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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

|      |  |                                                                                                                                           
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|[X]   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003, OR  
|      |  |                                                                                                                                           
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________TO________

Commission File No.: 001-13457

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

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of incorporation or organization) |  | 72-1278948
(I.R.S. Employer Identification No.)

3850 N. Causeway Boulevard, Suite 800
Metairie, Louisiana 70002
(504) 834-4392
(Address, including zip code, of principal executive offices and
Registrants telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [X] NO [   ]

At August 11, 2003 there were approximately 50,247,000 outstanding shares of
the Registrants Common Stock, $.01 par value per share.





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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                        |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS                                                    
|                                                   |                                                                                               | Consolidated Balance Sheets (Unaudited)               
|                                                   |                                                                                               | Consolidated Statements of Income  (Unaudited)        
|                                                   |                                                                                               | Consolidated Statements of Cash Flows (Unaudited)     
|                                                   |                                                                                               | Notes to Consolidated Financial Statements (Unaudited)
|                                                   | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                   | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                   | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                        
|                                                   | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                                   | ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                                        
|EXHIBIT INDEX                                     
|EX-10.1 FIRST AMENDMENT TO CREDIT AGREEMENT       
|EX-10.2 AMENDMENT OF 1994 INCENTIVE STOCK PLAN    
|EX-10.3 AMEND.& RESTATED 1994 NON QUAL. STOCK PLAN
|EX-31.1 CEO RULE 13A-14 CERTIFICATION             
|EX-31.2 CFO RULE 13A-14 CERTIFICATION             
|EX-32.1 SECTION 906 CEO CERTIFICATION             
|EX-32.2 SECTION 906 CFO CERTIFICATION             



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##### Table of Contents



ORTHODONTIC CENTERS OF AMERICA, INC.

TABLE OF CONTENTS

|                                                                                              |                                                                                                   |  |      |   | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                                                                   |  | Page
|                                                                                              |                                                                                                   |  |     
|Part I. Financial Information                                                                 |                                                                                                   |  |      |  
|Item 1. Consolidated Financial Statements:                                                    |                                                                                                   |  |      |  
|                                                                                              | Consolidated Balance Sheets 
June 30, 2003 (Unaudited) and December 31, 2002                     |  |      | 3 | 
|                                                                                              | Consolidated Statements of Income 
Three and Six Months ended June 30, 2003 and 2002 (Unaudited) |  |      | 4 | 
|                                                                                              | Consolidated Statements of Cash Flows 
Six months ended June 30, 2003 and 2002 (Unaudited)       |  |      | 5 | 
|                                                                                              | Notes to Consolidated Financial Statements  June 30, 2003 (Unaudited)                            |  |      | 6 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                   |  | 13   |  
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                   |  | 29   |  
|Item 4. Controls and Procedures                                                               |                                                                                                   |  | 29   |  
|Part II. Other Information
Item 1. Legal Proceedings                                          |                                                                                                   |  | 30   |  
|Item 4. Submission of Matters To a Vote of Security Holder                                    |                                                                                                   |  | 31   |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                   |  | 32   |  

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Report may not be based on historical
facts and are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements may be
identified by reference to a future period(s) or by the use of forward looking
terminology, such as anticipate, estimate, believe, expect, foresee,
may, would, could or will. These forward-looking statements include,
without limitation, statements regarding the Companys future growth and
operating results, fee revenue, critical accounting policies and estimates, net
operating loss carryforwards, reduction in service fees for certain
affiliated practices, amounts payable to OrthAlliance affiliated
practices under incentive programs, allowance for uncollectible amounts, liquidity,
capital resources, cash needs, buy-outs of service, consulting and management
service agreements, utilization of the Companys services and payment of service fees by
OrthAlliance affiliated practices, pending litigation against OrthAlliance and
the Company, advancement of funds to affiliated practices, repayment of
outstanding indebtedness, impairment of intangible assets and impairment of
goodwill. We caution you not to place undue reliance on these forward-looking
statements, in that they involve certain risks and uncertainties that could
cause actual results to differ materially from anticipated results. These risks
and uncertainties include potential adverse changes in the Companys financial
results and conditions, disruption of the Companys relationships with its
affiliated practices or loss of a significant number of the Companys
affiliated practices, failure or delay in integrating OrthAlliances affiliated
practices, adverse outcomes of litigation pending against the Company and
OrthAlliance, competition, inability to effectively manage an increasing number
of affiliated practices, changes in the general economy of the United States
and the specific markets in which the Company operates, risks relating to the
Companys foreign operations, changes in the Companys operating or expansion
strategy, inability of the Company to attract and retain qualified personnel
and affiliated practitioners, inability of the Company to effectively market
its services and those of its affiliated practices, changes in regulations
affecting the Companys business, and other factors identified in the Companys
Annual Report on Form 10-K for the year ended December 31, 2002, other filings
with the Securities and Exchange Commission or in other public announcements by
the Company. We undertake no obligation to update these forward-looking
statements to reflect events or circumstances that occur after the date of this
Report.

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PART I. FINANCIAL INFORMATION




ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS




Orthodontic Centers of America, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)

|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |         |  |  | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------------------------------------ | ------- | ------- | ----------- | ------- | ------------ | ------- |  |  | 
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         | June 30,    |         | December 31,
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         | 2003        |         | 2002        
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |             
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         | (Unaudited) |         |              |         | 
|                                                            |                                                                                                                                                                                                        |                            |                                      | ASSETS  |         |             |         |              |         |  |  | 
|Current assets:                                             |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |             
|                                                            | Cash and cash equivalents                                                                                                                                                                              |                            | $                                    | 12,015  |         |             | $       | 7,522        |        
|                                                            | Current portion of service fees receivable, net of allowance for uncollectible
amounts of $6,344 at June 30, 2003 and $5,095 at December 31, 2002                                                      |                            |                                      | 82,848  |         |             |         | 63,448       |        
|                                                            | Current portion of advances to affiliated practices, net of allowance for
uncollectible amounts of $2,978 at June 30, 2003 and $2,406 at
December 31, 2002                                             |                            |                                      | 12,740  |         |             |         | 14,857       |        
|                                                            | Deferred income taxes                                                                                                                                                                                  |                            |                                      | 20,142  |         |             |         | 37,572       |        
|                                                            | Supplies inventory                                                                                                                                                                                     |                            |                                      | 13,467  |         |             |         | 12,526       |        
|                                                            | Prepaid expenses and other assets                                                                                                                                                                      |                            |                                      | 5,557   |         |             |         | 7,439        |        
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |        
|                                                            |                                                                                                                                                                                                        | Total current assets       |                                      |         | 146,769 |             |         |              | 143,364 | 
|Unreimbursed expense portion of service fees receivable     |                                                                                                                                                                                                        |                            | 47,914                               |         |         |             | 43,070  |             
|Advances to affiliated practices, less current portion, net |                                                                                                                                                                                                        |                            | 19,110                               |         |         |             | 15,687  |             
|Property, equipment and improvements, net                   |                                                                                                                                                                                                        |                            | 89,318                               |         |         |             | 90,060  |             
|Intangible assets, net                                      |                                                                                                                                                                                                        |                            | 215,281                              |         |         |             | 220,383 |             
|Goodwill                                                    |                                                                                                                                                                                                        |                            | 87,641                               |         |         |             | 87,641  |             
|Other assets                                                |                                                                                                                                                                                                        |                            | 13,015                               |         |         |             | 7,040   |             
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |        
|TOTAL ASSETS                                                |                                                                                                                                                                                                        | $                          | 619,048                              |         |         | $           | 607,245 |             
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |        
|                                                            |                                                                                                                                                                                                        |                            | LIABILITIES AND SHAREHOLDERS EQUITY |         |         |             |         |              |         |  | 
|Current liabilities:                                        |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |             
|                                                            | Accounts payable                                                                                                                                                                                       |                            | $                                    | 9,480   |         |             | $       | 8,048        |        
|                                                            | Accrued salaries and other accrued liabilities                                                                                                                                                         |                            |                                      | 14,967  |         |             |         | 20,620       |        
|                                                            | Deferred revenue                                                                                                                                                                                       |                            |                                      | 537     |         |             |         | 713          |        
|                                                            | Service fee prepayments                                                                                                                                                                                |                            |                                      | 2,182   |         |             |         | 7,743        |        
|                                                            | Current portion of notes payable to affiliated practices                                                                                                                                               |                            |                                      | 2,931   |         |             |         | 8,387        |        
|                                                            | Current portion of long-term debt                                                                                                                                                                      |                            |                                      | 8,333   |         |             |         | 8,333        |        
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |        
|                                                            |                                                                                                                                                                                                        | Total current liabilities  |                                      |         | 38,430  |             |         |              | 53,844  | 
|Deferred income tax liabilities                             |                                                                                                                                                                                                        |                            | 8,030                                |         |         |             | 8,030   |             
|Notes payable to affiliated practices, less current portion |                                                                                                                                                                                                        |                            | 6,654                                |         |         |             | 4,612   |             
|Long-term debt, less current portion                        |                                                                                                                                                                                                        |                            | 94,400                               |         |         |             | 97,899  |             
|                                                           
|Shareholders equity:                                       |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |             
|                                                            | Preferred stock, $.01 par value: 10,000,000 shares authorized; no shares
outstanding                                                                                                                   |                            |                                      |        |         |             |         |             |        
|                                                            | Common stock, $.01 par value: 100,000,000 shares authorized; approximately
51,333,000 shares issued and outstanding at June 30, 2003 and
51,268,000 shares issued and outstanding at December 31, 2002 |                            |                                      | 513     |         |             |         | 512          |        
|                                                            | Additional paid-in capital                                                                                                                                                                             |                            |                                      | 218,515 |         |             |         | 217,840      |        
|                                                            | Retained earnings                                                                                                                                                                                      |                            |                                      | 269,207 |         |             |         | 240,911      |        
|                                                            | Accumulated other comprehensive loss                                                                                                                                                                   |                            |                                      | (1,720  | )       |             |         | (1,376       | )      
|                                                            | Less cost of approximately 1,093,000 shares of treasury stock at June 30, 2003
and 1,097,000 at December 31, 2002                                                                                      |                            |                                      | (14,981 | )       |             |         | (15,027      | )      
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |        
|                                                            |                                                                                                                                                                                                        | Total shareholders equity |                                      |         | 471,534 |             |         |              | 442,860 | 
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |        
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                  |                                                                                                                                                                                                        | $                          | 619,048                              |         |         | $           | 607,245 |             
|                                                            |                                                                                                                                                                                                        |                            |                                      |         |         |             |         |              |        

See accompanying notes to consolidated financial statements.

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Orthodontic Centers of America, Inc.
Consolidated Statements of Income
(in thousands, except per share data)

|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |        |         | 
|-------------------------------------- | ------------------------- | --------------------- | ------- | ------------------ | ------ | ---------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                       |                           |                       |         | Three months ended |        | Six months ended
|                                       |                           |                       |         | June 30,           |        | June 30,        
|                                       |                           |                       |         |                    |        |                 
|                                       |                           |                       |         | 2003               |        | 2002             |         | 2003   |        | 2002
|                                       |                           |                       |         |                    |        |                  |         |        |        |     
|                                       |                           |                       |         | (Unaudited)       
|Fee revenue                            |                           | $                     | 100,214 |                    |        | $                | 113,432 |        |        | $    | 200,853 |        |         | $ | 224,755 |       
|Direct expenses:                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|                                       | Employee costs            |                       |         | 29,571             |        |                  |         | 32,079 |        |      |         | 58,872 |         |   |         | 63,905 |        
|                                       | Orthodontic supplies      |                       |         | 9,728              |        |                  |         | 9,550  |        |      |         | 20,324 |         |   |         | 19,128 |        
|                                       | Rent                      |                       |         | 9,499              |        |                  |         | 10,064 |        |      |         | 19,001 |         |   |         | 20,139 |        
|                                       | Marketing and advertising |                       |         | 7,178              |        |                  |         | 7,964  |        |      |         | 13,420 |         |   |         | 16,915 |        
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|                                       |                           | Total direct expenses |         |                    | 55,976 |                  |         |        | 59,657 |      |         |        | 111,617 |   |         |        | 120,087 | 
|General and administrative             |                           |                       | 14,229  |                    |        |                  | 14,770  |        |        |      | 27,179  |        |         |   | 29,173  |       
|Depreciation                           |                           |                       | 3,462   |                    |        |                  | 3,094   |        |        |      | 6,994   |        |         |   | 5,908   |       
|Amortization                           |                           |                       | 2,789   |                    |        |                  | 2,745   |        |        |      | 5,214   |        |         |   | 5,386   |       
|Asset impairments                      |                           |                       | 1,111   |                    |        |                  |        |        |        |      | 1,815   |        |         |   |        |       
|Non-recurring recruiting expense       |                           |                       |        |                    |        |                  | 12,772  |        |        |      |        |        |         |   | 12,772  |       
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|Operating profit                       |                           |                       | 22,647  |                    |        |                  | 20,394  |        |        |      | 48,034  |        |         |   | 51,429  |       
|Interest income (expense), net         |                           |                       | (1,120  | )                  |        |                  | (992    | )      |        |      | (2,549  | )      |         |   | (2,342  | )     
|Non-controlling interest in subsidiary |                           |                       | (15     | )                  |        |                  | 7       |        |        |      | (29     | )      |         |   | 31      |       
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|Income before income taxes             |                           |                       | 21,512  |                    |        |                  | 19,409  |        |        |      | 45,456  |        |         |   | 49,118  |       
|Income taxes                           |                           |                       | 8,121   |                    |        |                  | 7,327   |        |        |      | 17,160  |        |         |   | 18,542  |       
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|Net income                             |                           | $                     | 13,391  |                    |        | $                | 12,082  |        |        | $    | 28,296  |        |         | $ | 30,576  |       
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|Net income per share:                  |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|                                       | Basic                     |                       | $       | 0.27               |        |                  | $       | 0.24   |        |      | $       | 0.56   |         |   | $       | 0.60   |        
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|                                       | Diluted                   |                       | $       | 0.27               |        |                  | $       | 0.23   |        |      | $       | 0.56   |         |   | $       | 0.59   |        
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|Average shares outstanding:            |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|                                       | Basic                     |                       |         | 50,219             |        |                  |         | 51,188 |        |      |         | 50,209 |         |   |         | 51,362 |        
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       
|                                       | Diluted                   |                       |         | 50,370             |        |                  |         | 51,999 |        |      |         | 50,395 |         |   |         | 52,174 |        
|                                       |                           |                       |         |                    |        |                  |         |        |        |      |         |        |         |   |         |       

See accompanying notes to consolidated financial statements.

