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 SEPTEMBER 30, 1998 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 November 13, 1998 was
11,368,585 and 2,576,411, 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........................... 11

PART II - OTHER INFORMATION
     Item 1 -- Legal Proceedings............................................. 16

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

Signature.................................................................... 19

                                      -2-
<PAGE>
                                      PART I

ITEM 1. FINANCIAL STATEMENTS

                     APPLE ORTHODONTIX, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,   DECEMBER 31,
                                                                                          1998            1997
                                                                                      ------------    ------------
                                                                                      (UNAUDITED)
<S>                                                                                   <C>             <C>         
                         ASSETS
Current assets:
   Cash and cash equivalents ......................................................   $      1,413    $      2,114
   Restricted cash ................................................................          2,140           2,140
   Receivable from orthodontic practices, net .....................................         10,999           2,362
   Prepaid expenses ...............................................................            472             250
   Other current assets ...........................................................            588             538
                                                                                      ------------    ------------
      Total current assets ........................................................         15,612           7,404
                                                                                      ------------    ------------
Property and equipment, net .......................................................          7,772           6,002
Intangible assets, net ............................................................         52,512          38,788
Receivable from orthodontic practices, net of current
 portion ..........................................................................          3,233           1,642
Notes receivable ..................................................................          2,675             600
Receivable from third parties .....................................................            762             107
Other assets ......................................................................          1,492             256
                                                                                      ============    ============
      Total assets ................................................................   $     84,058    $     54,799
                                                                                      ============    ============
                    LIABILITIES AND
                  STOCKHOLDERS' EQUITY

Current liabilities:
   Current maturities of long-term debt ...........................................   $        122    $      1,023
   Accounts payable and accrued expenses ..........................................          7,027           3,242
   Payable to orthodontic practices ...............................................          1,517             250
   Income tax payable .............................................................            781             351
                                                                                      ------------    ------------
      Total current liabilities ...................................................          9,447           4,866
                                                                                      ------------    ------------

Long-term debt, net of current maturities .........................................         20,170             248
Deferred income taxes .............................................................         13,551          14,544
Other long-term obligations .......................................................             12              29
                                                                                      ------------    ------------
      Total liabilities ...........................................................         43,180          19,687
                                                                                      ------------    ------------
Stockholders' equity
   Class A common stock , $0.001 par value, 25,000 shares
      authorized, 11,369 and 9,980 shares issued and
       outstanding.................................................................             11              10
   Class B common stock, $0.001 par value, 4,107 shares
      authorized, 2,576 and 3,177 shares issued and
       outstanding.................................................................              3               3
   Additional paid-in capital .....................................................         64,406          58,295
   Warrants .......................................................................            777             777
   Retained deficit ...............................................................        (22,586)        (23,592)
   Foreign currency translation adjustment ........................................         (1,733)           (381)
                                                                                      ------------    ------------
      Total stockholders' equity ..................................................         40,878          35,112
                                                                                      ============    ============
      Total liabilities and stockholders' equity ..................................   $     84,058    $     54,799
                                                                                      ============    ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      -3-
<PAGE>
                     APPLE ORTHODONTIX, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
                                             THREE MONTHS              NINE MONTHS
                                           ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,
                                          --------------------    -------------------
                                            1998        1997        1998       1997
                                          --------    --------    --------    -------
<S>                                       <C>         <C>         <C>         <C>    
Management service fee revenues .......   $ 13,114    $  7,480    $ 36,150    $ 9,166
Costs and expenses:
   Salaries and benefits ..............      4,653       3,094      12,931      4,544
   Orthodontic supplies ...............      1,927         998       5,129      1,198
   Rent ...............................      1,294         786       3,553      1,214
   Advertising and marketing ..........        689         146       1,545        153
   General and administrative .........      1,921       1,241       5,493      1,856
   Depreciation and amortization ......        897         341       2,105        412
   Special charge .....................       --          --         3,745       --
                                          --------    --------    --------    -------
      Total costs and expenses ........     11,381       6,606      34,501      9,377
                                          --------    --------    --------    -------
      Operating income (loss) .........      1,733         874       1,649       (211)

