taxes during the period ....... $      3    $    738
                                                           ========    ========
      Cash paid for interest during the period, net of
         capitalized interest ............................ $    565    $   --
                                                           ========    ========

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

                                      -5-
<PAGE>
                             APPLE ORTHODONTIX, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1. ORGANIZATION AND BASIS OF PRESENTATION

Apple Orthodontix, Inc. ("Apple" or the "Company") provides practice management
services to orthodontic practices in the United States and Canada. As of March
31, 1999, the Company managed 64 affiliated orthodontic practices (the
"Affiliated Practices") in 19 states and 3 Canadian provinces.

The accompanying unaudited condensed consolidated financial statements as of
March 31, 1999 and for the three months ended March 31, 1998 include the
accounts of the Company and its wholly owned subsidiaries. The Company's
subsidiaries acquire operating assets and assume certain liabilities of the
affiliated orthodontic practices and provide management services to the
Affiliated Practices under the Company's long-term management services
agreements. In 1997, the Emerging Issues Task Force released issued No. 97-2
"Applications of FASB Statement No. 94, Consolidation of all Majority-Owned
Subsidiaries, and APB Opinion No. 16, Business Combinations, to Physician
Practice Management Entities and Certain Other Entities With Contractual
Management Arrangements" (Issue No. 97-2). Issue 97-2 allows consolidation by
the physician practice management company (the "PPM") with the affiliated
physician practice when the PPM has controlling financial interest through a
contractual management arrangement. The Company's management services agreements
do not meet the criteria of Issue 97-2 and the Company has not consolidated the
affiliated orthodontic practices.

The unaudited condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Pursuant to such regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes the presentation and
disclosures herein are adequate to make the information not misleading. The
financial statements reflect all elimination entries and normal adjustments that
are necessary for a fair presentation of the results for the interim periods
ended March 31, 1999 and 1998.

Operating results for interim periods are not necessarily indicative of the
results for full years. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements of
Apple and related notes thereto, and management's discussion and analysis
related thereto, all of which are included in the Company's annual report on
Form 10-K for the year ended December 31, 1998, as amended, as filed with the
SEC (the "1998 Form 10-K"). The financial information as of December 31, 1998,
is derived from the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1998.

2. SIGNIFICANT ACCOUNTING POLICIES

GENERAL

There have been no significant additions to, or changes in, accounting policies
of the Company since December 31, 1998. For a description of the Company's
accounting policies, see Note 2 of Notes to Consolidated Financial Statements in
the 1998 Form 10-K.

INTANGIBLE ASSETS, NET

Intangible assets consist primarily of service fee intangibles. Prior to April
1, 1998, these intangibles were amortized over the life of the related service
agreement (ranging from 20 to 40 years) with the respective Affiliated Practice.
In reaction to recent trends in the practice management industry, the Company
changed its estimate of the remaining useful life of its intangible assets to a
maximum of 25 years effective April 1, 1998 on a prospective basis. If it is
determined that the estimated remaining service period requires further
revision, such revisions would similarly be made on a prospective basis.

NEW ACCOUNTING STANDARDS

In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires that entities
capitalize certain internal-use software costs once certain criteria are met.
The effective date of SOP 98-1 is for fiscal years beginning after December 15,
1998. The Company's adoption SOP 98-1 did not have a material effect on the
Company's financial position or results of operations. 

                                      -6-
<PAGE>
                             APPLE ORTHODONTIX, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires entities to charge to expense start-up costs,
including organizational costs, as incurred. The effective date of SOP 98-5 is
for fiscal years beginning after December 15, 1998. The Company's adoption of
SOP 98-5 did not have a material effect on the Company's financial position or
results of operations.

FOREIGN CURRENCY TRANSLATION

The Canadian dollar has been determined to be the functional currency for the
Company's operations in Canada. Translation gains and losses from operations in
Canada are reported in equity and as a component of comprehensive income. 

USE OF ESTIMATES

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

3. NEW ORTHODONTIST AFFILIATIONS APPLE ORTHODONTIX, INC.

During the three months ending March 31, 1999 the Company completed no new
Orthodontist Affiliations and had one orthodontist join an existing Affiliated
Practice.