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Orthodontic Centers of America, Inc.
Consolidated Statements of Cash Flows
(in thousands)

|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |      |         |   |         |  
|------------------------------------------------------------ | ----------------------------------- | ------------------------------------------------------------------ | -------------------------------------- | ---------------------------------------------- | -------- | ---------------- | ------- | ---- | ------- | - | ------- | -
|                                                             |                                     |                                                                    |                                        |                                                |          | Six months ended
|                                                             |                                     |                                                                    |                                        |                                                |          | June 30,        
|                                                             |                                     |                                                                    |                                        |                                                |          |                 
|                                                             |                                     |                                                                    |                                        |                                                |          | 2003             |         | 2002
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|                                                             |                                     |                                                                    |                                        |                                                |          | (Unaudited)     
|Operating activities:                                        |                                     |                                                                    |                                        |                                                |          |                  |         |     
|                                                             |                                     | Net income                                                         |                                        | $                                              | 28,296   |                  |         | $    | 30,576  |  
|                                                             |                                     | Adjustments to reconcile net income to net                         |                                        |                                                |          |                  |         |      |         |  
|                                                             |                                     |                                                                    | cash provided by operating activities: |                                                |          |                  |         |      |         |   |        
|                                                             |                                     |                                                                    |                                        | Provision for bad debt expense                 |          |                  | 2,779   |      |         |   | 2,271   |  
|                                                             |                                     |                                                                    |                                        | Depreciation and amortization                  |          |                  | 12,208  |      |         |   | 11,294  |  
|                                                             |                                     |                                                                    |                                        | Deferred income taxes                          |          |                  | 17,430  |      |         |   | (873    | )
|                                                             |                                     |                                                                    |                                        | Asset impairments                              |          |                  | 1,815   |      |         |   |        |  
|                                                             |                                     |                                                                    |                                        | Non-recurring recruiting expense               |          |                  |        |      |         |   | 4,771   |  
|                                                             |                                     |                                                                    |                                        | Changes in operating assets and liabilities:   |          |                  |         |      |         |   |         |  
|                                                             |                                     |                                                                    |                                        | Service fees receivable                        |          |                  | (25,656 | )    |         |   | (21,687 | )
|                                                             |                                     |                                                                    |                                        | Service fee prepayments                        |          |                  | (5,561  | )    |         |   | (1,283  | )
|                                                             |                                     |                                                                    |                                        | Supplies inventory                             |          |                  | (941    | )    |         |   | 340     |  
|                                                             |                                     |                                                                    |                                        | Prepaid expenses and other                     |          |                  | 1,540   |      |         |   | (1,522  | )
|                                                             |                                     |                                                                    |                                        | Amounts payable to affiliated practices        |          |                  |        |      |         |   | (1,394  | )
|                                                             |                                     |                                                                    |                                        | Accounts payable and other current liabilities |          |                  | (4,397  | )    |         |   | 7,534   |  
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|Net cash provided by operating activities                    |                                     |                                                                    | 27,513                                 |                                                |          |                  | 30,027  |     
|                                                            
|Investing activities:                                        |                                     |                                                                    |                                        |                                                |          |                  |         |     
|                                                             |                                     | Purchases of property, equipment and improvements                  |                                        |                                                | (7,511   | )                |         |      | (7,069  | )
|                                                             |                                     | Intangible assets acquired, net                                    |                                        |                                                | (338     | )                |         |      | (3,992  | )
|                                                             |                                     | Advances to affiliated practices, net                              |                                        |                                                | (2,598   | )                |         |      | (8,149  | )
|                                                             |                                     | Notes receivable                                                   |                                        |                                                | (2,059   | )                |         |      | (499    | )
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|Net cash used in investing activities                        |                                     |                                                                    | (12,506                                | )                                              |          |                  | (19,709 | )   
|                                                            
|Financing activities:                                        |                                     |                                                                    |                                        |                                                |          |                  |         |     
|                                                             |                                     | Repayment of notes payable to affiliated practices                 |                                        |                                                | (3,698   | )                |         |      | (2,774  | )
|                                                             |                                     | Repayment of long-term debt                                        |                                        |                                                | (117,050 | )                |         |      | (10,000 | )
|                                                             |                                     | Proceeds from long-term debt                                       |                                        |                                                | 109,900  |                  |         |      |        |  
|                                                             |                                     | Issuance of common stock                                           |                                        |                                                | 678      |                  |         |      | 2,892   |  
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|Net cash used in financing activities                        |                                     |                                                                    | (10,170                                | )                                              |          |                  | (9,882  | )   
|                                                            
|Effect of exchange rate changes on cash and cash equivalents |                                     |                                                                    | (344                                   | )                                              |          |                  | (1,783  | )   
|Change in cash and cash equivalents                          |                                     |                                                                    | 4,493                                  |                                                |          |                  | (1,347  | )   
|Cash and cash equivalents at beginning of period             |                                     |                                                                    | 7,522                                  |                                                |          |                  | 14,172  |     
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|Cash and cash equivalents at end of period                   |                                     | $                                                                  | 12,015                                 |                                                |          | $                | 12,825  |     
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|Supplemental cash flow information:                          |                                     |                                                                    |                                        |                                                |          |                  |         |     
|                                                             |                                     | Cash paid during period for:                                       |                                        |                                                |          |                  |         |      |         |  
|                                                             |                                     |                                                                    |                                        | Interest                                       |          | $                | 2,749   |      |         | $ | 1,955   |  
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|                                                             |                                     |                                                                    |                                        | Income taxes                                   |          | $                | 147     |      |         | $ | 233     |  
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     
|Supplemental disclosures of non-cash                         |                                     |                                                                    |                                        |                                                |          |                  |         |     
|                                                             | investing and financing activities: |                                                                    |                                        |                                                |          |                  |         |      |        
|                                                             |                                     | Notes payable and common stock issued
to obtain Service Agreements |                                        | $                                              | 284      |                  |         | $    | 835     |  
|                                                             |                                     |                                                                    |                                        |                                                |          |                  |         |     

See accompanying notes to consolidated financial statements.

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Orthodontic Centers of America, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2003

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Orthodontic Centers of America, Inc. (the Company) provides business services
to orthodontic and pediatric dental practices in 46 states and four foreign
markets.

The Company provides purchasing, financial, marketing and administrative
services under service, consulting and management service agreements (Service
Agreements). The Company provides services to orthodontic and pediatric
dental practices operated by orthodontists and pediatric dentists and/or their
wholly-owned professional entities (Affiliated Practices). Because the
Company does not control the Affiliated Practices, it does not consolidate
their financial results. The following table provides information about the
Companys Affiliated Practices as of June 30, 2003:

|              |       |             |                                |           |  |       |    |    |  |  |     |     | 
|------------- | ----- | ----------- | ------------------------------ | --------- |  | ----- | -- | -- |  |  | --- | --- | 
|              |       |             | Number of Affiliated Practices
|              |       |             |                               
|Location      |       | Orthodontic |                                | Pediatric |  | Total
|              |       |             |                                |           |  |      
|United States |       |             | 302                            |           |  |       | 28 |    |  |  | 330 |    
|Japan         |       |             | 25                             |           |  |       |   |    |  |  | 25  |    
|Mexico        |       |             | 4                              |           |  |       |   |    |  |  | 4   |    
|Puerto Rico   |       |             | 3                              |           |  |       |   |    |  |  | 3   |    
|Spain         |       |             | 3                              |           |  |       |   |    |  |  | 3   |    
|              |       |             |                                |           |  |       |    |    |  |  |     |    
|              | Total |             |                                | 337       |  |       |    | 28 |  |  |     | 365 | 
|              |       |             |                                |           |  |       |    |    |  |  |     |    

The number of affiliated practices exclude 54 orthodontic and pediatric dental
practices that were engaged in litigation with the Company or its
subsidiaries and for which we had generally ceased to
record fee revenue as of June 30, 2003.

The Companys consolidated financial statements include service fees earned
under the Service Agreements and the expenses of providing the Companys
services. These expenses generally include all practice-related expenses of
the Affiliated Practices, excluding the practitioners compensation and
professional insurance coverage.

Certain reclassifications have been
made to prior periods financial statements
in order to conform to the presentation of the June 30, 2003 financial
statements.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for audited
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 2003 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2003. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2002.

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2.     REVENUE RECOGNITION

Fee revenue consists of amounts earned by the Company under the Service
Agreements and recognized under the Companys revenue recognition policy. The
Company recognizes fee revenue as follows: (A) the Company allocates the total
amount of patient fees payable under a patient contract of an Affiliated
Practice on a straight-line basis over the term of the patient contract (which
generally averages about 26 months); (B) the Company then reduces that
allocated amount by the portion that is retained or to be retained by
Affiliated Practices (Amounts Retained By Affiliated Practices), which
consists of (i) amounts collected in the relevant period and retained by
Affiliated Practices under the terms of their Service Agreements and (ii)
amounts not collected in the relevant period that the Company estimates will be
retained by Affiliated Practices in future periods; and (C) the Company then
offsets a portion of Amounts Retained By Affiliated Practices by adding amounts
related to certain unreimbursed practice-related expenses incurred on behalf of
Affiliated Practices and recorded as expenses in the Companys consolidated
statements of income. The Company recognizes these expense amounts as fee
revenue to the extent Affiliated Practices generate sufficient patient fees
receivable to secure reimbursement of the expenses.

Until amounts related to unreimbursed practice-related expenses are recognized
as fee revenue under the Companys revenue recognition policy, the Companys
rights to receive reimbursement for these expenses are not recorded on the
Companys balance sheet as service fees receivable, even though Affiliated
Practices have a contractual obligation to reimburse the Company.

Under most of the Companys Service Agreements, service fees are calculated
based upon an allocation of a specified percentage of patient contract balances
during the first month of treatment with the remainder allocated equally over
the remaining term of the patient contracts, less amounts retained by
Affiliated Practices. Because the Company recognizes fee revenue based on a
straight-line allocation of patient contract balances, this may result in the
Company recognizing a portion of its fee revenue after corresponding service
fees have become contractually due under the Companys Service Agreements.

Many of OrthAlliances Affiliated Practices require that their patients pay a
down payment of approximately 25% of the total treatment fee at the
commencement of treatment. Because the Company recognizes fee revenue based on
a straight-line allocation of patient contract balances, this results in the
Company receiving cash in advance of recognizing certain fee revenue. The
Company records these amounts as service fee prepayments and defers recognition
of these amounts as fee revenue until they are recognized under the Companys
revenue recognition policy.

3.     SERVICE FEES RECEIVABLE

Service fees receivable represents fee revenue owed to the Company by its
Affiliated Practices. Service fees receivable consists of three categories of
fee revenue: (A) fee revenue related to patient fees receivable that have been
billed to patients or third party payors (billed patient fees receivable);
(B) fee revenue related to patient fees receivable that have not yet been
billed to patients or third party payors (unbilled patient fees receivable);
and (C) fee revenue related to certain unreimbursed practice-related expenses
the Company has incurred on behalf of Affiliated Practices and recorded as
expenses.

The Company recognizes fee revenue based in part on a straight-line allocation
of Affiliated Practices patient contract balances over the terms of the
patient contracts. This straight-line allocation includes billed patient fees
receivable and unbilled patient fees receivable. A portion of the Companys fee
revenue also relates to certain unreimbursed practice-related expenses incurred
on behalf of Affiliated Practices and recorded as expenses in the Companys
consolidated statements of income. The Company generally collects its service
fees receivable when patient fees are billed and collected by or on behalf of
the Companys Affiliated Practices.

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Service fees receivable are comprised of a current and long-term component. The
current portion of service fees receivable consists of fee revenue related to
billed patient fees receivable and unbilled patient fees receivable. The
long-term component is the unreimbursed expense portion of service fee
receivables, for which the Company is generally reimbursed over a five-year
period.

Current Portion of Service Fees Receivable:

Fee revenue related to billed patient fees receivable. Fee revenue related
to billed patient fees receivable generally increases due to increases in the
aggregate dollar amount of Affiliated Practices patient contracts, both from
increases in the overall number of patient contracts and increases in the
average amount of treatment fees charged per patient by Affiliated Practices,
as well as increases in the average number of days between billing and
collection of patient fees.

Fee revenue related to unbilled patient fees receivable. The Company
recognizes fee revenue based in part on a straight-line allocation of the
patient contract balances of Affiliated Practices over the terms of the patient
contracts (which average about 26 months). However, Affiliated Practices
generally do not bill their patients on a straight-line basis. Rather, most
Affiliated Practices use the Companys recommended payment plan for their
patients, which results in a disproportionate amount of patient fees being
billed and collected at the end of the treatment term. This generally results
in an increasing amount of service fees receivable over a patients term of
treatment.