Interest expense, net .................        293         141         403        148
Interest income .......................       (131)        (91)       (318)      (105)
Other income, net .....................        (20)         (3)        (58)        (3)
                                          --------    --------    --------    -------
      Income (loss) before income taxes      1,591         827       1,622       (251)
Income tax provision (benefit) ........        605         314         616        (95)
                                          --------    --------    --------    -------

      Net income (loss) ...............   $    986    $    513    $  1,006    $  (156)
                                          ========    ========    ========    =======
Earnings (loss) per common
 and common equivalent share:
   Basic ..............................   $   0.07    $   0.05    $   0.07    $ (0.02)
                                          ========    ========    ========    =======
   Diluted ............................   $   0.07    $   0.05    $   0.07    $ (0.02)
                                          ========    ========    ========    =======
Number of shares used in calculating
 earnings (loss) per common and common
 equivalent share:
   Basic ..............................     13,944      10,834      13,715      6,965
                                          ========    ========    ========    =======
   Diluted ............................     14,002      11,205      13,870      6,965
                                          ========    ========    ========    =======
</TABLE>
    The accompanying notes are an integral part of these financial statements.

                                      -4-
<PAGE>
                    APPLE ORTHODONTIX, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
                                                                              NINE MONTHS
                                                                           ENDED SEPTEMBER 30,
                                                                           --------------------
                                                                             1998        1997
                                                                           --------    --------
<S>                                                                        <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) ...................................................   $  1,006    $   (156)
    Adjustments to reconcile net income (loss) to net
      cash used in operating activities:
      Depreciation and amortization ....................................      2,105         412
      Deferred income taxes ............................................        430         (95)
      Provision for doubtful accounts ..................................        134          34
      Special compensation expense paid in stock .......................        538        --
   Changes in assets and liabilities, excluding effects of acquisitions:
      Receivable from orthodontic practices ............................     (8,771)       (931)
      Prepaid expenses .................................................       (222)       (190)
      Other assets .....................................................       (108)        420
      Payables and other accrued liabilities ...........................      2,283      (1,182)
                                                                           --------    --------
                  Net cash used in operating activities ................     (2,605)     (1,688)
                                                                           --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures ................................................     (2,419)     (2,327)
   Payments for new affiliated practices ...............................    (10,456)     (3,689)
   Payment into escrow for a new affiliated practice ...................       --        (2,134)
   Advances to third parties ...........................................     (2,075)       (350)
   Advances to related parties .........................................       (655)       --
   Advances to affiliates ..............................................     (1,837)     (1,494)
   Repayment of advances by affiliates .................................        246          49
                                                                           --------    --------
                  Net cash used in investing activities ................    (17,196)     (9,945)
                                                                           --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from borrowings .........................................     20,000      11,434
      Repayments of borrowings .........................................       (979)     (2,628)
      Proceeds from issuances of common stock ..........................         79      17,623
      Cash paid related to common stock issuance costs .................       --        (4,952)
      Special dividend to founders .....................................       --        (6,544)
                                                                           --------    --------
                  Net cash provided by financing activities ............     19,100      14,933
                                                                           --------    --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................       (701)      3,300

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................      2,114          21
                                                                           ========    ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................   $  1,413    $  3,321
                                                                           ========    ========
</TABLE>
    The accompanying notes are an integral part of these financial statements.