4. LONG-TERM DEBT

A summary of long-term debt is as follows (in thousands):

                                                                        
                                                       MARCH 31,   DECEMBER 31,
                                                         1999         1998
                                                       --------    ------------
Unsecured revolving credit facility ................   $ 24,000    $     23,500
Notes payable, maturing in varying amounts
   through October 2002, with interest
   ranging from 7.5% to 9.3% .......................        105             121
Capitalized lease obligations, due in monthly
   installments through April 2001 with
   interest ranging from 9.5% to 24.7% .............        121             138
                                                       --------    ------------
                                                         24,226          23,759
   Less: current maturities ........................        (87)           (105)
                                                       --------    ------------
Long-term debt, net of current maturities ..........   $ 24,139    $     23,654
                                                       ========    ============

As a result of the special charge recorded in the fourth quarter of 1998, the
Company was no longer in compliance with certain of the covenants of its $25
million unsecured bank credit facility with Chase Bank of Texas, N.A. (the
"Chase Credit Facility"). On April 14, 1999, the Company amended the Chase
Credit Facility with respect to certain of the covenants and security interest
in the assets. The Chase Credit Facility, as amended, matures in May 2001 and
provides for a security interest in substantially all the Company's assets.
Availability under this facility is limited by the level of the Company's cash
flow and liquidity. At the Company's option, interest is payable at either a
prime rate or LIBOR in each case plus a margin which is calculated based upon
the Company's ratio of indebtedness to cash flow. The Company is required to
maintain certain financial covenants regarding net worth, coverage ratios and
additional indebtedness. As of March 31, 1999, the Company was in compliance
with all covenants of the Chase Credit Facility, as amended, and had $24 million
outstanding under this facility.

The notes payable relate to debts of the Affiliated Practices that were assumed
by the Company.

                                      -7-
<PAGE>
                             APPLE ORTHODONTIX, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


5. COMBINED PATIENT DATA

Combined operating data for the Affiliated Practices for the period from January
1, 1999 through March 31, 1999 is as follows (in thousands):

                                                          PATIENT       CASH
                                                          REVENUES   COLLECTIONS
                                                          --------   -----------
Practices participating under the
  Standard Contract ...................................   $  9,225   $     8,780
Practices participating under the
  Alternative Contract ................................      3,906         3,882
Practices participating under Flat
  Fee contract ........................................      3,860         3,710
                                                          ========   ===========
                                                          $ 16,991   $    16,372
                                                          ========   ===========

Combined patient receivables, net of the Affiliated Practices as of March 31,
1999 is as follows:

Patient receivables ...........................................         $ 2,599
Unbilled patient receivables ..................................           9,985
Patient prepayments ...........................................          (5,288)
                                                                        -------
      Patient receivables, net of prepayments .................         $ 7,296
                                                                        =======

6. COMPREHENSIVE INCOME

Comprehensive income, as defined by Statement of Financial Accounting Standards
No. 130 - Reporting Comprehensive Income, is net income plus direct adjustments
to stockholders' equity. The cumulative foreign currency translation adjustment
related to the Company's Affiliated Practices in Canada is the only such direct
adjustment applicable to the Company. The amount of comprehensive income for the
Company is as follows (in thousands):

                                                             THREE MONTHS
                                                             ENDED MARCH 31,
                                                         -----------------------
                                                          1999             1998
                                                         ------           ------
Net income reported ..........................           $  501           $1,306
Translation adjustment .......................              110               50
                                                         ======           ======
Comprehensive income .........................           $  611           $1,356
                                                         ======           ======


7. RECENT EVENTS

Since December 31, 1998, four Affiliated Practices have alleged breaches of
their service agreements by the Company and sought to have the service
agreements terminated (the "Threatened Practices"). The Company vigorously
denies any breach of the service agreements with the Threatened Practices and
intends to strenuously seek enforcement of those service agreements. The
management service fee revenues related to the Threatened Practices were
$778,727 and $3.5 million for the three months ending March 31, 1999 and the
twelve months ending December 31, 1998, respectively. In addition, the Company
is in the process of negotiating the termination of three additional service
agreements with Affiliated Practices with management service fee revenues
aggregating to approximately $320,790 and $1.0 million for the three months
ending March 31, 1999 and the twelve months ending December 31, 1998,
respectively.