The Companys recommended payment plan provides for no down payment, an initial
record fee, equal monthly installments and a final retainer fee. The initial
record fee is generally billed in the first month of treatment (along with one
of the monthly installments) and is generally equal to the amount of one
monthly installment. The final retainer fee is generally billed and collected
in the final month of treatment and is generally equal to four times the
monthly installment amount.

Under the Companys revenue recognition policy, service fees relating to a
patient contract, including the initial record fee and the final retainer fee,
are recognized as fee revenue evenly over the course of the patients
treatment, even though the initial record fee and the final retainer fee are
generally billed and collected at the beginning and end of treatment,
respectively. Payment of the initial record fee generally results in a service
fee prepayment, because it is collected before the Company recognizes all of
the related fee revenue. In contrast, the final retainer fee generally results
in service fees receivable, because the Company recognizes related fee revenue
before it is billed or collected. These service fees receivable gradually
accumulate over the course of treatment until the final retainer fee is billed
and collected in the final month.

Unreimbursed Expense Portion of Service Fees Receivable:

Fee revenue related to reimbursable practice-related expenses. A portion
of the Companys fee revenue represents reimbursement of certain
practice-related expenses incurred on behalf of Affiliated Practices and
recorded as expenses in the Companys consolidated statements of income. The
Company generally recognizes fee revenue relating to these expenses to the
extent that Affiliated Practices generate sufficient patient fees receivable to
secure reimbursement of the expenses.

Under the terms of most of the Companys Service Agreements, Affiliated
Practices generally reimburse the Company for certain practice-related expenses
over a five-year period. These expenses include operating losses and other
expenses for newly-developed or de novocenters (including those developed by
existing practices), and depreciation expense related to property, equipment
and improvements for existing and de novocenters. This generally results in an
increasing amount of service fees receivable as the reimbursable
practice-related expenses are recognized as fee revenue, until the expenses are
actually reimbursed over the five-year period.

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Unreimbursed practice-related expenses include:

Operating Losses.Newly-developed or de novocenters typically generate
operating losses during their first 12 months of operations. Under the terms of
most of the Companys Service Agreements, the Company generally funds these
operating losses and defers reimbursement of the Affiliated Practices portion
of the operating losses until the de novocenter begins to generate operating
profits. The Company records the related operating expenses in its consolidated
statements of income when incurred. The Company generally charges the
Affiliated Practice interest on those deferred amounts at market rates. After
the de novocenter becomes profitable, the Affiliated Practice usually begins
to reimburse the Company for the operating losses over a five-year period.
Mature practices may also occasionally generate operating losses, which are
generally repaid in subsequent periods from amounts that otherwise would have
been retained by the Affiliated Practice.

Depreciation Expense Relating To Property, Equipment and Improvements.The
Company generally purchases and provides the property, equipment and
improvements used in Affiliated Practices. The Company retains ownership of the
property, equipment and improvements and depreciates these assets over their
estimated useful lives. This amount is recorded as depreciation expense in the
Companys consolidated statements of income. Under the terms of most of the
Companys Service Agreements, Affiliated Practices generally reimburse the
Company for their portion of the costs of these property, equipment and
improvements over a five-year period. The Company charges the Affiliated
Practice interest on these amounts at market rates.

Under the terms of the Companys general form of Service Agreements, the
Affiliated Practices pledge their patient fees receivable to the Company as
collateral for the Companys service fees. The Company is typically responsible
for billing and collection of the patient fees receivable, which are conducted
in the name of the applicable Affiliated Practice. Collections are generally
deposited into a depository bank account that the Company establishes and
maintains.

4. LONG-LIVED ASSETS

Intangible Assets:

The Company generally affiliates with an existing orthodontic or pediatric
dental practice by entering into a Service Agreement and acquiring
substantially all of the non-professional assets of the practice or
professional corporation. The acquired assets generally consist of equipment,
furniture, fixtures and leasehold interests. The Company records these acquired
tangible assets at their fair value as of the date of acquisition and
depreciates or amortizes these assets using the straight-line method over their
useful lives. The remainder of the purchase price is allocated to an intangible
asset, which represents the cost of obtaining the Service Agreement. The
Company obtains the exclusive right to provide business operations, financial,
marketing and administrative services to the Affiliated Practice during the
term of the Service Agreement. The Service Agreements generally provide that
the professional corporation or entity is responsible for providing orthodontic
or pediatric dental services and for employing all orthodontists or pediatric
dentists. The terms of the Service Agreements range from 20 to 40 years, with
most ranging from 20 to 25 years. In many cases, the Affiliated Practice has
the option to terminate the Service Agreement after a certain length of time as
prescribed in the Service Agreement. If the Affiliated Practice terminates its
affiliation with the Company, it generally is required to purchase all of the
related assets, including the unamortized portion of the intangible assets, at
the current book value or sell its interests in the practice to another
licensed orthodontist or pediatric dentist.

Subsequent to affiliation, an Affiliated Practice may acquire an existing
practice, center or patient base. The Company may pay additional consideration
to the Affiliated Practice to amend its Service Agreement to extend the
Companys affiliation to such newly acquired practice. Such an extension
provides the

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Company with the opportunity to earn additional service fees. The
consideration is allocated to an intangible asset.

Components of the Companys intangible assets at June 30, 2003 and December 31,
2002 were as follows:

|                              |  |                |         |              |  |   |         | 
|----------------------------- |  | -------------- | ------- | ------------ |  | - | ------- | 
|                              |  | June 30,       |         | December 31,
|                              |  | 2003           |         | 2002        
|                              |  |                |         |             
|                              |  | (in thousands)
|Cost of intangible assets     |  | $              | 260,655 |              |  | $ | 262,411 | 
|Less accumulated amortization |  |                | 45,374  |              |  |   | 42,028  | 
|                              |  |                |         |              |  |   |         | 
|Intangible assets, net        |  | $              | 215,281 |              |  | $ | 220,383 | 
|                              |  |                |         |              |  |   |         | 

Intangible assets are amortized on a straight-line basis over the shorter of
the term of the related Service Agreement or 25 years. Amortization expense
relating to intangible assets was $2.8 million and $5.2 million for the three
and six months ended June 30, 2003, respectively, compared to $2.7 million and
$5.4 million for the three and six months ended June 30, 2002, respectively.
Intangible assets and the related accumulated amortization are written off when
fully amortized.

Property, Equipment and Improvements:

Property, equipment and improvements consisted of the following:

|                                               |  |                |         |              |  |   |         | 
|---------------------------------------------- |  | -------------- | ------- | ------------ |  | - | ------- | 
|                                               |  | June 30,       |         | December 31,
|                                               |  | 2003           |         | 2002        
|                                               |  |                |         |             
|                                               |  | (in thousands)
|Leasehold improvements                         |  | $              | 75,262  |              |  | $ | 73,703  | 
|Furniture, fixtures and equipment              |  |                | 67,394  |              |  |   | 65,689  | 
|                                               |  |                |         |              |  |   |         | 
|                                               |  |                | 142,656 |              |  |   | 139,392 | 
|Less accumulated depreciation and amortization |  |                | 53,338  |              |  |   | 49,332  | 
|                                               |  |                |         |              |  |   |         | 
|Property, equipment and improvements, net      |  | $              | 89,318  |              |  | $ | 90,060  | 
|                                               |  |                |         |              |  |   |         | 

Depreciation expense on property, equipment and improvements was $3.5 million
and $7.0 million for the three and six months ended June 30, 2003,
respectively, compared to $3.1 million and $5.9 million for the three and six
months ended June 30, 2002, respectively.

Impairment of Long-Lived Assets:

The Company assesses long-lived assets for impairment under Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. During the three and six months ended June
30, 2003, the Company recorded impairments related to intangible assets of
approximately $0.3 million and $0.6 million, respectively. During the three and six
months ended June 30, 2003, the Company recorded impairments related to
property, equipment and improvements for centers closed or relocated of
approximately $0.9 million and $1.3 million, respectively. These amounts are
included in asset impairments in the accompanying Consolidated Statements of
Income.

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Goodwill:

Goodwill represents the excess of purchase price over fair value of net assets
acquired or arising from a business combination. All of the Companys goodwill
relates to its acquisition of OrthAlliance. The Company assesses goodwill for
impairment in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, by measuring the reporting unit at fair value. During
the six months ended June 30, 2003, the Company performed its
annual impairment test and determined
that goodwill was not impaired at June 30, 2003.

5.     TRANSACTIONS WITH AFFILIATED PRACTICES

Net advances to Affiliated Practices totaled $31.9 million at June 30, 2003 and
$30.5 million at December 31, 2002. The Company had an allowance for certain
advances to Affiliated Practices that the Company believes will not be
recoverable of $3.0 million and $2.4 million at June 30, 2003 and December 31,
2002, respectively.

Orthodontic centers that have been newly developed by the Company have
typically generated initial operating losses as they begin to build a patient
base. A new center typically begins to generate operating profits after
approximately 12 months of operations. To assist Affiliated Practices in
obtaining financing for their portion of initial operating losses and capital
improvements, the Company entered into an agreement with a financial
institution under which the financial institution funds these operating losses
and capital improvements. The Company remains a guarantor of the related debt.
The Company was a guarantor for approximately $0.5 million and
$0.7 million at June 30,
2003 and December 31, 2002, respectively, of loans under this arrangement. The
Company no longer guarantees new debt for its Affiliated Practices.

6.     DEBT

On January 2, 2003, the Company obtained a three-year, $125.0 million credit
facility (the Credit Facility). The Credit Facility is comprised of
a $100.0 million revolving line of credit and a $25.0 million term loan. At
June 30, 2003, $102.7 million of indebtedness was outstanding under the
Credit Facility. The term loan is amortized over three years with fixed,
quarterly principal payments of $2.1 million, plus interest. The Credit
Facility is secured by a pledge of the capital stock of the Companys operating
subsidiaries. Borrowings under the Credit Facility generally bear interest
at margins over the lenders prime rate ranging from 0.50% to
1.50% or over the Eurodollar rate ranging from 1.50% to 2.50%, and such
margin is based on the Companys leverage ratio as computed under the
Credit Facility.

The Credit Facility requires the Company to maintain certain financial and
nonfinancial covenants, including a maximum leverage ratio, minimum fixed
charge coverage ratio, minimum consolidated net worth and maximum funded debt
to total patient contract balances. The Credit Facility also contains
positive and negative covenants that restrict certain activities of the
Company, including limitations on the payment of cash dividends, repurchases of
the Companys common stock, acquisitions, investments, incurrence of other
indebtedness and other transactions that may affect the
Companys liquidity. At June 30, 2003, the Company was in
compliance with the covenants of the Credit Facility.

7.     STOCK COMPENSATION ARRANGEMENTS

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company accounts for its stock compensation arrangements with employees under
the intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees and related interpretations.
No stock-based employee compensation cost is reflected in net income, as all
options granted under these plans have an exercise price equal to the market
value of the underlying common stock on the date of grant. The Company accounts
for stock options granted to non-employees, primarily affiliated orthodontists,
at fair value determined according to SFAS No. 123. The Company accounts for

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the incentive plans implemented in connection with the OrthAlliance merger in
accordance with Emerging Issues Task Force Issue No. 96-18 and Issue No. 00-18.
The following table indicates the effect on the Companys net income and
earnings per share had the Company applied the fair value recognition
provisions of SFAS No. 123.

|                                                                                                                                  |                      |   |                                       |      |      |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------- | -------------------- | - | ------------------------------------- | ---- | ---- | - | ------ | ---- | 
|                                                                                                                                  |                      |   | Six
months ended                     
|                                                                                                                                  |                      |   | June 30,                             
|                                                                                                                                  |                      |   |                                      
|                                                                                                                                  |                      |   | 2003                                  |      | 2002
|                                                                                                                                  |                      |   |                                       |      |     
|                                                                                                                                  |                      |   | (in thousands, except per share data)
|Net
income, as reported                                                                                                           |                      | $ | 28,296                                |      |      | $ | 30,576 |     
|Less stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effect |                      |   | 297                                   |      |      |   | 329    |     
|                                                                                                                                  |                      |   |                                       |      |      |   |        |     
|Pro forma net income                                                                                                              |                      | $ | 27,999                                |      |      | $ | 30,247 |     
|                                                                                                                                  |                      |   |                                       |      |      |   |        |     
|Net income per share:                                                                                                             |                      |   |                                       |      |      |   |        |     
|                                                                                                                                  | Basic, as reported   |   | $                                     | 0.56 |      |   | $      | 0.60 | 
|                                                                                                                                  | Basic, pro forma     |   |                                       | 0.56 |      |   |        | 0.59 | 
|                                                                                                                                  | Diluted, as reported |   |                                       | 0.56 |      |   |        | 0.59 | 
|                                                                                                                                  | Diluted, pro forma   |   |                                       | 0.56 |      |   |        | 0.58 | 

8.     INCOME TAXES

The Company has deferred tax assets primarily relating to net operating loss
carryforwards. These net operating loss carryforwards primarily relate to the
cumulative effect of a change in accounting method for income tax purposes
previously approved by the Internal Revenue Service. At June 30, 2003, the
Company reduced the deferred tax assets by the Companys income
taxes
for the first and second quarters of 2003, resulting in no current tax
liability recorded by the Company. The Company expects that the remaining net
operating loss carryforwards will offset a portion of the Companys taxable
income for the remainder of 2003. If the net operating loss carryforwards are
not used, they will expire between 2017 and 2022.