                                      -5-
<PAGE>
                     APPLE ORTHODONTIX, INC. AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                            (IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
                                       CLASS A AND B                                            FOREIGN
                                       COMMON STOCK       ADDITIONAL                           CURRENCY
                                      ---------------      PAID-IN                RETAINED    TRANSLATION  STOCKHOLDERS'
                                      SHARES   AMOUNT      CAPITAL     WARRANTS   DEFICIT      ADJUSTMENT     EQUITY
                                      ------   ------   ------------   --------   --------    -----------    --------
<S>                                   <C>      <C>      <C>            <C>        <C>         <C>            <C>     
BALANCE, December 31, 1997 ........   13,157   $   13   $     58,295   $    777   $(23,592)   $      (381)   $ 35,112
   Issuances of common stock to new
    affiliated practices ..........      523        1          3,664       --         --             --         3,665
   Issuances of common stock
    under stock option plan,
    including income tax benefit ..       20     --               79       --         --             --            79
   Issuances of common stock
    options to non-employees ......     --       --              437       --         --             --           437
   Net income .....................     --       --             --         --        1,006           --         1,006
   Foreign currency
    translation adjustment ........     --       --             --         --         --           (1,352)     (1,352)
   Other ..........................      245     --            1,931       --         --             --         1,931
                                      ------   ------   ------------   --------   --------    -----------    --------
BALANCE, September 30, 1998 .......   13,945   $   14   $     64,406   $    777   $(22,586)   $    (1,733)   $ 40,878
                                      ======   ======   ============   ========   ========    ===========    ========
</TABLE>
    The accompanying notes are an integral part of these financial statements.

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

1. ORGANIZATION AND BASIS OF PRESENTATION

Apple Orthodontix, Inc. ("Apple" or the "Company") was founded in July 1996 to
provide practice management services to orthodontic practices in the United
States and Canada. On May 29, 1997, Apple acquired substantially all of the
tangible and intangible assets, and assumed certain of the liabilities of 31
orthodontic practices (collectively, the "Founding Affiliated Practices") in
exchange for 3.7 million shares of its class A common stock, par value $.001 per
share (the "Common Stock"), and $6.6 million (the "Initial Affiliations").
Simultaneous with the Initial Affiliations, Apple closed its initial public
offering (the "IPO") of 2.7 million shares of Common Stock. The net proceeds of
the Common Stock issued in the IPO (after deducting the underwriting discounts
and commissions) were $17.6 million. Total related offering costs were $5.5
million.

Apple effectively began operations with the Founding Affiliated Practices on
June 1, 1997. Apple has subsequently acquired the assets and assumed the
liabilities of additional practices (the "New Orthodontist Affiliations"). The
New Orthodontist Affiliations together with the Founding Affiliated Practices
are collectively referred to as the "Affiliated Practices."

The acquisitions of the Founding Affiliated Practices have been accounted for in
accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 48. In accordance with SAB No. 48, the acquisitions of
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 those transactions 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 the Company 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 subsequent to the IPO.

The acquisitions of assets and liabilities of the New Orthodontist Affiliations
are accounted for by allocating the value of the consideration paid by Apple to
the assets acquired, net of liabilities assumed, including intangible assets. As
a result of this allocation process, the Company records a significant portion
of the consideration as a service fee intangible. The service fee intangible has
resulted and will continue to result in substantial noncash amortization charges
for intangible assets in the Company's condensed consolidated statements of
operations.

The condensed consolidated financial statements included herein have been
prepared by the Company without audit, 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 September 30, 1998 and 1997.

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, 1997, as amended, as filed with the
SEC (the "1997 Form 10-K").

2. SIGNIFICANT ACCOUNTING POLICIES

INTANGIBLE ASSETS, NET

In reaction to recent trends in the practice management industry, the Company
has changed its estimate of the remaining useful life of its intangible assets
to a maximum of 25 years effective April 1, 1998. These costs have historically
been amortized over a period of 30 to 40 years to match the term of the related
service agreement.

There have been no other significant additions to or changes in accounting
policies of the Company since December 31, 1997. For a description of these
policies, see Note 2 of Notes to Consolidated Financial Statements in the 1997
Form
10-K.

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


NEW ACCOUNTING STANDARDS

The Emerging Issues Task Force of the Financial Accounting Standards Board (the
"FASB") recently issued its Consensus Opinion 97-2 ("EITF 97-2"). EITF 97-2
addresses certain specific matters pertaining to the physician, dentistry and
veterinary practice management industries. EITF 97-2 will be effective for the
Company for its year ending December 31, 1998. EITF 97-2 addresses the ability
of certain practice management companies to consolidate the results of certain
practices with which it has an existing contractual relationship. The Company
currently does not consolidate the operations of the orthodontic practices that
it manages. The guidance in EITF 97-2 will not change the Company's accounting
method because the Company's arrangements with its Affiliated Practices do not
meet the requirements for consolidation as set forth in EITF 97-2.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("SFAS No. 131") - Disclosures about Segments of an Enterprise and Related
Information.  SFAS No. 131 will be effective for the Company for its year ending
December 31, 1998.  The Company does not expect the adoption of SFAS No. 131 to
have a material effect on its financial position or results of operations.