On April 23, 1999, the Company executed an assignment agreement with one of the
Threatened Practices discussed above (the "Assignment Agreement"). The
Assignment Agreement provides for the Company to issue 181,818 shares of Common
Stock in return for the assignment of the ownership of the practice to the
Company. The Company intends to seek a new orthodontist to whom it will sell
this ownership interest. The management service fee revenues associated with
this practice were $582,668 and $2.4 million for the three months ending March
31, 1999 and the twelve months ending December 31, 1998, respectively.

                                      -8-
<PAGE>
                             APPLE ORTHODONTIX, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


7. RECENT EVENTS, CONTINUED

On April 27, 1999, the Company announced that it had signed a non-binding letter
of intent with an investor group in connection with the consideration of a
potential investment in the Company (subject to completion of due diligence
satisfactory to the investor group). The investment would be in the form of a
private placement of $20 million of convertible preferred shares, convertible on
a one-for-one basis into shares of the Company's Class A Common Stock. The
convertible preferred shares would be issued at a price of $3.00 per share and
would represent, on an as-converted basis, approximately a 32% ownership
interest in the Company at that price. The Company anticipates that the net
proceeds would be used to repay a substantial portion of the Amended Chase
Facility. The proposed investment by the investor group remains subject to
further negotiation of applicable terms and conditions (including price), the
negotiation of definitive documents and the receipt of any necessary approvals
and third-party consents.

                                      -9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, RISKS ASSOCIATED WITH AFFILIATIONS,
FLUCTUATIONS IN OPERATING RESULTS BECAUSE OF AFFILIATIONS AND VARIATIONS IN
STOCK PRICE, CHANGES IN GOVERNMENT REGULATIONS, COMPETITION, RISKS OF OPERATIONS
AND GROWTH OF EXISTING AND NEW AFFILIATED ORTHODONTIC PRACTICES, AND RISKS
DETAILED IN THE COMPANY'S SEC FILINGS. THE HISTORICAL RESULTS SET FORTH IN THIS
DISCUSSION AND ANALYSIS ARE NOT INDICATIVE OF TRENDS WITH RESPECT TO ANY ACTUAL
OR PROJECTED FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. THIS DISCUSSION AND
ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND THE RELATED NOTES THERETO INCLUDED
ELSEWHERE IN THIS FORM 10-Q AND THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1998, AS AMENDED.

OVERVIEW

The Company conducted no significant operations before its IPO in May 1997 when
the Company acquired the tangible and intangible assets and liabilities of, and
entered into Service Agreements with, the 31 Founding Affiliated Practices.
Since that time, the Company has affiliated with 35 additional practices with 59
orthodontists operating in 64 offices. The Company expects that its future
growth will come from: (i) implementing a comprehensive practice operating
approach designed to drive internal growth of the Affiliated Practices, (ii)
entering into Service Agreements with new Affiliated Practices and (iii)
developing new orthodontic centers, including satellite offices (branch
locations of existing Affiliated Practices) with existing and future Affiliated
Practices. As of May 17, 1999 the Company had Service Agreements with 64
practices representing 87 orthodontists in 120 offices.

Through its Service Agreements, the Company provides a full complement of
practice management services to Affiliated Practices in return for management
service fees. The management service fees earned by the Company are in
accordance with three general types of Service Agreements -- the standard form
of the Service Agreement (the "Standard Contract"), the alternative form of the
Service Agreement (the "Alternative Contract") and a Service Agreement based
upon a flat fee (the "Flat Fee Contract"). The Standard Contract calls for a
calculation of the monthly service fee based on the total patient revenues
earned by the Affiliated Practices, which is defined by the agreement to
represent 24% of the total contract value in the initial month of a patient's
treatment with the remainder of the contract balance earned evenly over the
balance of the contract term. From total patient revenues, the practices retain
a percentage of the Affiliated Practices' cash collections.

The Alternative Contract is used in certain jurisdictions where use of the
Standard Contract is not permitted. It is a cost-plus fee arrangement, whereby
the service fee includes the reimbursement of defined expenses incurred by Apple
in the course of providing services to the Affiliated Practice plus a percentage
of revenues.

The Flat Fee Contract is based on a flat fee subject to adjustment on an annual
basis. It is used when local jurisdictions do not allow use of the Standard
Contract or Alternative Contract.

The Company believes the fees generated by each of these formulas reflect the
fair market value of the services provided and are comparable to the fees earned
by other practice management service companies in the respective jurisdictions
where these arrangements exist.