9.     NET INCOME PER SHARE

The calculation of net income per share is performed using the treasury stock
method. Computations of basic and diluted earnings per share are presented
below:

|             |                                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|------------ | --------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|             |                                                     |  | Three months ended |        | Six months ended
|             |                                                     |  | June 30,           |        | June 30,        
|             |                                                     |  |                    |        |                 
|             |                                                     |  | 2003               |        | 2002             |  | 2003 |        | 2002
|             |                                                     |  |                    |        |                  |  |      |        |     
|             |                                                     |  | (in thousands)    
|Numerator:   |                                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |       
|             | Net income for basic and diluted earnings per share |  | $                  | 13,391 |                  |  | $    | 12,082 |      |  | $ | 28,296 |  |  | $ | 30,576 | 
|             |                                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Denominator: |                                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |       
|             | Denominator for basic earnings per share            |  |                    | 50,219 |                  |  |      | 51,188 |      |  |   | 50,209 |  |  |   | 51,362 | 
|             | Effect of dilutive securities                       |  |                    | 151    |                  |  |      | 811    |      |  |   | 186    |  |  |   | 812    | 
|             |                                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|             | Denominator for diluted earnings per share          |  |                    | 50,370 |                  |  |      | 51,999 |      |  |   | 50,395 |  |  |   | 52,174 | 
|             |                                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 

10.     NEW
ACCOUNT PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51. Interpretation No. 46
requires consolidation of entities when an enterprise absorbs a majority of
the entitys expected losses, receives a majority of the entitys expected
residual returns, or both, as a result of ownership, contractual or other
financial interests in the entity. Currently, entities are generally
consolidated by an enterprise when it has a controlling financial interest
through ownership of a majority voting interest in the entity. The Company is
in the process of evaluating the implications of the Interpretation.

11. CONTINGENCIES

Before the Company entered into the
merger agreement with OrthAlliance, the Company anticipated that some
portion of OrthAlliances affiliated practices would oppose such
a merger. A description of actions brought by certain OrthAlliance
affiliated practices and the claims in these actions is contained in
Item 3 of Part I of the Companys Annual Report on
Form 10-K for the year ended December 31, 2002. At June 30, 2003, the Company was
engaged in litigation with 56 affiliated practices. The Company and
its subsidiaries and affiliated practices are, and from time may
become, party to other litigation or administrative proceedings which
arise in the normal course of their business.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion summarizes the financial condition of Orthodontic
Centers of America, Inc. (we or OCA) at June 30, 2003, and the results of
operations for the three and six months ended June 30, 2003, and should be read
in conjunction with the consolidated financial statements and accompanying
notes included elsewhere in this Report.

GENERAL

Our business was established in 1985. At June 30, 2003, we provided business
services to 365 orthodontic and pediatric dental practices. These amounts
exclude 54 orthodontic and pediatric dental practices that were engaged in
litigation with OCA and for which we had ceased to record fee revenue as of June
30, 2003. The following table provides information about our affiliated
practices.

|                                                                  |  |                                |     |          |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |            |     |  
|----------------------------------------------------------------- |  | ------------------------------ | --- | -------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  | ---------- | --- | -
|                                                                  |  | Number of Affiliated Practices
|                                                                  |  |                               
|                                                                  |  |                                |     |          |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  | Six months
|                                                                  |  | Year ended December 31,        |     | ended   
|                                                                  |  |                                |     | June 30,
|                                                                  |  | 1998                           |     | 1999     |  | 2000 |     | 2001 |  | 2002 |     | 2003
|                                                                  |  |                                |     |          |  |      |     |      |  |      |     |     
|Affiliated practices at beginning of period                       |  |                                | 164 |          |  |      | 205 |      |  |      | 230 |      |  |  | 245 |   |  |  | 372 |   |  |            | 371 |  
|Affiliated practices added                                        |  |                                | 52  |          |  |      | 41  |      |  |      | 33  |      |  |  | 143 |   |  |  | 24  |   |  |            | 2   |  
|Affiliated practices deaffiliated, transitioned or litigating (1) |  |                                | (11 | )        |  |      | (16 | )    |  |      | (18 | )    |  |  | (16 | ) |  |  | (25 | ) |  |            | (8  | )
|                                                                  |  |                                |     |          |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |            |     |  
|Affiliated practices at end of period                             |  |                                | 205 |          |  |      | 230 |      |  |      | 245 |      |  |  | 372 |   |  |  | 371 |   |  |            | 365 |  
|                                                                  |  |                                |     |          |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |            |     |  



---

|(1) |  | This line item includes practices
that bought out of their service, consulting or management service
agreement (deaffiliated), practices that
were acquired by another
affiliated practice because the obligations
under its service, consulting or management service
agreement were assumed by the acquiring affiliated practice
(transitioned), or practices that were engaged in litigation with
us and for which we ceased
recording fee revenue during the referenced period
(litigating).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Generally, when we develop a new center, all patients treated at the center are
new patients and, in the first several months after commencing operations, the
center is open only for a limited number of days each month as new patients are
added. Our affiliated centers have generally become increasingly more
productive and profitable as more new patients are added and existing patients
return for monthly follow-up visits. After approximately 26 months of
operations, a centers growth in patient base has typically begun to stabilize
as the initial patients complete treatment. At that point, a center can
increase the number of patients treated by improving the efficiency of its
clinical staff, increasing patient treatment intervals and adding operating
days or practitioners. Our affiliated centers may also increase revenue by
implementing periodic price increases. Established practices with which we have
affiliated have typically increased their revenue by applying our operating
strategies and systems, including increased advertising and efficient patient
scheduling.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We provide business services to orthodontic and pediatric dental practices.
Our consolidated financial statements include fee revenue earned under our
service, consulting and management service agreements and recognized under our
revenue recognition policy, along with the expenses of providing those
services. We do not consolidate the patient revenue and other operations and
accounts of our affiliated practices. The preparation of financial statements
in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

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We believe that the following critical accounting policies are important in
portraying our financial condition and results of operations, and require
managements difficult, subjective or complex judgments due to the sensitivity
of the methods, assumptions and estimates used in preparing our consolidated
financial statements.



| |  |  | In acquiring the non-professional assets of an orthodontic or
pediatric dental practice, and entering into a service or consulting
agreement with the practice, we allocate part of the related costs to
an intangible asset. The intangible asset is amortized over the term
of the service or consulting agreement, up to 25 years. We evaluate the
carrying amount of these intangible assets quarterly based on
managements estimates of future service fees over the remaining term
of the agreement. These estimates require management to make certain
assumptions regarding future cash flows based on current information
regarding the operational aspects of the practice. Future events may
change managements estimates. Any impairment charge recorded due to
our evaluation of the carrying amount of these intangible assets will
be based on the discounted cash flows method. During the six months
ended June 30, 2003, we determined that approximately
$0.6 million of
intangible assets were impaired and expensed such costs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We provide an allowance for uncollectible amounts based on our
estimate of service fees receivable that may not be paid by our
affiliated practices. The allowance for uncollectible amounts of
service fees receivable is currently calculated based upon an aging of
affiliated practices patient fees receivable for 80% of amounts over
90 days past due, 100% of amounts over 120 days past due and 6.25% of
amounts for which patients have not yet been billed. These amounts are
derived from our experience in collecting patient fees receivables on
behalf of affiliated practices. We also provide an allowance for
uncollectible amounts of advances to affiliated practitioners based on
managements assessment of our affiliated practices inability to repay
their obligations. If the financial circumstances of our affiliated
practices deteriorate, additional allowances may be required.                                                                                                                                     
|
| |  |  | We used internal and external data in estimating the fair value of
OrthAlliances assets and liabilities in connection with our
acquisition of OrthAlliance on November 9, 2001. Our future operating
results may be significantly affected depending on the accuracy of
managements estimates should the values of the assets and liabilities
acquired materially differ from the fair value assigned by management.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | At June 30, 2003, our financial statements reflected approximately
$87.6 million of goodwill related to the OrthAlliance merger. Goodwill
is carried at cost and is not amortized, but is tested for impairment
by applying a fair value concept in accordance with Statement of
Financial Accounting Standards (SFAS) No. 142. The evaluation of the
impairment loss requires management to make estimates and assumptions.
Management determined that goodwill was not impaired at June 30, 2003.
Adverse changes to our operations and other factors could result in
impairment losses in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | Under our revenue recognition policy, we must make certain
estimates, including amounts to be retained by our affiliated
practices. We recognize fee revenue based upon a straight-line
allocation of our affiliated practices patient contract balances over
the terms of the patient contracts, less amounts retained or estimated
to be retained by the affiliated practices during the term of
treatment, plus reimbursement of certain practice-related expenses. We
discuss our revenue recognition policy in greater detail in the
following subsection.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

REVENUE RECOGNITION

Fee revenue consists of amounts earned under our service, consulting and
management service agreements and recognized under our revenue recognition
policy. We recognize fee revenue as follows:

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| |  |  | We allocate the total amount of patient fees under each patient
contract of an affiliated practice on a straight-line basis over the
term of the patient contract (which generally averages about 26
months).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We then reduce that allocated amount by the portion that is
retained or to be retained by affiliated practices (Amounts Retained
By Affiliated Practices), which consists of:                              



| | (1) |  | Amounts collected in the relevant period and retained by
affiliated practices under the terms of their service, consulting or
management service agreements, and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Amounts not collected in the relevant period that we estimate
will be retained by affiliated practices in future periods.                                       



| |  |  | We then offset a portion of Amounts Retained By Affiliated
Practices by adding amounts related to certain unreimbursed
practice-related expenses incurred on behalf of affiliated practices
and recorded as expenses in our consolidated statements of income. We
recognize these expense amounts as fee revenue to the extent affiliated
practices generate sufficient patient fees receivable to secure
reimbursement of the expenses, up to Amounts Retained By Affiliated
Practices. These adjustments have the effect of impacting the timing
of recognition of fee revenue.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Some of our affiliated practices require that their patients pay a down payment
of approximately 25% of the total treatment fee at the commencement of
treatment. Because we recognize fee revenue based on a straight-line allocation
of patient contract balances, this results in us receiving cash in advance of
recognizing fee revenue. We record these amounts as service fee prepayments and
defer recognition of these amounts as fee revenue until they are recognized
under our revenue recognition policy. Service fee prepayments occur primarily
with OrthAlliance affiliated practices.

Until amounts related to unreimbursed practice-related expenses are recognized
as fee revenue under our revenue recognition policy, our rights to receive
reimbursement for these expenses are not recorded on our balance sheet as
service fees receivable, even though affiliated practices have a contractual
obligation to reimburse us. At June 30, 2003, unreimbursed practice-related
expenses recorded as expenses in our consolidated statements of income, but not
recognized as fee revenue or recorded as service fees receivable, totaled
approximately $15.5 million.

Under most of OCAs service agreements, service fees are calculated based upon
a specified percentage of patient contract balances allocated over the term of
the patient contracts, less amounts retained by affiliated practices. Because
we recognize fee revenue based on a straight-line allocation of patient
contract balances, this may result in us recognizing a portion of our fee
revenue after corresponding service fees have become contractually due under
our service agreements.

SERVICE FEES RECEIVABLE

Service fees receivable represents fee revenue owed to us by our affiliated
practices.

During the six months ended June 30, 2003, service fees receivable, net of an
allowance for uncollectible amounts, increased $24.3 million, or 22.8%, to
$130.8 million at June 30, 2003 from $106.5 million at December 31, 2002. This
increase resulted from varying increases in three categories of fee revenue:



| |  |  | Fee revenue related to patient fees receivable that have been
billed to patients or third party payors (billed patient fees
receivable),              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Fee revenue related to patient fees receivable that have not yet
been billed to patients or third party payors (unbilled patient fees
receivable), and

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| |  |  | Fee revenue related to certain unreimbursed practice-related
expenses that we have incurred on behalf of affiliated practices and
recorded as expenses.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

As discussed in the section above captioned Revenue Recognition, we
recognize fee revenue based in part on a straight-line allocation of affiliated
practices patient contract balances over the terms of the patient contracts.
This straight-line allocation includes billed patient fees receivable and
unbilled patient fees receivable. A portion of our fee revenue also relates to
certain unreimbursed practice-related expenses incurred on behalf of affiliated
practices and recorded as expenses in our consolidated statements of income. We
generally collect our service fees receivable when patient fees are billed and
collected by or on behalf of our affiliated practices.

Service fees receivable are comprised of a current and long-term component. The
current portion of service fees receivable consists of fee revenue related to
billed patient fees receivable and unbilled patient fees receivable. The
long-term component is the unreimbursed expense portion of service fee
receivables, for which we are to be reimbursed over a five-year period. During
the six months ended June 30, 2003, the current portion of service fees
receivable increased $19.5 million, or 30.8%, to $82.9 million, net of an
allowance for uncollectible amounts of $6.3 million, at June 30, 2003 from
$63.4 million, net of an allowance for uncollectible amounts of $5.1 million,
at December 31, 2002. During the six months ended June 30, 2003, the
unreimbursed expense portion of service fees receivable increased $4.8 million,
or 11.1%, to $47.9 million at June 30, 2003, from $43.1 million at December 31,
2002.