In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities," was issued by the American Institute of Certified Public
Accountants. SOP 98-5 requires that all non-governmental entities expense the
costs of start-up activities as those costs are incurred. The Company is
required to adopt SOP 98-5 as of January 1, 1999. The Company does not expect
the adoption of SOP 98-5 to have a material effect on its financial position or
results of operations.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's non-U.S. operations is the local
currency. Adjustments resulting from the translation of financial statements are
reflected as a separate component of stockholders' equity.

RECLASSIFICATIONS

Certain reclassifications have been made to amounts in prior period financial
statements to conform with current period presentation.

3. NEW ORTHODONTIST AFFILIATIONS

During the period from January 1, 1998 through September 30, 1998, the Company
completed New Orthodontist Affiliations with 15 practices representing 21
orthodontists and 23 office locations. In addition, four orthodontists joined
existing Affiliated Practices. The 1998 New Orthodontist Affiliations generated
patient revenue of $9.9 million for their most recently completed fiscal years.
Prior patient revenue is not necessarily indicative of the level of patient
revenue that these practices may be expected to generate in the future and is
not necessarily indicative of the future service fees that the Company will
receive in conjunction with these affiliations.

Total consideration related to the 1998 New Orthodontist Affiliations consisted
of 455,604 shares of common stock and $7.1 million of cash, assumed debt and
deferred purchase price.

The cost of each of the above 1998 New Orthodontist Affiliations has been
allocated on the basis of the estimated fair market value of the assets acquired
and liabilities assumed, resulting in gross service fee intangibles of $15.0
million. These allocations may be adjusted to the extent that management becomes
aware of additional information within one reporting year of the affiliation
date which results in a material change in the amount of any contingency or
changes in the estimated fair market value of assets acquired and liabilities
assumed. Such adjustments resulted in an increase in service fee intangibles of
$4.8 million with respect to the 21 practices with which the Company affiliated
in 1997.

                                      -8-
<PAGE>
4. LONG-TERM DEBT

A summary of long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,  DECEMBER 31,
                                                            1998          1997
                                                        ------------   ------------
<S>                                                     <C>            <C>       
Unsecured revolving credit facility .................   $     20,000   $       --
Notes payable, maturing in varying amounts
   through October 2002, with interest
   ranging from 7.5% to 9.3% ........................            138          1,076
Capitalized lease obligations, due in
   monthly installments through April
   2001 with interest ranging from 9.5% to 24.7%....             154            195
                                                        ------------   ------------
                                                              20,292          1,271
   Less:  current maturities ........................            122          1,023
                                                        ------------   ------------
Long-term debt, net of current maturities ...........   $     20,170   $        248
                                                        ============   ============
</TABLE>
During 1998, the Company amended its unsecured bank credit facility in place at
December 31, 1997 to increase its size from $15 million to $25 million and to
increase its bank group from one to two banks. The bank credit facility provides
for a revolving credit period expiring on May 31, 2002. Availability under this
facility is tied to the Company's cash flow and liquidity. Advances bear
interest, at the Company's option, at 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
September 30, 1998, the Company had $20.0 million drawn under this facility.