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

In accordance with SAB No. 48, the acquisition of the assets and assumption of
certain liabilities for all of the Founding Affiliated Practices has been
accounted for by the Company at the transferors' historical cost basis, with the
shares of common stock issued in the Initial Affiliations being valued at the
historical cost of the nonmonetary assets acquired net of liabilities assumed.
The cash consideration paid at closing on May 29, 1997 is reflected as a
dividend by Apple to the owners of the Founding Affiliated Practices in the
quarter ended June 30, 1997. SAB No. 48 is not applicable to affiliations
effected by the Company after the IPO. The subsequent affiliations resulted in
substantial intangible assets being recorded 

                                      -10-
<PAGE>
and will continue to result in substantial annual non-cash amortization charges
for intangible assets in the Company's statements of operations. In this
connection, the Company changed, effective April 1, 1998, its estimate of the
remaining useful life of its intangible assets in light of recent trends in the
practice management industry. From that date, has used a maximum 25-year useful
life for amortizing intangible assets attributable to Affiliations. Prior to
that date, these costs were being amortized over a period of 30 to 40 years to
match the term of the related Service Agreement.

RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)

MANAGEMENT SERVICE FEE REVENUES

The Company generated management service fee revenues of $12.2 million for the
three-month period ended March 31, 1999, as compared with $11.2 million for the
three-month period ended March 31, 1998. The increase of approximately $1.0
million was due primarily to higher cash collections by the Affiliated
Practices.

COSTS AND EXPENSES

The Company incurred costs and expenses of $11.1 million (91% of management
service fee revenues) for the three-month period ended March 31, 1999, as
compared with $9.2 million (82% of management service fee revenues) for the
three-month period ended March 31, 1998.

The increase in cost and expenses was primarily due to increases in salaries and
benefits, depreciation and amortization, and rent. The $1.1 million increase in
salaries and benefits expense was related primarily to: (i) suspension of the
business development program, and (ii) a higher number of employees related to 6
new Orthodontist Affiliations. In the fourth quarter of 1998, the Company
terminated its business development program. In prior periods, business
development costs directly related to an affiliation were recorded on the
balance sheet and amortized as acquisition costs. The $324,000 increase in
depreciation and amortization expense was the result of (i) the change of the
Company's estimate of the remaining useful life of its intangible assets from 40
years to 25 years, and (ii) the additional Orthodontist Affiliations in the
second quarter of 1998. The $312,000 increase in rent expense was primarily the
result of a greater number of Affiliated Practices.

OPERATING INCOME

The Company generated operating income of $1.1 million for the three-month
period ended March 31, 1999, as compared with $2.0 million for the three-month
period ended March 31, 1998. These operating income amounts comprised 8.7% and
18% of management service fee revenues, respectively, for such periods.

INTEREST EXPENSE, NET

Interest expense is summarized as follows (in thousands):

                                                             THREE MONTHS
                                                             ENDED MARCH 31,
                                                           --------------------
                                                            1999         1998
                                                           -------      -------
Gross interest .......................................     $   380      $    47
Less:  capitalized interest ..........................          (8)         (30)
                                                           =======      =======
   Interest expense ..................................     $   372      $    17
                                                           =======      =======


Gross interest increased $333,000 for the three-month period ended March 31,
1999 as compared to the three-month period ended March 31, 1998. The increase in
gross interest was due to higher average debt levels.

INTEREST INCOME

Interest income was $141,000 for the three-month period ended March 31, 1999 as
compared to $88,000 for the three-month period ended March 31, 1998, an increase
of 60%. These increases reflected additions to notes receivable from certain of
the Affiliated Practices to fund new office construction and working capital
needs.

                                      -11-
<PAGE>
INCOME TAX PROVISION

The Company's operations in the first quarter of 1999 resulted in an income tax
provision of $303,000 and $800,000 for the three-month periods ended March 31,
1999 and 1998, respectively. The Company's effective tax rate for the
three-month period ended March 31, 1999 was 37.7% compared to 38.0% for the
corresponding period in fiscal 1998.

NET INCOME

As a result of the foregoing factors, net income decreased $805,000 (62%) for
the three-month period ended March 31, 1999, as compared to the three-month
period ended March 31, 1998. Net income as a percentage of management service
fee revenues decreased from 12% to 4% for such periods.