The components of service fees receivable are reflected in the following table
and discussed in greater detail below:

|                                                         |                                                         |                                          |                                                 |                                    |      |          |       |              |      |               |       |      |      |      |      | 
|-------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------- | ----------------------------------------------- | ---------------------------------- | ---- | -------- | ----- | ------------ | ---- | ------------- | ----- | ---- | ---- | ---- | ---- | 
|                                                         |                                                         |                                          |                                                 |                                    |      | June 30, |       | December 31, |      |               |       |     
|                                                         |                                                         |                                          |                                                 |                                    |      | 2003     |       | 2002         |      | Increase     
|                                                         |                                                         |                                          |                                                 |                                    |      |          |       |              |      |              
|                                                         |                                                         |                                          |                                                 |                                    |      |          |       |              |      | (in millions) |       |      |      |     
|Current portion of service fees receivable:              |                                                         |                                          |                                                 |                                    |      |          |       |              |      |               |       |     
|                                                         | Fee revenue related to billed patient fees receivable   |                                          | $                                               | 44.6                               |      |          | $     | 38.2         |      |               | $     | 6.4  |     
|                                                         | Fee revenue related to unbilled patient fees receivable |                                          |                                                 | 44.6                               |      |          |       | 30.3         |      |               |       | 14.3 |     
|                                                         |                                                         |                                          |                                                 |                                    |      |          |       |              |      |               |       |      |     
|                                                         |                                                         | Subtotal                                 |                                                 |                                    | 89.2 |          |       |              | 68.5 |               |       |      | 20.7 |     
|                                                         |                                                         | Less allowance for uncollectible amounts |                                                 |                                    | (6.3 | )        |       |              | (5.1 | )             |       |      | (1.2 | )   
|                                                         |                                                         |                                          |                                                 |                                    |      |          |       |              |      |               |       |      |     
|                                                         |                                                         |                                          | Current portion of service fees receivable, net |                                    |      | 82.9     |       |              |      | 63.4          |       |      |      | 19.5 |     
|Unreimbursed expense portion of service fees receivable: |                                                         |                                          |                                                 |                                    |      |          |       |              |      |               |       |     
|                                                         | Fee revenue related to certain unreimbursed expenses    |                                          |                                                 | 47.9                               |      |          |       | 43.1         |      |               |       | 4.8  |     
|                                                         |                                                         |                                          |                                                 |                                    |      |          |       |              |      |               |       |      |     
|                                                         |                                                         |                                          |                                                 | Total service fees receivable, net |      | $        | 130.8 |              |      | $             | 106.5 |      |      | $    | 24.3 | 
|                                                         |                                                         |                                          |                                                 |                                    |      |          |       |              |      |               |       |      |     

Current Portion of Service Fees Receivable

Fee revenue related to billed patient fees receivable. At June 30, 2003,
approximately $44.6 million of our service fees receivable resulted from fee
revenue related to billed patient fees receivable, representing an increase of
$6.4 million, or 16.8%, from $38.2 million at December 31, 2002. The increase
was primarily due to an increase in the average number of days between billing
and collection of patient fees during the six months ended June 30, 2003.

Fee revenue related to unbilled patient fees receivable. During the six
months ended June 30, 2003, of the three components of service fees receivable,
the largest increase was in service fees receivable from fee revenue related to
unbilled patient fees receivable. At June 30, 2003, approximately $44.6 million
of our service fees receivable resulted from fee revenue related to unbilled
patient fees receivable, representing an increase of $14.3 million, or 47.2%,
from $30.3 million at December 31, 2002. As discussed in the following
paragraphs, this increase was primarily due to the timing differences in when
certain patient fees are billed and when related fee revenue is recognized
under our revenue recognition policy, which was affected by an
increase of about 0.9 of a month in the average age of our
affiliated practices patient contracts during the six months
ended June 30, 2003.

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As discussed above in the section captioned Revenue Recognition, we
recognize fee revenue based in part on a straight-line allocation of the
patient contract balances of our affiliated practices over the terms of the
patient contracts (which average about 26 months). However, our affiliated
practices generally do not bill their patients on a straight-line basis.
Rather, most of our affiliated practices use our recommended payment plan for
their patients, which results in a disproportionate amount of patient fees
being billed and collected at the end of the treatment term. This generally
results in an increasing amount of service fees receivable over a patients
term of treatment.

Our recommended payment plan provides for no down payment, an initial record
fee, equal monthly installments and a final retainer fee. The initial record
fee is generally billed in the first month of treatment (along with one of the
monthly installments) and is generally equal to the amount of one monthly
installment. The final retainer fee is generally billed and collected in the
final month of treatment and is generally equal to four times the monthly
installment amount.

The following chart illustrates how service fees receivable resulting from fee
revenue related to unbilled patient fees receivable tend to increase over the
term of a patient contract for practices that use our recommended payment plan.

(PERFORMANCE CHART)

Under our revenue recognition policy, service fees relating to a patient
contract, including the initial record fee and the final retainer fee, are
recognized as fee revenue evenly over the course of the patients treatment,
even though the initial record fee and the final retainer fee are generally
billed and collected at the beginning and end of treatment, respectively.
Payment of the initial record fee generally results in a service fee
prepayment, because it is collected before we recognize all of the related fee
revenue. In contrast, the final retainer fee generally results in service fees
receivable, because we recognize related fee revenue before it is billed or
collected. These service fees receivable gradually accumulate over the course
of treatment until the final retainer fee is billed and collected in the final
month. The effect of this accumulation was increased during the six months
ended June 30, 2003 as the average age of our affiliated practices patient
contracts increased by about 0.9 of a month.

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Unreimbursed Expense Portion of Service Fees Receivable

Fee revenue related to unreimbursed practice-related expenses. The
unreimbursed expense portion of service fees receivable represents the
long-term component of service fees receivable. At June 30, 2003, approximately
$47.9 million of our service fees receivable resulted from fee revenue related
to certain unreimbursed practice-related expenses, representing an increase of
$4.8 million or 11.1% from $43.1 million at December 31, 2002. This increase
was primarily due to the timing difference in when the expense amounts were
recognized as fee revenue under our revenue recognition policy and when
affiliated practices are contractually obligated to reimburse us for these
expenses (generally over a five-year period).

A portion of our fee revenue represents reimbursement of certain
practice-related expenses incurred on behalf of affiliated practices and
recorded as expenses in our consolidated statements of income. We generally
recognize fee revenue relating to these expenses to the extent that affiliated
practices generate sufficient patient fees receivable to secure reimbursement
of the expenses. See the section above captioned Revenue Recognition.

Under the terms of most of OCAs service agreements, our affiliated practices
generally reimburse us for certain practice-related expenses over a five-year
period. These expenses include operating losses and other expenses for
newly-developed or de novocenters (including those developed by existing
practices), and depreciation expense related to property, equipment and
improvements. This generally results in an increasing amount of service fees
receivable as the reimbursable practice-related expenses are recognized as fee
revenue, until the expenses are actually reimbursed over the five-year period.

Unreimbursed practice-related expenses include:

Operating Losses.Newly-developed or de novocenters typically generate
operating losses during their first 12 months of operations. Under the terms of
most of OCAs service agreements, we generally fund these operating losses and
defer reimbursement of the affiliated practices portion of the operating
losses until the de novocenter begins to generate operating profits. We record
the related operating expenses in our consolidated statements of income when
incurred. We generally charge the affiliated practice interest on those
deferred amounts at market rates. After the de novocenter becomes profitable,
the affiliated practice usually begins to reimburse us for the operating losses
over a five-year period. Mature practices may also occasionally generate
operating losses, which are generally repaid in subsequent periods from amounts
that otherwise would have been retained by the affiliated practice.

Depreciation Expense Relating To Property, Equipment and Improvements.We
generally purchase and provide the property, equipment and improvements used in
our affiliated practices. We retain ownership of these property, equipment and
improvements and depreciate these assets over their estimated useful lives.
This amount is recorded as depreciation expense in our consolidated statements
of income. Under the terms of most of OCAs service agreements, affiliated
practices generally reimburse us for their portion of the costs of these
property, equipment and improvements over a five-year period. We charge the
affiliated practice interest on these amounts at market rates.

EXPENSES

Operating expenses of our affiliated centers are our expenses and are
recognized as incurred. Employee costs consist of wages, salaries and benefits
paid to all of our employees, including orthodontic assistants, business staff
and management personnel. Marketing and advertising expenses consist of costs
associated with advertising for affiliated practices. General and
administrative expenses consist of, among other things, provision for losses on
service fees receivable, professional fees, maintenance and utility costs,
office supply expense, telephone expense, taxes, license fees, printing expense
and shipping expense.

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OVERVIEW OF SERVICE AND CONSULTING AGREEMENTS

We provide a wide range of services to our affiliated practices, including
marketing and advertising, management information systems, staffing, supplies
and inventory, scheduling, billing, financial reporting, accounting and other
administrative services. These services are provided under long-term agreements
with affiliated orthodontists and pediatric dentists and/or their professional
entity. The terms of these agreements typically range from 20 to 40 years,
with most being 25 years.

The form of agreement used for a particular affiliated practice is based upon
the dental regulatory provisions of the state in which the affiliated practice
is located. We use a form of service agreement in most states. We use a form
of consulting agreement in a small number of states with relatively restrictive
laws relating to the practice of dentistry. OrthAlliance and its affiliated
practices are parties to service, consulting or management service agreements
that differ in some respects from the service and consulting agreements that
OCA has historically used.

OCA Service and Consulting Agreements

Under OCAs general form of service agreement, we provide affiliated practices
with a wide range of business services in exchange for monthly service fees.
The service fees we earn under these service agreements generally represent
reimbursement for direct and indirect expenses that we incur in providing
services to an affiliated practice (including employee costs, marketing and
advertising costs, office rent, utilities expense, supply costs and general and
administrative expenses), a portion of the operating profits of the affiliated
practice on a cash basis and, in some cases, hourly-based service fees. We are
also to be reimbursed for the affiliated practices share of operating losses
for newly-developed or de novocenters and depreciation expense related to
property, equipment and improvements used in the operation of the practice.
Excluding reimbursement of direct and indirect expenses and any hourly-based
service fees, service fees based on the operating profits of the affiliated
practice generally range from 40% to 50% of a mature practices cash operating
profits. In some cases, this is after reduction for any hourly-based service
fees or hourly-based amounts retained by an affiliated practice.

Under OCAs general form of consulting agreement, the types of services we
provide to affiliated practices are generally similar to the services we
provide under our general form of service agreement. Fees paid to us under the
consulting agreements generally are a combination of, depending on the service
being performed, cost-based types of fees, flat monthly fees and hourly fees.

OrthAlliance Service, Consulting and Management Service Agreements

Under OrthAlliances general form of service agreements, OrthAlliance generally
must provide or arrange for certain services for its affiliated practices, and
advise and assist the practices with respect to certain other services. These
services are similar to those provided under OCAs service agreements.
OrthAlliance is generally responsible for paying certain practice expenses, for
which it is to be reimbursed by the affiliated practice. If the practices
collections are insufficient to fund the practices current practice expenses,
then OrthAlliance is generally obligated to advance funds for those expenses.
Under these service agreements, OrthAlliance generally receives service fees
based on a percentage of adjusted practice revenue (generally about 17.0%),
subject in some cases to annual adjustments based upon improvements in the
affiliated practices operating margin and a minimum dollar amount of annual
service fees during the first five years of the agreement, or a flat monthly
fee with annual fixed-dollar increases.

Under OrthAlliances general form of consulting agreements, OrthAlliance
generally must provide certain specified services to its affiliated practices,
provide other services at the request of the practices and consult with or
advise the affiliated practices with respect to other services. These services
are generally similar to those provided under OCAs service agreements. Under
these agreements, OrthAlliance

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receives a consulting fee based on one of the fee structures described above
with respect to OrthAlliances service agreements.

Under OrthAlliances general form of management service agreements,
OrthAlliance generally is to provide for a wide range of services for its
affiliated practices, including providing facilities, equipment, support
personnel, utilities, supplies, bookkeeping, marketing and billing and
collections services. These management service agreements generally provide
for a service fee that varies from month to month depending on the particular
practices practice revenue and operating expenses, with a maximum of up to
19.5% of the practices practice revenue on a cash basis plus reimbursement of
practice-related expenses. A few of OrthAlliances management service
agreements provide for a fixed percentage service fee.

SEASONALITY

Our affiliated practices have experienced their highest volume of new cases in
the summer and other periods when schools are not typically in session. During
these periods, children have a greater opportunity to visit an orthodontist or
pediatric dentist to commence treatment. Consequently, our affiliated practices
have experienced higher revenue during the first and third quarters of the year
as a result of increased patient starts. During the Thanksgiving and Christmas
seasons, our affiliated practices have experienced reduced volume and fourth
quarter revenue for our affiliated practices has been generally lower as
compared to other periods.

EMERGING ISSUES TASK FORCE ISSUE NO. 97-2

We do not have a controlling financial interest in our affiliated practices. In
accordance with guidance in Emerging Issues Task Force Issue No. 97-2, we do
not consolidate the patient revenue and other operations and accounts of our
affiliated practices within our financial statements.