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

5. STOCK COMPENSATION PLAN

As allowed by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company accounts for awards under
its 1997 Stock Compensation Plan under Accounting Principles Board Opinion No.
25, under which no compensation cost has been recognized for stock options
issued to employees with exercise prices greater than or equal to the fair
market value at the date of grant. Had compensation cost for these plans been
determined consistent with SFAS No. 123, the Company's net loss and loss per
share would have been reduced to the following pro forma amounts (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
                                  THREE MONTHS               NINE MONTHS
                              ENDED SEPTEMBER 30,        ENDED SEPTEMBER 30,
                            -----------------------   -----------------------
                               1998          1997        1998         1997
                            ----------   ----------   ----------   ----------
<S>                         <C>          <C>          <C>          <C>        
Net income (loss)
   As reported ..........   $      986   $      513   $    1,006   $     (156)
   Pro forma ............   $      938   $      481   $      861   $     (249)
Earnings (loss) per share
   As reported ..........   $     0.07   $     0.05   $     0.07   $    (0.02)
   Pro forma ............   $     0.07   $     0.04   $     0.06   $    (0.04)
</TABLE>
During the nine months ended September 30, 1998, the Company issued options to
purchase 35,000 shares to individuals other than employees and directors of the
Company as consideration for the closing of New Orthodontist Affiliations. The
fair value of these options was determined using the Black-Scholes option
pricing model at the date of grant and capitalized as a cost of affiliation.

                                      -9-
<PAGE>
6. COMBINED PATIENT DATA

Combined operating data for the Affiliated Practices for the period from January
1, 1998 through September 30, 1998 is as follows (in thousands):

                                                          PATIENT       CASH
                                                          REVENUES   COLLECTIONS
                                                          --------   -----------
Practices participating under the
Standard Contract .....................................   $ 27,490   $    25,708
Practices participating under the
Alternative Contract ..................................      8,818         8,597
Practices participating under flat
fee agreements ........................................     11,012        11,012
                                                          --------   -----------
                                                          $ 47,320   $    45,317
                                                          ========   ===========

Combined patient receivables, net of the Affiliated Practices as of September
30, 1998 is as follows:

Patient receivables ...........................................         $ 3,555
Unbilled patient receivables ..................................           5,491
Patient prepayments ...........................................          (3,187)
                                                                        -------
      Patient receivables, net of prepayments .................         $ 5,859
                                                                        =======

7. 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 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         NINE MONTHS
                                       ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
                                        ----------------   -----------------
                                         1998      1997     1998       1997
                                        ------    ------   -------    ------
Net income (loss) reported ..........   $  986    $  513   $ 1,006    $ (156)
Foreign currency
  translation adjustment ............     (753)     --      (1,352)     --
                                        ------    ------   -------    ------
Comprehensive income (loss) .........   $  233    $  513   $  (346)   $ (156)
                                        ======    ======   =======    ======

                                      -10-
<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, 1997, 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 and through August 12, 1998, the Company has affiliated with an
additional 35 practices and 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.

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.

                                      -11-
<PAGE>
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 and will continue to result in
substantial annual noncash 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, it will use 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 SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)

MANAGEMENT SERVICE FEE REVENUES

The Company generated management service fee revenues of $13.1 million and $36.2
million for the three- and nine-month periods ended September 30, 1998,
respectively, as compared with $7.5 million and $9.2 million for the three- and
nine-month periods in 1997. The Company conducted no significant operations
through the date of the IPO. Following completion of the IPO and the Initial
Affiliations on May 29, 1997, the Company began operations effective June 1,
1997. Thus, management service fee revenues for the nine-month period in 1997
reflects only four months of operations.

COSTS AND EXPENSES

The Company incurred costs and expenses of $11.4 million (86.8% of management
service fee revenues) and $34.5 million (95.4% of management service fee
revenues) for the three- and nine-month periods ended September 30, 1998,
respectively. The Company's recurring costs and expenses consisted primarily of
salaries and benefits, orthodontic supplies, rent, advertising and marketing,
general and administrative and depreciation and amortization.

Costs and expenses for the nine-month period in 1998 also included a $3.7
million special charge in the second quarter which reflected severance costs
associated with a series of management changes ($3.3 million), costs of
terminated transaction negotiations ($382,344) and certain other items
($84,490). The severance costs related to three officers of the Company. As of
September 30, 1998, the Company had paid $2.3 million in cash and $537,952 in
stock. Exclusive of this $3.7 million charge, costs and expenses were $30.8
million (85.1% of management service fee revenues) for the nine-month period
ended September 30, 1998.