YEAR 2000 IMPACT ON INFORMATION TECHNOLOGY INFRASTRUCTURE

The Company is in the process of upgrading the practice management systems at
its Affiliated Practices (the "Affiliated Practice Systems"). The purpose of
this upgrade includes enhancement of the diagnostic, imaging, scheduling and
financial features of the Affiliated Practice Systems. The Company has also
conducted an evaluation of its information technology infrastructure, including
information technology systems in the Company's corporate office (the "Corporate
Systems") and the Affiliated Practice Systems, to analyze the impact of the
technical problems anticipated for the year 2000 (the "Year 2000 Issue").
Following its evaluation, the Company determined that substantially all its
Corporate Systems would be unaffected by such problems. Certain of the
Affiliated Practice Systems, however, would be affected by the Year 2000 Issue.

The Company believes that its upgrade of the Affiliated Practice Systems will
adequately address the Year 2000 Issue and that this upgrade process will be
completed (with respect to the Year 2000 Issue) on a timely basis. During the
execution of this process, the Company will continue to incur internal staff
costs as well as consulting and other expenses related to the upgrade. The
expenses of this upgrade are not expected to have a material adverse effect on
the Company's financial position or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

FINANCING ACTIVITIES

As a result of the special charge recorded in the fourth quarter of 1998, the
Company was no longer in compliance with certain of the covenants of the $25
million Chase Credit Facility. On April 14, 1999, the Company amended the Chase
Credit Facility with respect to certain of the covenants and security interest
in the assets. The Chase Credit Facility, as amended, matures in May 2001 and
provides for a security interest in substantially all the Company's assets.
Availability under this facility is limited by the level of the Company's cash
flow and liquidity. At the Company's option, interest is payable at either a
prime rate or LIBOR in each case plus a margin which is calculated based upon
the Company's ratio of indebtedness to cash flow. The Company is required to
maintain certain financial covenants regarding net worth, coverage ratios and
additional indebtedness. As of March 31, 1999, the Company was in compliance
with all covenants of the Chase Credit Facility, as amended, and had $24 million
outstanding under this facility.

On April 27, 1999, the Company announced that it had signed a non-binding letter
of intent with an investor group in connection with the consideration of a
potential investment in the Company (subject to completion of due diligence
satisfactory to the investor group). The investment would be in the form of a
private placement of $20 million of convertible preferred shares, convertible on
a one-for-one basis into shares of the Company's Class A Common Stock. The
convertible preferred shares would be issued at a price of $3.00 per share and
would represent, on an as-converted basis, approximately a 32% ownership
interest in the Company at that price. The Company anticipates that the net
proceeds would be used to repay a substantial portion of the Chase Facility. The
proposed investment by the investor group remains subject to further negotiation
of applicable terms and conditions (including price), the negotiation of
definitive documents and the receipt of any necessary approvals and third-party
consents.

In order to increase its liquidity, the Company has developed the following
strategies: (i) suspension of its new practice affiliation program, (ii)
substantial curtailment of its new office development program, (iii)
implementation of tighter credit policies with its Affiliated Practices, (iv)
consideration of terminating the service agreements of selected under-performing
Affiliated Practices, (v) reducing costs in the Company's corporate office, (vi)
raising additional capital and (vii) the consideration of strategic alternatives
which could include, but are not limited to, a sale of the Company or a business
combination with another physician practice management company or financial
sponsor. 

                                      -12-
<PAGE>
Based on its current strategy to enhance cash collections and reduce costs, the
Company expects its operations to be a sufficient source of funds to meet its
operating capital requirements over the next twelve months. However, there can
be no assurance that the Company's strategies will be achieved. In addition, the
Company's capital expenditure and other liquidity needs are dependent upon
access to additional capital. Any limitation on the Company's ability to obtain
additional financing could have a material adverse effect on the Company's
business, financial condition and results of operations. As a result of the
above factors, there is substantial doubt as to the Company's ability to
continue as a going concern. The accompanying financial statements do not
reflect any adjustments related to the recoverability and classification of
recorded assets or other adjustments which might be required should the Company
be unable to continue as a going concern.

The Company has financed its capital requirements to date with borrowings from
banks and issuances of securities. To date, the Company has been able to obtain
satisfactory financing for its operations and believes that it will be able to
obtain such financing as required in the future.

Total long-term debt increased from $23.7 million at December 31, 1998, to $24.1
million at March 31, 1999. The increase is attributable to borrowings for the
purchase of property and equipment and general working capital needs. The
Company's weighted average cost of indebtedness was 7.02% for the first quarter
of 1999.