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RESULTS OF OPERATIONS

The following table provides information about the percentage of fee revenue
represented by some of the items in our Consolidated Statements of Income, and
the percentage by which those items increased or decreased during the three and
six months ended June 30, 2003 compared to the same periods in 2002.

|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       |                    |      |                  |       |       |      |  
|-------------------------------- | ------------------------- | --------------------- | ----- | ------------ | ---- | ---------- | ----- | ------------------- | ---- | ---- | ----- | ------------- | ---- | ------------- | ----- | ---- | ---- |  | ----- | ------------------ | ---- | ---------------- | ----- | ----- | ---- | -
|                                 |                           |                       |       | Three months |      | Six months |       |                     |      |      |       |               |      |              
|                                 |                           |                       |       | ended        |      | ended      |       | Percentage         
|                                 |                           |                       |       | June 30,     |      | June 30,   |       | Increase/(Decrease)
|                                 |                           |                       |       |              |      |            |       |                    
|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       | Three months ended |      | Six months ended
|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       | June 30,           |      | June 30,        
|                                 |                           |                       |       | 2003         |      | 2002       |       | 2003                |      | 2002 |       | 2003 vs. 2002 |      | 2003 vs. 2002
|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |              
|Fee revenue                      |                           |                       | 100.0 | %            |      |            | 100.0 | %                   |      |      | 100.0 | %             |      |               | 100.0 | %    |      |  | (11.7 | )%                 |      |                  | (10.6 | )%   
|Direct expenses:                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       |                    |      |                  |       |      
|                                 | Employee costs            |                       |       | 29.5         |      |            |       | 28.3                |      |      |       | 29.3          |      |               |       | 28.4 |      |  |       | (7.8               | )    |                  |       | (7.9  | )   
|                                 | Orthodontic supplies      |                       |       | 9.7          |      |            |       | 8.4                 |      |      |       | 10.1          |      |               |       | 8.5  |      |  |       | 1.9                |      |                  |       | 6.3   |     
|                                 | Rent                      |                       |       | 9.5          |      |            |       | 8.9                 |      |      |       | 9.5           |      |               |       | 9.0  |      |  |       | (5.6               | )    |                  |       | (5.6  | )   
|                                 | Marketing and advertising |                       |       | 7.2          |      |            |       | 7.0                 |      |      |       | 6.7           |      |               |       | 7.5  |      |  |       | (9.9               | )    |                  |       | (20.7 | )   
|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       |                    |      |                  |       |      
|                                 |                           | Total direct expenses |       |              | 55.9 |            |       |                     | 52.6 |      |       |               | 55.6 |               |       |      | 53.4 |  |       |                    | (6.1 | )                |       |       | (7.1 | )
|General and administrative       |                           |                       | 14.2  |              |      |            | 13.0  |                     |      |      | 13.5  |               |      |               | 13.0  |      |      |  | (3.7  | )                  |      |                  | (6.8  | )    
|Depreciation and amortization    |                           |                       | 6.2   |              |      |            | 5.1   |                     |      |      | 6.1   |               |      |               | 5.0   |      |      |  | 7.1   |                    |      |                  | 8.1   |      
|Non-recurring recruiting expense |                           |                       |      |              |      |            | 11.3  |                     |      |      |      |               |      |               | 5.7   |      |      |  | N/A   |                    |      |                  | N/A   |      
|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       |                    |      |                  |       |      
|Operating profit                 |                           |                       | 22.6  |              |      |            | 18.0  |                     |      |      | 23.9  |               |      |               | 22.9  |      |      |  | 8.2   |                    |      |                  | (6.6  | )    
|Interest expense                 |                           |                       | 1.1   |              |      |            | 0.9   |                     |      |      | 1.3   |               |      |               | 1.0   |      |      |  | 12.9  |                    |      |                  | 8.9   |      
|Income before income taxes       |                           |                       | 21.5  |              |      |            | 17.1  |                     |      |      | 22.6  |               |      |               | 21.9  |      |      |  | 10.8  |                    |      |                  | (7.5  | )    
|Provision for income taxes       |                           |                       | 8.1   |              |      |            | 6.5   |                     |      |      | 8.5   |               |      |               | 8.2   |      |      |  | 10.8  |                    |      |                  | (7.5  | )    
|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       |                    |      |                  |       |      
|Net income                       |                           |                       | 13.4  | %            |      |            | 10.6  | %                   |      |      | 14.1  | %             |      |               | 13.7  | %    |      |  | 10.8  | %                  |      |                  | (7.5  | )%   
|                                 |                           |                       |       |              |      |            |       |                     |      |      |       |               |      |               |       |      |      |  |       |                    |      |                  |       |      

Overview.Fee revenue decreased
$13.2 million for the three months ended June 30, 2003
compared to the same period in 2002, while direct expenses decreased
$3.7 million during the three months ended June 30, 2003, compared to the same period in 2002.
During the three months ended June 30, 2002, we recorded
a non-recurring recruiting expense of $12.8 million. Our net income increased $1.3 million to
$13.4 million for the three months ended June 30, 2003 from
$12.1 million for the same period in 2002.
Fee revenue decreased $23.9 million for the six months ended
June 30, 2003, compared to the same period in 2002.
The decline in fee revenue was partially offset by a
$8.5 million decrease in direct expenses and a $2.0 million
decrease in general and administrative expense during the six months
ended June 30, 2003, compared to the same period in 2002.
During the six months ended June 30, 2002, we recorded a
non-recurring recruiting expense of $12.8 million.
For the six months ended June 30,
2003, net income decreased $2.7 million to $28.3 million
from $30.6 million for the same period in 2002, primarily due to
the decrease in fee revenue.

Our
results for the three and six months ended June 30, 2003 were
affected by certain affiliated practices for which we ceased
recording fee revenue subsequent to June 30, 2002. We generally
ceased to record fee revenue for affiliated practices that ceased
paying service fees and providing financial information we use to
compute fee revenue. We were affiliated with 365 practices at
June 30, 2003, including 28 for which we had generally ceased to
record fee revenue because these practices ceased paying service fees
and providing information we use to compute fee revenue. At
June 30, 2002, we were affiliated with 373 practices, including
six for which we had generally ceased to record fee revenue because these
practices ceased paying service fees and providing information we use
to compute fee revenue. This represents a net reduction of 30
affiliated practices for which we were recording fee revenue as of
June 30, 2003, compared to June 30, 2002.

The
affiliated practices that ceased paying their service fees and
providing financial information that we use to compute fee revenue at
June 30, 2003 were generally mature orthodontic and pediatric dental
practices with relatively high volume and operating margins. Since
June 30, 2002, we have affiliated with 23 de novo
practices, which typically generate initial operating losses during
their first 12 months of operations and experience relatively lower
operating margins than mature practices. Because of the overall
decrease in mature practices contributing to our results, our
operating margins and expenses as a percentage of fee revenue were
negatively affected during the three and six months ended
June 30, 2003 compared to the same periods in 2002.

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The following are key operating statistics of our affiliated practices during
the six months ended June 30, 2003 and 2002:

|                                                     |  |                                        |         |           |  |            |         |   |  |  |       |   
|---------------------------------------------------- |  | -------------------------------------- | ------- | --------- |  | ---------- | ------- | - |  |  | ----- | --
|                                                     |  | Six months ended                       |         |           |  |           
|                                                     |  | June 30,                               |         |           |  |           
|                                                     |  |                                        |         | Increase/
|                                                     |  | 2003                                   |         | 2002      |  | (Decrease)
|                                                     |  |                                        |         |           |  |           
|                                                     |  | (in thousands, except percentage data)
|Number of new patient contracts (1)                  |  |                                        | 49      |           |  |            | 60      |   |  |  | (18.3 | )%
|Total new patient contract balances (1)              |  | $                                      | 171,036 |           |  | $          | 194,071 |   |  |  | (11.9 | )%
|Total number of active patients at end of period (1) |  |                                        | 510     |           |  |            | 515     |   |  |  | (1.0  | )%
|Comparable center fee revenue growth (2)             |  |                                        | 11.3    | %         |  |            | 17.8    | % |  |  | N/A   |   



---

|(1) |  | The patient statistics include patients under treatment at
affiliated pediatric dental practices, in addition to affiliated
orthodontic practices. As of June 30, 2003, approximately 59,000
patients were under treatment at affiliated pediatric dental
practices, compared to approximately 39,000 patients as of June 30, 2002. We were affiliated
with 28 and 27 pediatric dental practices as of June 30, 2003 and 2002,
respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These amounts represent the growth in fee revenue in the indicated
period relative to the comparable prior-year period by centers that
were affiliated with us and for which we recorded fee revenue
throughout each of the two periods being compared.                                                                                                                                                                                     

Fee Revenue.Fee revenue decreased $13.2 million, or 11.7%, to $100.2
million for the three months ended June 30, 2003 from $113.4 million for the
same period in 2002. This net decrease was primarily due to the following:



| |  |  | an increase of $6.2 million
in fee revenue for comparable centers
(as described in note 2 to the table above); and                                                                                                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a decrease of $19.4 million in fee revenue from all other
centers, primarily OrthAlliance affiliated practices that
bought out of their service, consulting and management service
agreements or for which we have generally ceased to record fee revenue.

Fee revenue decreased $23.9 million, or 10.6%, to $200.9 million for the six
months ended June 30, 2003 from $224.8 million for the same period in 2002. The
net decrease was primarily due to the following:



| |  |  | an increase of $16.9 million
in fee revenue for comparable centers (as described in note 2 to the
table above); and                                                                                                                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a decrease of $40.8 million in fee revenue from all other
centers, primarily OrthAlliance affiliated practices that
bought out of their service, consulting and management service
agreements or for which we have generally ceased to record fee revenue.

Fee revenue during the three and six months ended June 30, 2003 was negatively
affected by certain affiliated practices for which we have ceased to record fee
revenue. These practices have either bought out of their service, management
service or consulting agreements or ceased paying service fees and providing
financial information we use to compute fee revenue. We expect some
continued fluctuations in fee revenue during the remainder of 2003 as some
OrthAlliance affiliated practices may buy out of their service, consulting or
management service agreements or stop paying service fees and providing certain
financial information. However, OrthAlliance
affiliated practices that are not currently included in our results for the
three and six months ended June 30, 2003 may begin utilizing our services and
paying service fees in the future. We expect that declines in fee revenue from
these buy-outs would be offset by increases in fee revenue from other practices
over time.

Fee revenue during the three and six months ended June 30, 2003 was also
negatively affected by a reduction in service fees charged to certain of our
affiliated practices that achieved certain performance levels. For the three
and six months ended June 30, 2003, we reduced these practices services fees
by

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approximately $0.4 million and
$0.9 million, respectively, which reduced fee revenue by
the same amount. We estimate that the remaining potential reduction
in service fees for these practices under this program to be
approximately $0.9 million for the remainder of 2003.

Employee Costs.Employee costs consist of payroll and benefits costs for
employees at our affiliated centers and corporate headquarters. We do not
employ affiliated orthodontists, pediatric dentists or general dental
assistants. Employee costs decreased $2.5 million, or 7.8%, to $29.6 million
for the three months ended June 30, 2003 from $32.1 million for the same period
in 2002. For the six months ended June 30, 2003, employee costs were $58.9
million, a decrease of 7.8% from $63.9 million of the same period in 2002.
These decreases were primarily due to reduction in employee costs for
affiliated practices that bought out of their service, management service or
consulting agreements or for which we generally ceased to record fee revenue
after June 30, 2002. As a percentage of fee revenue, employee costs were 29.5%
and 29.3% for the three and six months ended June 30, 2003, respectively,
compared to 28.3% and 28.4%, respectively, for the same periods in 2002. The
increases as a percentage of fee revenue were primarily due to
increases in compensation and benefits for our employees at our affiliated centers during the three and six
months ended June 30, 2003 compared to the same periods in 2002.

Orthodontic Supplies.Orthodontic supplies expense primarily represents
the costs of bands, brackets and wires used during orthodontic treatments and
the costs of retainers and other removable or fixed appliances used prior to or
after orthodontic treatments. Orthodontic supplies expense was $9.7 million and
$9.6 million for the three months ended June 30, 2003 and 2002, respectively.
Orthodontic supplies expense increased $1.2 million, or 6.3%, to $20.3 million
for the six months ended June 30, 2003 from $19.1 million for the same period
in 2002. As a percentage of fee revenue, orthodontic supplies expense was 9.7%
and 10.1% for the three and six months ended June 30, 2003, respectively,
compared to 8.4% and 8.5%, respectively, for the same periods in 2002.
Orthodontic supplies expense increased primarily due to an overall increase in
costs of retainers and similar appliances and increased use of Invisalign
non-braces aligners, which are generally more expensive than traditional
orthodontic supplies.

Rent.Rent expense primarily consists of costs of leasing office space
for our affiliated centers and corporate headquarters, including common area
maintenance charges. For the three months ended June 30, 2003, rent expense
decreased $0.6 million, or 5.6%, to $9.5 million from $10.1 million for the same
period in 2002. Rent expense decreased $1.1 million, or 5.6%, to $19.0 million
for the six months ended June 30, 2003 from $20.1 million for the same period
in 2002. The overall decreases were primarily due to the exclusion of rent
expense for certain affiliated practices that bought out of their service,
management service or consulting agreements or for which we generally ceased to
record fee revenue after June 30, 2002. As a percentage of fee revenue, rent
expense increased to 9.5% during the three months ended June 30,
2003 compared to 8.9% in the same period of 2002 and decreased to 8.9%
during the six months ended June 30, 2003 compared to 9.0% for the same
period in 2002.

Marketing and Advertising.Marketing and advertising expense represents
costs associated with television, radio and print media advertising for
affiliated practices. Marketing and advertising expense decreased $786,000, or
9.9%, to $7.2 million for the three months ended June 30, 2003 from $8.0
million for the same period in 2002. For the six months ended June 30, 2003,
marketing and advertising expense was $13.4 million, a decrease of $3.5
million, or 20.7%, from $16.9 million for the same period in 2002. As a
percentage of fee revenue, marketing and advertising expense was 7.2% and 6.7%
for the three and six months ended June 30, 2003, respectively, compared to
7.0% and 7.5%, respectively, for the same periods in 2002. The overall
decreases for the three and six months ended June 30, 2003 were primarily due
to:



| |  |  | payments made during the three months ended March 31, 2002
for an advertising arrangement related to OrthAlliance affiliated
practices that was not renewed for the three months ended March 31,
2003;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | credits received during the three months ended March 31, 2003
for advertising spots preempted by war coverage; and
| | - |  | ------------------------------------------------------------------------------------------------------------------
|
| |  |  | lower rates on annual media buying as a result of the slower
economy during the six months ended June 30, 2003.   

These decreases were partially offset by increased production costs of print
media incurred in the three months ended June 30, 2003.