As described more fully under the caption MANAGEMENT SERVICE FEE REVENUES above,
costs and expenses for the nine- month period ended September 30, 1997 reflects
only four months of operations. Costs and expenses for the 1997 periods do,
however, reflect corporate office expenses (consisting primarily of various
legal, accounting, travel, personnel and marketing costs incurred in connection
with the IPO and the Initial Affiliations) for the entire periods presented.

OPERATING INCOME (LOSS)

The Company generated operating income of $1.7 million and $1.6 million for the
three- and nine- month periods ended September 30, 1998, respectively. Exclusive
of the $3.7 million special charge discussed under the caption COSTS AND
EXPENSES above, the Company generated operating income of $1.7 million and $5.4
million for the respective periods. These operating income amounts comprised
13.2% and 14.9% of management service fee revenues, respectively, for such
periods. The Company generated operating income (losses) of $873,995 and
$(210,848) for the three- and nine-month periods ended September 30, 1997,
respectively. As described more fully under the captions MANAGEMENT SERVICE FEE
REVENUES and COSTS AND EXPENSES above, the nine- month period ended September
30, 1997 reflects only four months of operations, but full periods of corporate
office expenses.

INTEREST EXPENSE, NET

Interest expense is summarized as follows (in thousands):

                                    THREE MONTHS               NINE MONTHS
                                  ENDED SEPTEMBER 30,        ENDED SEPTEMBER 30,
                                 ----------------------   ----------------------
                                   1998         1997        1998         1997
                                 ---------    ---------   ---------    ---------
Gross interest ...............   $     361    $     141   $     575    $     148
Less:  capitalized interest...         (68)        --          (172)        --
                                 ---------    ---------   ---------    ---------
   Interest expense ..........   $     293    $     141   $     403    $     148
                                 =========    =========   =========    =========

Gross interest expense increased $220,000 (156%) and $427,000 (289%) for the
three- and nine-month periods ended September 30, 1998, as compared with 1997.
The increase in gross interest was due to higher average debt levels.

INTEREST INCOME

Interest income increased $39,259 (43.0%) and $212,942 (203.1%) for the
three-and nine- month periods ended September 30, 1998, respectively. These
increases reflected additions to notes receivable from certain of the Affiliated

                                      -12-
<PAGE>
Practices to fund new office construction and working capital needs and interest
earned on certain funds held in an escrow account related to a Canadian
affiliation at the end of July 1997.

INCOME TAX PROVISION (BENEFIT)

The Company generated an income tax provision (benefit) of $604,446 and $616,201
for the three- and nine-month periods ended September 30, 1998, respectively,
and $314,274 and $(95,320) for the comparable periods in 1997. The income tax
benefit resulted from net operating losses generated by the Company during the
nine-month period in 1997.

NET INCOME (LOSS)

As a result of the foregoing factors, net income increased $473,439 (92.3%) and
$1.2 million for the three-and nine-month periods ended September 30, 1998, as
compared with 1997. Net income as a percentage of management service fee
revenues increased from 6.9% to 7.5% and from (1.7)% to 2.8% for the three- and
nine-month periods, respectively.

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.

                                      -13-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

FINANCING ACTIVITIES

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. During 1998, the Company
amended its unsecured bank credit facility with Chase Bank of Texas, N.A. (the
"Chase Facility") in place at December 31, 1997 to increase its size from $15
million to $25 million and to increase its bank group from one to two banks. The
Chase Facility provides for a revolving credit period expiring on May 31, 2002.
Availability under the Chase Facility is tied to the Company's cash flow and
liquidity. Advances bear interest, at the Company's option, at 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 September 30, 1998, the Company had $20.0 million drawn
under the Chase Facility.

In May 1997, the Company issued and sold 2,702,500 shares of Common Stock in the
IPO. The IPO provided the Company with net proceeds of $12.1 million, which it
used to fund cash paid for the Initial Affiliations ($6.6 million) and
subsequent affiliations ($5.5 million). In November 1997, the Company issued and
sold 1,490,014 shares of Common Stock in a public offering (the "Offering"). The
Company has used the net proceeds of the Offering ($15.3 million) to repay $12.2
million under the Chase Facility, to affiliate with additional orthodontists, to
develop new offices, for capital expenditures and for general corporate
purposes.