WORKING CAPITAL MANAGEMENT

The Company's strategy in managing working capital is to maintain sufficient
availability under the Chase Facility to finance short-term capital needs in
excess of internally generated funds and minimize excess cash on its balance
sheet.

The restricted cash balance of $2.1 million at December 31, 1998, consisted
primarily of borrowings under the Chase Facility which were placed into escrow
pending the resolution of certain post-closing contingencies related to a new
affiliate orthodontist transaction closed during the third quarter of 1997. In
January 1999 there was a favorable resolution of these post-closing
contingencies that resulted in payment of the $2.1 million to the sellers.

The Company's total receivable from orthodontic practices (current and
non-current) increased $1.7 million from December 31, 1998 to March 31, 1999.
This increase resulted from a number of factors, including (i)service fee
receivables related to unbilled patient receivables, (ii) the portion of service
fee receivables from the Company's Affiliated Practices in Canada which are
payable in future periods, (iii) notes receivable related to the Affiliated
Practices' share of the cost of new office development projects, (iv) notes
receivable from the Affiliated Practices for general working capital purposes,
and (v) uncollected service fees. Based on the nature of the various types of
receivables, the various types of collateral held by the Company and the
Company's strategic operating programs to grow the patient revenue of the
Affiliated Practices, the Company believes that its net receivables from
orthodontic practices are collectible.

CAPITAL EXPENDITURES

The Company made capital expenditures for the Affiliated Practices during the
three months ended March 31, 1999, of approximately $546,000 to fund, among
other things, the development of satellite offices. The Service Agreements
provide for advances by the Company to the Affiliated Practices for working
capital requirements (including any deficits in cash flows of Affiliated
Practices resulting from, among other things, development of satellite offices)
and other purposes. Such loans bear interest at prime plus one percent and are
repayable over varying periods of time not to exceed five years. Total notes
receivable from Affiliated Practices were $4.2 million at March 31, 1999. It is
anticipated that capital expenditures will be funded from the Company's cash
flow from operations and borrowings under the Chase Facility.

The Company's expansion strategy requires substantial capital resources. Capital
is needed for future affiliations and the effective integration, operation and
expansion of the existing and future Affiliated Practices. In addition, the
Affiliated Practices may, from time to time, require capital for renovation and
expansion and for the addition of equipment and technology. The extent to which
the Company is able or willing to use shares of Common Stock to enter into
future affiliations or provide future financing will depend on the market value
of the Common Stock from time to time and, in the case of affiliations, the
willingness of owners of potential Affiliated Practices to accept Common Stock
as full or partial payment of consideration for affiliations. The Company will
require additional capital from outside financing sources in order to continue
its expansion program. There can be no assurance that the Company will be able
to obtain additional funds when needed on satisfactory terms or at all. The
availability of capital from outside financing sources will depend upon
prevailing market conditions, interest rates and the then existing financial
condition of the Company. Any limitation on the Company's ability to obtain
additional financing could have a material adverse effect on the Company's
business, financial condition and results of operations.

                                      -13-
<PAGE>
AFFORDABLE PAYMENT PLANS

A part of the Company's business strategy is to encourage Affiliated Practices
to offer more affordable payment plans to patients. The Company does not expect
the affordable payment plans, or any potential increase in bad debt expense
resulting from these plans, to have any significant negative impact on the
working capital or liquidity of the Affiliated Practices. Existing Affiliated
Practices using such payment plans have experienced an initial decrease in
working capital; however, the Company believes that the decrease in working
capital generally will be offset by an increase in the number of patients
receiving orthodontic treatment because of the combined effect of advertising,
offering more affordable payment plans and the use of the Company's
practice-building program. Moreover, the Company believes the Affiliated
Practices have the financial wherewithal to sustain any negative impact that may
result from these payment plans. Therefore, Apple does not anticipate that the
offering by the Affiliated Practices of more affordable payment plans will
impair the Company's ability to collect management service revenues from the
Affiliated Practices.


                                     PART II

ITEM 1. LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings other than those previously
reported.