General and Administrative.General and administrative expense represents
other costs incurred in the operation of our business, including costs for
telephone, utilities, accounting and legal services, office supplies, general
liability and property insurance coverage and provisions for uncollectible
service fees receivable and advances to affiliated practices. General and
administrative expense decreased $0.5 million, or 3.7%, to $14.2 million for the
three months ended June 30, 2003 from $14.8 million for the same period in
2002. For the six months ended June 30, 2003, general and administrative
expense was $27.2 million, a decrease of $2.0 million, or 6.8%, from $29.2
million for the same period in 2002. These overall decreases were primarily due to decreases in telephone and utility
costs and office supplies expense, which was partially offset by an increase in
the provision for uncollectible amounts. As a percentage of fee revenue,
general and administrative expense was 14.2% and 13.5% for the three and six
months ended June 30, 2003, respectively, compared to 13.0% for the same
periods in 2002, primarily due to increased provisions for uncollectible
amounts recorded during the three and six months ended June 30, 2003.

Depreciation and Amortization.We depreciate property, equipment and
improvements using the straight-line method over their estimated useful lives.
We record this amount as depreciation expense. We amortize our intangible
assets over the terms of the related service, consulting or management service
agreements, up to 25 years. This amount is recorded as amortization expense.
Depreciation expense on property, equipment and improvements was $3.5 million
and $7.0 million for the three and six months ended June 30, 2003,
respectively, compared to $3.1 million and $5.9 million, respectively, for the
same periods in 2002. As a percentage of fee revenue, depreciation expense was
3.5% for the three and six months ended June 30, 2003, respectively, compared
to 2.7% and 2.6%, respectively, for the same periods in 2002. The increase in
depreciation expense was a result of the fixed assets acquired for centers
developed or acquired since June 30, 2002. Amortization expense on intangible
assets was $2.8 million and $5.2 million for the three and six months ended
June 30, 2003, respectively, compared to $2.7 million and $5.4 million,
respectively, for the same periods in 2002. As a percentage of fee revenue,
amortization expense was 2.8% and 2.6% for the three and six months ended June
30, 2003, respectively, compared to 2.4% for the same periods in 2002.

Asset Impairments.During the three and six months ended June 30, 2003,
we recorded non-cash impairment charges of $1.1 million ($0.7
million, net of
income tax benefit) and $1.8 million ($1.1 million, net of income tax benefit),
respectively, related to our evaluation of certain long-lived assets. We
assess long-lived assets for impairment under SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. During the three and six months ended June 30, 2003, we
recorded impairments related to intangible assets of approximately
$0.3 million and
$0.6 million, respectively. During the three and six months ended June 30, 2003,
we recorded impairments related to property, equipment and improvements for
centers closed or relocated of approximately $0.9 million and $1.3 million,
respectively. These amounts are included in asset impairments in the
accompanying Consolidated Statements of Income.

24



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Non-Recurring Recruiting Expense.During the three months ended June 30,
2002, we recorded a non-recurring recruiting charge of $12.8 million ($8.0
million, net of income tax benefit) for amounts paid to a former employee for
past recruiting services.

Operating Profit.Operating profit increased $2.2 million, or 11.0%, to
$22.6 million for the three months ended June 30, 2003 from $20.4 million for
the same period in 2002. For the six months ended June 30, 2003, operating
profit was $48.0 million, a decrease of $3.4 million, or 6.6%, from $51.4
million for the same period in 2002. As a percentage of fee revenue, operating
profit was 22.6% and 23.9% for the three and six months ended June 30, 2003,
respectively, compared to 18.0% and 22.9%, respectively, for the same periods
in 2002, as a result of the factors discussed above.

Income Taxes.Income taxes were $8.1 million and $17.2 million for the
three and six months ended June 30, 2003, respectively, compared to $7.3
million and $18.5 million, respectively, for the same periods in 2002. Our
effective income tax rate was 37.8% for the three and six months ended June 30,
2003 and 2002.

Net Income.For the three and six months ended June 30, 2003, our net
income was $13.4 million and $28.3 million, respectively, compared to $12.1
million and $30.6 million, respectively, for the same periods in 2002. As a
percentage of fee revenue, net income for the three and six months ended June
30, 2003 was 13.4% and 14.1%, respectively, compared to 10.6% and 13.7%,
respectively, for the same periods in 2002, as a result of the factors
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital (total current assets less total current liabilities) at
June 30, 2003 was $108.3 million, including cash and cash equivalents of $12.0
million, compared to working capital at December 31, 2002 of $89.5 million,
including cash and cash equivalents of $7.5 million. At June 30, 2003, our
current ratio (total current assets divided by total current liabilities) was
3.82, compared to a current ratio of 2.66 at December 31, 2002. The increase
of $18.8 million in working capital at June 30, 2003 compared to December 31,
2002 was primarily due to an increase of $19.4 million in the current portion
of service fees receivable.

Cash Flows

The following table summarizes cash flow information for the six months ended
June 30, 2003 and 2002 (in thousands):

|                                          |  |                  |         |      |  |   |         |  
|----------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | -
|                                          |  | Six months ended
|                                          |  | June 30,        
|                                          |  |                 
|                                          |  | 2003             |         | 2002
|                                          |  |                  |         |     
|Net cash provided by operating activities |  | $                | 27,513  |      |  | $ | 30,027  |  
|Net cash used in investing activities     |  |                  | (12,506 | )    |  |   | (19,709 | )
|Net cash used in financing activities     |  |                  | (10,170 | )    |  |   | (9,882  | )
|Change in cash and cash equivalents       |  |                  | 4,493   |      |  |   | (1,347  | )

Operating Activities. Net cash provided by operating activities was $27.5
million for the six months ended June 30, 2003, a decrease of $2.5 million, or
8.4%, from $30.0 million for the same period in 2002. Net cash provided by
operating activities for the six months ended June 30, 2003 was primarily
affected by the following:



| |  |  | Net income and non-cash items. Net income decreased $2.3
million, or 7.5%, for the six months ended June 30, 2003 to $28.3
million from $30.6 million for the same period in 2002.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   |  | Non-cash items decreased $1.5 million, or 8.4%, to $16.8 million for
the six months ended June 30, 2003 from $18.3 million for the same
period in 2002. The overall decrease in non-cash items was primarily
due to the forgiveness of debt
owed by a former employee that resulted in $4.8 million in non-recurring recruiting expense recorded during
the six months ended June 30, 2002. This decrease was partially offset by increases of $1.8 million in asset
impairments and $0.9 million in depreciation and amortization during the
six months ended June 30, 2003 compared to the same period in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Deferred income taxes. We used deferred tax assets
primarily related to net operating loss carryforwards to offset our
income taxes
of approximately
$17.8 million for the six months ended June 30, 2003, which resulted in no tax liability as of June 30,
2003. We expect the remaining net operating loss carryforwards will
offset a portion of our taxable income for the remainder of 2003.
These net operating loss carryforwards are primarily related to the
cumulative effect of a change in accounting method for income tax
purposes approved by the Internal Revenue Service (IRS) in January
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | Service fees receivable.During the six months ended June
30, 2003, the current portion of service fees receivable, net of
allowance for uncollectible amounts, increased $19.5 million, or
30.8%, to $82.9 million at June 30, 2003 from $63.4 million at
December 31, 2002. The unreimbursed expense portion of service fees
receivable increased $4.8 million, or 11.1%, during the six months
ended June 30, 2003, to $47.9 million at June 30, 2003 from $43.1
million at December 31, 2002. OCAs general form of service
agreement provides for reimbursement of the affiliated practices
share of certain expenses over a five-year period. These amounts
represent a non-current receivable from the affiliated practices and
are classified as such in our consolidated balance sheets. Because
the affiliated practice generally reimburses us for these
practice-related expenses over a five-year period, the increase in
the unreimbursed expense portion of service fees receivable negatively
impacts cash flow from operating activities. Increases in service
fees receivable resulted from varying increases in three categories
of fee revenue: (1) fee revenue related to patient fees receivable
that have been billed to patients or third party payors, (2) fee
revenue related to patient fees receivable that have not yet been
billed to patients or third party payors, and (3) fee revenue
related to certain unreimbursed practice-related expenses. The
current portion of service fees receivable is comprised of fee
revenue related to billed patient fees receivable and fee revenue
related to unbilled patient fees receivable. The unreimbursed expense
portion of service fees receivable is comprised of fee revenue
related to certain unreimbursed practice-related expenses. This
increase and these three categories of fee revenue are addressed in
greater detail in the section above captioned Service Fees
Receivable.
|
| |  |  | Service fee prepayments. During the six months ended June 30,
2003, service fee prepayments decreased $5.6 million, or 71.8%, to
$2.2 million at June 30, 2003 from $7.7 million at December 31,
2002. The decrease in service fee prepayments was primarily due to
the recognition of approximately $2.9 million in fee revenue
during the six months ended June 30, 2003, which we recorded as
fee revenue under our revenue recognition policy. Also during the six
months ended June 30, 2003, certain OrthAlliance
affiliated practices changed the terms of their patient contracts to
require a lower down payment at the commencement of treatment,
which resulted in a decrease of approximately $1.0 million in
service fee prepayments. Service fee
prepayments represent service fees which we have not yet recognized
for revenue recognition purposes, but for which we have received
payment from affiliated practices. Because we recognize fee revenue
based on a straight-line allocation of treatment fees, this results
in us receiving cash in advance of incurring certain
practice-related expenses and recognizing certain service fees as
fee revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Accounts payable and other current liabilities. During the
six months ended June 30, 2003, cash used for accounts payable and
other current liabilities was $4.4 million, compared to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |  |  | cash provided by accounts payable and other current liabilities of
$7.5 million during the six months ended June 30, 2002. Cash provided
by accounts payable and other current liabilities during the six
months ended June 30, 2002 was primarily due to the increase in income
taxes payable while we were awaiting the approval from the IRS of our
accounting method change, discussed in this section above under
Deferred income taxes. During the six months
ended June 30, 2003, we offset our income tax liability against our
deferred tax assets. The positive effect on cash flow from this
offset is
discussed in this section above under Deferred income
taxes. Excluding income
taxes payable, accounts payable and accrued salaries and other current
liabilities decreased $4.2 million during the six months ended June
30, 2003 compared to a decrease of $10.8 million during the same period in 2002.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investing Activities. Net cash used in investing activities was $12.5
million for the six months ended June 30, 2003, a decrease of 36.5% from $19.7
million for the same period in 2002. This decrease was primarily due to a
decrease of $3.7 million used to acquire service, management service or
consulting agreements and a decrease of $5.6 million in advances to affiliated
practices during the six months ended June 30, 2003 compared to the same period
in 2002. Partially offsetting these decreases was an increase of $1.6 million
in notes receivable.



| |  |  | Intangible assets acquired. During the six months ended June
30, 2003, we paid approximately $338,000 to acquire and amend
service, consulting or management service agreements, pursuant to
which we obtain the exclusive right to provide operations,
financial, marketing and administrative services to the practice
during the term of the agreement, compared to $4.0 million for the
same period in 2002. This decrease during 2003 results from our
shift in focus from new affiliations to developing de novopractices
and assisting existing affiliated practices to grow, which generally
requires less capital investment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Purchases of property, equipment and improvements. We
purchased $7.5 million and $7.1 million in property, equipment and
improvements for the six months ended June 30, 2003 and 2002,
respectively. The following table provides information about the
composition of these purchases during the six months ended June 30,
2003 and 2002 (in millions):                                                                                                                                                                                                                                                                              

|                                                                    |  |                  |     |      |  |   |     | 
|------------------------------------------------------------------- |  | ---------------- | --- | ---- |  | - | --- | 
|                                                                    |  | Six months ended
|                                                                    |  | June 30,        
|                                                                    |  |                 
|                                                                    |  | 2003             |     | 2002
|                                                                    |  |                  |     |     
|Center additions                                                    |  | $                | 2.6 |      |  | $ | 1.9 | 
|Remodeling and additional capital expenditures for
existing centers |  |                  | 3.0 |      |  |   | 1.6 | 
|Capital expenditures for corporate offices                          |  |                  | 0.3 |      |  |   | 0.8 | 
|International development                                           |  |                  | 1.6 |      |  |   | 2.8 | 
|Total                                                               |  | $                | 7.5 |      |  | $ | 7.1 | 



| |  |  | Advances to affiliated practices. We provided net advances
of approximately $2.6 million to affiliated practices during the six
months ended June 30, 2003, compared to $8.1 million for the same
period in 2002, a decrease of $5.5 million, or 67.9%.The decrease
in net advances during the six months ended June 30, 2003 compared
to the same period in 2002 is primarily due to our increased efforts
to obtain repayments on advances from our affiliated practices.
Of the amounts advanced during the six months ended June 30, 2003,
approximately 29% was to provide funding for compensation of
practitioners at newly-developed practices or at existing practices
adding new centers, approximately 53% relating to the amount of the affiliated
practices operating profit anticipated to be retained by the
practices, and approximately 18% to provide additional funding for affiliated
practitioners.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Notes receivable.Notes
receivable increased by $1.6 million during the six months ended June 30, 2003 compared
to the same period in 2002. These notes receivable primarily                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

27



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| |  |  | consist of promissory notes from practices that have completed
buy-outs of their service, consulting and management service agreements.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------

Financing Activities. Net cash used in financing activities was $10.2
million for the six months ended June 30, 2003, compared to $9.9 million for
the same period in 2002. During the six months ended June 30, 2003, we obtained
a new credit facility under which we borrowed $109.9 million to retire our
prior credit facility and bridge credit facility and to pay related transaction
costs. We repaid $7.2 million of indebtedness under the new credit facility
during the six months ended June 30, 2003, compared to $10.0 million under our
prior credit facility during the same period in 2002. The decrease in
repayments on our indebtedness was offset by a decrease of $2.2 million in
issuance of our common stock related to the exercise of stock options during
the six months ended June 30, 2003, compared to the same period in 2002.