Total long-term debt increased from $247,624 at December 31, 1997, to $20.2
million at September 30, 1998. The increase is attributable to borrowings for
the affiliation of new orthodontic practices, the purchase of property and
equipment and general working capital needs. The Company's weighted average cost
of indebtedness was 6.9% for the third quarter of 1998.

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 September 30, 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. A
favorable resolution of these post-closing contingencies would result in payment
of the $2.1 million to the sellers in January 1999. The Company has the right to
post a letter of credit in order to have the $2.1 million refunded from escrow
to the Company prior to January 1999.

The Company's total receivable from orthodontic practices (current and
non-current) increased $10.2 million from December 31, 1997 to September 30,
1998. 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 receivables from orthodontic
practices are collectible.

CAPITAL EXPENDITURES AND NEW AFFILIATIONS

The Company made capital expenditures for the Affiliated Practices during the
nine months ended September 30, 1998, of approximately $2.4 million to fund,
among other things, the development of satellite offices. With the exception of
one stand alone de novo office opened during the second quarter of 1998, which
cost $1.3 million to develop, the Company incurred an average cost of developing
the one de novo and seven satellite offices opened to date of approximately
$400,000 each. 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 $2.7
million at September 30, 1998. 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 

                                      -14-
<PAGE>
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. 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.

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. During the nine months ended September 30, 1998, total
consideration related to the New Orthodontist Affiliations consisted of 455,604
shares of common stock and $7.1 million of cash, assumed debt and deferred
purchase price.

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.

                                      -15-
<PAGE>
                                     PART II

ITEM 1. LEGAL PROCEEDINGS

In November 1997, the Company received notice that Mr. Donald Rose, an
acquaintance of Dr. John G. Vondrak, the Chairman of the Board of the Company,
was threatening to sue the Company, John G. Vondrak Apple Orthodontix, Inc., Dr.
Vondrak and John G. Vondrak, P.C., alleging, among other things, certain
breaches of an alleged oral agreement with Dr. Vondrak pursuant to which Dr.
Vondrak was to award Mr. Rose 10% of any stock issued to Dr. Vondrak in the IPO
in exchange for Mr. Rose's effort to obtain venture capital for the Company. On
January 8, 1998, Dr. Vondrak filed a declaratory judgment action in the District
Court of Harris County, Texas (269th Judicial District) seeking a finding by the
court that Mr. Rose was not entitled to any of Dr. Vondrak's stock or any other
remuneration. Mr. Rose filed a special appearance challenging jurisdiction and a
general denial. He subsequently withdrew his challenge to jurisdiction. The
Company is not a party to the declaratory judgment action filed by Dr. Vondrak.
While the Company was not a party to the alleged oral agreement, Mr. Rose has
maintained that the Company should be bound by its terms as a result of the
relationship between Dr. Vondrak and the Company. Although the Company believes
that these allegations are without merit, there can be no assurance that a
lawsuit will not be filed and, if filed, that the Company will obtain a
successful outcome.

On April 14, 1998, Orthosoft, Inc. ("Orthosoft") filed a complaint in the
District Court of Harris County, Texas against the Company alleging, among other
things, breach of a Software License and Asset Purchase Option Agreement dated
January 31, 1997 among Orthosoft, Glenn W. Woods, Robert J. Dennington, D.D.S.
and the Company. The complaint alleges that Orthosoft has suffered damages of
approximately $3.1 million. The Company strenuously denies any wrongdoing and
intends to vigorously defend against the claims made by Orthosoft, which the
Company believes are without merit. The Company has also instituted
counterclaims for breaches of the agreement, for tortious interference with
existing and prospective contracts and for fraudulent inducement by Orthosoft,
and has instituted third-party claims against Mr. Woods and Dr. Dennington for
tortious interference with existing and prospective contracts and for fraudulent
inducement.