The Company is not currently a party to any material claims, suits or complaints
relating to services and products provided by the Company or the existing
Affiliated Practices, except for those previously reported, although there can
be no assurance that such claims will not be asserted against the Company in the
future. The Company is subject to certain pending claims as a result of
successor liability in connection with its affiliations with existing Affiliated
Practices; however, the Company believes that the ultimate resolution of those
claims will not have a material adverse effect on the financial position or
operating results of the Company.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None, except for such mentioned above in note 4 of the financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

                                      -14-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a) Exhibits.

EXHIBIT                               DESCRIPTION
-------  -----------------------------------------------------------------------

*3.1     Restated Certificate of Incorporation (Incorporated herein by reference
         to Exhibit 3.1 of the Company's Registration Statement on Form S-1
         (Registration No. 333-22785)).

*3.2     Bylaws (Incorporated herein by reference to Exhibit 3.2 of the
         Company's Registration Statement on Form S-1 (Registration No.
         333-22785)).

*4.1     Form of certificate evidencing ownership of Common Stock of Apple
         Orthodontix, Inc. (Incorporated herein by reference to Exhibit 4.1 of
         the Company's Registration Statement on Form S-1 (Registration No.
         333-22785)).
              
*4.2     Form of Registration Rights Agreement (Incorporated herein by reference
         to Exhibit 4.1 of the Company's Registration Statement on Form S-1
         (Registration No. 333-22785)).

*4.3     Registration Rights Agreement among Apple Orthodontix, Inc., John G.
         Vondrak, D.D.S. and TriCap Funding I, L.L.C. (Incorporated herein by
         reference to Exhibit 4.3 of the Company's Registration Statement on
         Form S-1 (Registration No. 333-22785)).

*4.4     Registration Rights Agreement between TriCap Partners, L.L.C. and Apple
         Orthodontix, Inc. (Incorporated herein by reference to Exhibit 4.4 of
         the Company's Registration Statement on Form S-1 (Registration No.
         333-22785)).

*10.1    Revolving Credit Facility with Chase Bank of Texas, N.A. (formerly
         named "Texas Commerce Bank, N.A.") (Incorporated herein by reference to
         Exhibit 10.1 of the Company's Registration Statement on Form S-1
         (Registration No. 333-38817)).
              
*10.2    Apple Orthodontix, Inc. 1997 Stock Compensation Plan (Incorporated
         herein by reference to Exhibit 10.2 of the Company's Registration
         Statement on Form S-1 (Registration No. 333-38817)).
              
*10.3    Form of Option Agreement for the Apple Orthodontix, Inc. 1997 Stock
         Compensation Plan (Incorporated herein by reference to Exhibit 10.3 of
         the Company's Registration Statement on Form S-1 (Registration No.
         333-38817)).

*10.4    Employment Agreement between Apple Orthodontix, Inc. and John G.
         Vondrak, D.D.S. (Incorporated herein by reference to Exhibit 10.2 of
         the Company's Registration Statement on Form S-1 (Registration No.
         333-22785)).
             
*10.5    Employment Agreement between Apple Orthodontix, Inc. and Robert J.
         Syverson (Incorporated herein by reference to Exhibit 10.3 of the
         Company's Registration Statement on Form S-1 (Registration No.
         333-22785)).
             
*10.6    Employment Agreement between Apple Orthodontix, Inc. and Michael W.
         Harlan (Incorporated herein by reference to Exhibit 10.4 of the
         Company's Registration Statement on Form S-1 (Registration No.
         333-22785)).
             
*10.7    Employment Agreement between Apple Orthodontix, Inc. and W. Daniel Cook
         (Incorporated herein by reference to Exhibit 10.5 of the Company's
         Registration Statement on Form S-1 (Registration No. 333-22785)).
             
*10.8    Employment Agreement of H. Steven Walton (Incorporated herein by
         reference to Exhibit 10.7 of the Company's Registration Statement on
         Form S-1 (Registration No. 333-22785)).
             
*10.9    Amendment to Employment Agreement of H. Steven Walton (Incorporated
         herein by reference to Exhibit 10.9 of the Company's Registration
         Statement on Form S-1 (Registration No. 333-38817)).
             
*10.10   Second Amendment to Employment Agreement of H. Steven Walton
         (Incorporated herein by reference to Exhibit 99.2 of the Company's
         Current Report on Form 8-K dated February 24, 1998).
             
*10.11   Form of Service Agreement for Founding Affiliated Practices
         (Incorporated herein by reference to Exhibit 10.8 of the Company's
         Registration Statement on Form S-1 (Registration No. 333-22785)).
             