On August 18, 1998, Charles L. Schnibben and Charles L. Schnibben, D.D.S., M.S.,
P.C. (the "Schnibben Parties") filed a complaint in the District Court of Harris
County, Texas against the Company alleging, among other things, breach of a
Service Agreement dated May 29, 1997 among the Schnibben Parties and the Company
(the "Schnibben Agreement") and negligent misrepresentation in order to induce
the Schnibben Parties to enter in the Schnibben Agreement. The petition seeks,
among other things, to have the court rescind the Schnibben Agreement because it
is an illegal fee splitting arrangement and unspecified actual damages in favor
of the Schnibben Parties. The Company strenuously denies any wrongdoing and
intends to vigorously defend against the claims made by the Schnibben Parties,
which the Company believes are without merit. The Company has filed
counterclaims for breaches of the Schnibben Agreement by the Schnibben Parties
and third-party claims against the counsel of the Schnibben Parties, who
rendered an opinion as to, among other things, the enforceability of the
Schnibben Agreement and its compliance with the applicable fee splitting and
other dentistry regulations.

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, 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.

                                      -16-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Annual Meeting of Stockholders of the Company was held in Houston, Texas on
July 27, 1998 for the purpose of electing two members of the Board of Directors.
Proxies for the meeting were solicited pursuant to Regulation 14 of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitation. Stockholders approved both of management's nominees
to the Board and the selection of Arthur Andersen LLP as the Company's
independent auditors for the 1998 fiscal year by the following votes:

                              ELECTION OF DIRECTORS       
                    --------------------------------------       SELECTION OF
                    ROD L. CROSBY, JR.   RICHARD J. MARXEN   ARTHUR ANDERSEN LLP
                    ------------------   -----------------   -------------------
For .............       6,169,278           6,169,278             8,086,501
Against .........         355,972             355,972               169,186
Abstaining ......            --                  --                  12,720

ITEM 5. OTHER INFORMATION.

On September 8, 1998, the Company loaned $500,000 (the "Promissory Note") to Dr.
John G. Vondrak, the Company's Chairman of the Board, pursuant to a promissory
note that bears interest at 8.5% per annum and is payable in full on September
9, 2000 (the "Promissory Note"). The Promissory Note is secured by a security
interest in 250,000 shares of Class A or B common stock of the Company pursuant
to a stock pledge agreement. On September 10, 1998, the Company and Dr. Vondrak
executed an amendment to Dr. Vondrak's employment agreement to recognize Dr.
Vondrak's change in title and responsibilities with the Company as well as to
modify certain of the terms of compensation in the event Dr. Vondrak's
employment with the Company is terminated.

                                      -17-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a) Exhibits.

EXHIBIT
NUMBER               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)).

10.1     Employment Agreement between Apple Orthodontix, Inc. and A Stone
         Douglass, dated August 6, 1998.

10.2     Employment Agreement between Apple Orthodontix, Inc. and James E.
         Bobbitt, dated August 11, 1998.

10.3     Agreement Regarding Termination of Employment between Apple
         Orthodontix, Inc. and Michael W. Harlan, dated August 11, 1998.

10.4     Agreement Regarding Termination of Employment and Severance Benefits
         between Apple Orthodontix, Inc. and H. Steven Walton, dated May 6,
         1998.

10.5     Consulting Agreement between Apple Orthodontix, Inc. and Michael W.
         Harlan, dated August 11, 1998.

10.6     Promissory Note between Apple Orthodontix, Inc. and John G. Vondrak,
         dated September 8, 1998.

10.7     Stock Pledge Agreement between Apple Orthodontix, Inc. and John G.
         Vondrak, dated September 9, 1998.

10.8     Amendment to Employment Agreement of John G. Vondrak, dated September
         10, 1998.

27.1     Financial Data Schedule.

------------------
* Incorporated herein by reference as indicated.

   (b) Reports on Form 8-K

      None

                                      -18-
<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:  November 13, 1998                          /s/ JAMES E. BOBBITT
                                                   By: James E. Bobbitt
                                                   Vice President - Chief 
                                                   Financial Officer

                                      -19-