*10.12   Form of Alternative Service Agreement for Founding Affiliated Practices
         (Incorporated herein by reference to Exhibit 10.6 of the Company's
         Registration Statement on Form S-1 (Registration No. 333-22785)).

                                      -15-
<PAGE>
*10.13   Form of Flat Fee Service Agreement for Founding Affiliated Practices
         (Incorporated herein by reference to Exhibit 10.11 of the Company's
         Registration Statement on Form S-1 (Registration No. 333-22785)).

*10.14   First Amendment to Employment Agreement of Robert J. Syverson
         (Incorporated herein by reference to Exhibit 99.1 of the Company's
         Current Report on Form 8-K dated February 24, 1998).

*10.15   Employment Agreement between Apple Orthodontix, Inc. and A Stone
         Douglass, dated August 6, 1998 (incorporated herein by reference to
         Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 1998).

*10.16   Employment Agreement between Apple Orthodontix, Inc. and James E.
         Bobbitt, dated August 11, 1998 (incorporated herein by reference to
         Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 1998).

*10.17   Agreement Regarding Termination of Employment between Apple
         Orthodontix, Inc. and Michael W. Harlan, dated August 11, 1998
         (incorporated herein by reference to Exhibit 10.3 of the Company's
         Quarterly Report on Form 10-Q for the quarter ended September 30,
         1998).

*10.18   Agreement Regarding Termination of Employment and Severance Benefits
         between Apple Orthodontix, Inc. and H. Steven Walton, dated May 6, 1998
         (incorporated herein by reference to Exhibit 10.4 of the Company's
         Quarterly Report on Form 10-Q for the quarter ended September 30,
         1998).

*10.19   Consulting Agreement between Apple Orthodontix, Inc. and Michael W.
         Harlan, dated August 11, 1998 (incorporated herein by reference to
         Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 1998).

*10.20   Promissory Note between Apple Orthodontix, Inc. and John G. Vondrak,
         dated September 8, 1998 (incorporated herein by reference to Exhibit
         10.6 of the Company's Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1998).

*10.21   Stock Pledge Agreement between Apple Orthodontix, Inc. and John G.
         Vondrak, dated September 9, 1998 (incorporated herein by reference to
         Exhibit 10.7 of the Company's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 1998).

*10.22   Amendment to Employment Agreement of John G. Vondrak, dated September
         10, 1998 (incorporated herein by reference to Exhibit 10.9 of the
         Company's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1998).

*10.23   Amendment to Employment Agreement of A. Stone Douglass, dated November
         23, 1998 (incorporated by reference to Exhibit 10.23 of the Company's
         Annual Report on Form 10-K for the year ended December 31, 1998).

*10.24   Amendment to Employment Agreement of James E. Bobbitt, dated November
         23, 1998 (incorporated by reference to Exhibit 10.24 of the Company's
         Annual Report on Form 10-K for the year ended December 31, 1998).

*10.25   First Amendment to Credit Agreement with Chase Bank of Texas, N.A.,
         dated May 21, 1998 (incorporated by reference to Exhibit 10.25 of the
         Company's Annual Report on Form 10-K for the year ended December 31,
         1998).

*10.26   Agreement Regarding Termination of Employment and Severance Benefits
         between Apple Orthodontix, Inc. and Robert J. Syverson, dated May 20,
         1998. (incorporated by reference to Exhibit 10.26 of the Company's
         Annual Report on Form 10-K/A (Amendment No. 1) for the year ended
         December 31, 1998).

*10.27   Second Amendment and Waiver to Credit Agreement with Chase Bank of
         Texas, N.A., dated April 14, 1999. (incorporated by reference to
         Exhibit 10.27 of the Company's Annual Report on Form 10-K/A (Amendment
         No. 1) for the year ended December 31, 1998).

*21.1    Subsidiaries of the Registrant (incorporated by reference to Exhibit
         21.1 of the Company's Annual Report on Form 10-K/A (Amendment No. 2)
         for the year ended December 31, 1997).

*  Incorporated herein by reference as indicated.


   (b) Reports on Form 8-K

      None

                                      -16-
<PAGE>
                                    SIGNATURE

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

                                        APPLE ORTHODONTIX, INC.




Dated:  May 17, 1999                    /S/ JAMES E. BOBBITT
                                        By: James E. Bobbitt

                                        Vice President - Chief Financial Officer

                                      -17-