Uses of Capital

Capital Expenditures. Our capital expenditures primarily consist of the
costs associated with expenditures to facilitate growth in new and existing
centers, maintenance expenditures to sustain current levels of business
activity at existing centers, acquisitions of the fixed assets of newly
affiliated practices and development of de novocenters in the United States
and abroad. The average cost of developing a new orthodontic center in the
United States is about $0.4 million, including the cost of equipment, leasehold
improvements, working capital and start-up losses associated with the initial
operations of the orthodontic center. These costs are shared by us and the
particular affiliated practice. We generally bear an affiliated practices
share of these costs until we are reimbursed by the practice. In some cases, we
have assisted our practices in obtaining financing for their share of these
costs by providing a guaranty of loans from a third party lender. The
outstanding balance of these guaranteed amounts was approximately
$0.5 million at June 30, 2003 and approximately
$0.7 million at December 31, 2002. We no longer
guarantee new debt for our affiliated practices.

During our rapid growth in the 1990s, we expended a disproportionately higher
amount of our capital investment on de novocenters relative to expenditures on
existing centers. During recent years, however, our capital expenditures have
been increasingly directed toward remodeling, improving and expanding our
existing affiliated centers to facilitate internal growth. We have also
invested significantly in computer systems infrastructure and other technology
for our affiliated centers, such as advanced digital cameras or DSL data
delivery capability. In addition, we continue to invest in our international
operations.

Other Uses of Capital. Newly-developed affiliated practices and existing
affiliated practices that expand their capacity by adding additional centers or
practitioners typically experience cash flow needs until they begin generating
sufficient operating profits at the newly-developed or newly-expanded centers.
We may advance funds to affiliated practices to assist them in maintaining
their compensation during the start-up or expansion phase of their practices.
These advances are generally interest free and unsecured. The affiliated
practice generally begins to repay the advances once the practice or center
becomes profitable, generally at the beginning of the second year that the
practice or center is open. We intend to fund these advances and any continued
financing through a combination of borrowings under our credit facility and
cash from operations.

At June 30, 2003, we had current maturities of $8.3 million under our
credit facility and $2.9 million due to our affiliated practices. We expect
cash from operations to fund these payments during 2003. We also expect to use
cash generated from operations to fund amounts earned under incentive
programs by certain affiliated practices.
If all conditions are met under these incentive programs during the
remainder of 2003, we
anticipate paying an aggregate of $6.3 million less amounts
due from these affiliated practices
during the remainder of 2003.

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Capital Resources.We maintain a $125.0 million credit facility with a
lending group that consists of Bank of America, N.A., Bank One, N.A., U.S. Bank
National Association, Hibernia Bank and Whitney National Bank. The credit
facility is comprised of a $100.0 million revolving line of credit and a $25.0
million term loan. The revolving line of credit provides funding for our
general working capital and expansion. Borrowings under the credit facility
generally bear interest at varying rates above the lenders
prime rate ranging from 0.50% to 1.50% or above the Eurodollar
rate ranging from 1.50% to 2.50%, and such margin is based on our
leverage ratio computed under the credit facility. Amounts borrowed under the credit facility are secured by a security
interest in the capital stock of our operating subsidiaries. The
revolving line of credit expires January 2, 2006. Our credit facility requires
that we maintain certain financial and non-financial covenants under the terms
of the credit agreement, including a maximum leverage ratio, minimum fixed
charge coverage ratio, minimum consolidated net worth and maximum ratio of
funded debt to total patient contract balances. The credit agreement also
imposes restrictions on our acquisitions, investments, dividends, stock
repurchases and other aspects of our business. If we do not comply with these
covenants and restrictions, the lenders could demand immediate payment of all
amounts borrowed under the credit facility, and terminate our ability to borrow
funds under the credit facility.

We believe that our cash needs will primarily relate to development of
additional centers and affiliation with additional practices in the United
States and other countries, capital expenditures for our existing affiliated
centers and computer systems, repayment of indebtedness, payment of income
taxes and general corporate purposes. Our cash needs could vary significantly
depending upon our growth, results of operations and new affiliations with
additional practices, as well as the outcome of pending litigation and other
contingencies. We expect to fund these cash needs through a combination of cash
flows from our operations and funds available under our credit facility. We
currently believe that we will be able to meet our anticipated funding
requirements for at least the next 12 months. However, our ability to meet
these funding needs could be adversely affected if we were to suffer adverse
results from our operations, or lose a material portion of our affiliated
practices, if our affiliated practices were to suffer adverse results of
operations or a material loss of patients, if we suffer adverse outcomes from
pending litigation and other contingencies or if we violate the covenants and
restrictions of our credit facility.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51. Interpretation No. 46
requires consolidation of entities when an enterprise absorbs a majority of
the entitys expected losses, receives a majority of the entitys expected
residual returns, or both, as a result of ownership, contractual or other
financial interests in the entity. Currently, entities are generally
consolidated by an enterprise when it has a controlling financial interest
through ownership of a majority voting interest in the entity. The Company is
in the process of evaluating the implications of the Interpretation.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the six months ended June 30, 2003, there were no material changes to
the quantitative and qualitative disclosures about market risks presented in
our Annual Report on Form 10-K for the year ended December 31, 2002.




ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We, with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act

29



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##### Table of Contents



of 1934) as of the end of the period covered by this Report. Based upon that
evaluation and as of the end of the period covered by the Report, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to information
required to be disclosed in our reports that we file or submit to the SEC under
the Securities Exchange Act of 1934.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting subsequent to the date of the
Companys most recent evaluation.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

Before we entered into the merger
agreement with OrthAlliance, we anticipated that some portion of
OrthAlliances affiliated practices would oppose such a merger. A
description of actions brought by certain OrthAlliance affiliated
practices and the claims in these actions is contained in Item 3 of
Part I to our Annual Report on Form 10-K for the year ended December
31, 2002. At June 30, 2003, we were engaged
in litigation with 56 affiliated practices. We and our subsidiaries and affiliated practices are, and from time to time may
become, party to other litigation or administrative proceedings which arise in
the normal course of our business.

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

The annual meeting of our stockholders was held on May 22, 2003. At this
meeting, the following matters were voted upon by our stockholders:



|(a) |  | Election of Class III Directors
|--- |  | -------------------------------

Bartholomew F. Palmisano, Sr., Hector M. Bush, D.M.D, and Jack P.
Devereux, Jr., D.D.S., M.S., were elected to serve as Class III directors until
the annual meeting of stockholders in 2006 or until their successors are
elected and qualified. The vote was as follows:

|                                   |  |            |            |                    |  |              |           |  |  |  |           | 
|---------------------------------- |  | ---------- | ---------- | ------------------ |  | ------------ | --------- |  |  |  | --------- | 
|                                   |  | Votes Cast |            | Votes Cast Against |  | Abstentions/
|Name                               |  | In Favor   |            | or Withheld        |  | Non-Votes   
|                                   |  |            |            |                    |  |             
|Bartholomew F. Palmisano, Sr.      |  |            | 43,261,425 |                    |  |              | 3,080,407 |  |  |  | 3,883,168 | 
|Hector M. Bush, D.M.D.             |  |            | 41,425,788 |                    |  |              | 4,906,044 |  |  |  | 3,893,168 | 
|Jack P. Devereux, Jr., D.D.S., M.S |  |            | 43,294,935 |                    |  |              | 3,046,897 |  |  |  | 3,883,168 | 

The terms of the following directors continued following the meeting:

|                                 |  |              |      | 
|-------------------------------- |  | ------------ | ---- | 
|Name                             |  | Term Expires
|                                 |  |             
|Dennis J.L. Buchman, D.M.D., M.S |  |              | 2004 | 
|John J. Sheridan, D.D.S., M.S.D  |  |              | 2004 | 
|David W. Vignes                  |  |              | 2004 | 
|Ashton J. Ryan, Jr.              |  |              | 2005 | 
|W. Dennis Summers                |  |              | 2005 | 
|Edward J. Walters, Jr.           |  |              | 2005 | 



|(b) |  | Amendment of 1994 Incentive Stock Plan
|--- |  | --------------------------------------

Our stockholders approved the amendment of our 1994 Incentive Stock Plan
by the following vote:

|           |  |                     |           |              |  |  |        | 
|---------- |  | ------------------- | --------- | ------------ |  |  | ------ | 
|Votes Cast |  | Votes Cast          |           | Abstentions/
|In Favor   |  | Against or Withheld |           | Non-Votes   
|           |  |                     |           |             
|43,893,050 |  |                     | 2,391,021 |              |  |  | 57,761 | 



|(c) |  | Amendment and Restatement of 1994 Non-Qualified Stock Option Plan for
Non-Employee Directors
|--- |  | --------------------------------------------------------------------------------------------

Our stockholders approved the amendment and restatement of our 1994
Non-Qualified Stock Option Plan for Non-Employee Directors by the following
vote:

|           |  |                     |           |              |  |  |         | 
|---------- |  | ------------------- | --------- | ------------ |  |  | ------- | 
|Votes Cast |  | Votes Cast          |           | Abstentions/
|In Favor   |  | Against or Withheld |           | Non-Votes   
|           |  |                     |           |             
|44,097,110 |  |                     | 2,128,786 |              |  |  | 115,936 | 

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|(d) |  | Selection of Independent Auditors
|--- |  | ---------------------------------

Our stockholders ratified the appointment of Ernst & Young LLP as our
independent auditors for the fiscal year ending December 31, 2003 by the
following vote:

|           |  |                     |           |              |  |  |        | 
|---------- |  | ------------------- | --------- | ------------ |  |  | ------ | 
|Votes Cast |  | Votes Cast          |           | Abstentions/
|In Favor   |  | Against or Withheld |           | Non-Votes   
|           |  |                     |           |             
|38,984,407 |  |                     | 7,282,085 |              |  |  | 75,340 | 




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | EXHIBITS
|--- |  | --------

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit number |  | Description                                                                                                                                                                                                                                                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|3.1            |  | Bylaws of the Registrant (incorporated by reference to exhibits filed
with the Registrants Registration Statement on Form S-1, Registration
Statement No. 33-85326)                                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|3.2            |  | Restated Certificate of Incorporation of the Registrant (incorporated by
reference to exhibits filed with the Registrants Registration Statement
on Form S-1, Registration Statement No. 33-85326)                                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|4.1            |  | Specimen Stock Certificate (incorporated by reference to exhibits filed
with the Registrants Registration Statement on Form S-1, Registration
Statement No. 33-85326)                                                                                                                                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.1           |  | First Amendment to Credit Agreement, dated as of June 30, 2003, among
Orthodontic Centers of America, Inc., as Borrower, certain of its domestic
subsidiaries, as Guarantors, the Lenders named therein, and Bank of
America, N.A., as Administrative Agent, L/C Issuer and Alternative Rate
Lender, Bank One, NA, as Syndication Agent, and U.S. Bank, National
Association, as Documentation Agent
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.2           |  | Amendment of Orthodontic Centers of America, Inc. 1994 Incentive Stock
Plan, as Amended and Restated, dated as of April 18, 2003*                                                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.3           |  | Orthodontic Centers of America, Inc. 1994 Non-Qualified Stock Option Plan
for Non-Employee Directors, as Amended and Restated, dated as of April 18,
2003*                                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|31.1           |  | Certification of the Chief Executive Officer of Orthodontic Centers of
America, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|31.2           |  | Certification of the Chief Financial Officer of Orthodontic Centers of
America, Inc. pursuant to Rule 13a-14(a) or 15d-14(a)                                                                                                                                                                                                                                                                        

32



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|               |  |                                                                                                                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit number |  | Description                                                                                                                                                                                
|               |  |                                                                                                                                                                                            
|               |  | under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                
|               |  |                                                                                                                                                                                            
|32.1           |  | Certification of the Chief Executive Officer of Orthodontic Centers of
America, Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (1)
|               |  |                                                                                                                                                                                            
|32.2           |  | Certification of the Chief Financial Officer of Orthodontic Centers of
America, Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (1)



---

|*   |  | Compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | This certification shall not be deemed filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, or otherwise subject
to liability pursuant to that section. This certification shall not be
deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent that we specifically incorporate it
by reference.



|(b) |  | REPORTS ON FORM 8-K
|--- |  | -------------------

During the
three months ended June 30, 2003, we did not file any
current reports on Form 8-K. We furnished a current report on Form 8-K
on May 16, 2003 reporting information under Item 7.
Financial Statements and Exhibits, Item 9. Regulation
FD Disclosure and Item 12. Results of Operations and
Financial Condition.

33



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SIGNATURES

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

|                      |  |                                                                                           
|--------------------- |  | ------------------------------------------------------------------------------------------
|                      |  | Orthodontic Centers of America, Inc.
(Registrant)                                         
|                      |  |                                                                                           
|Date: August 14, 2003 |  | /s/ Bartholomew F. Palmisano, Sr.                                                         
|                      |  |                                                                                           
|                      |  | Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
|                      |  |                                                                                           
|                      |  | /s/ Thomas J. Sandeman                                                                    
|                      |  |                                                                                           
|                      |  | Thomas J. Sandeman
Chief Financial Officer                                                

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EXHIBIT INDEX

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit number |  | Description                                                                                                                                                                                                                                                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|3.1            |  | Bylaws of the Registrant (incorporated by reference to exhibits filed
with the Registrants Registration Statement on Form S-1, Registration
Statement No. 33-85326)                                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|3.2            |  | Restated Certificate of Incorporation of the Registrant (incorporated by
reference to exhibits filed with the Registrants Registration Statement
on Form S-1, Registration Statement No. 33-85326)                                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|4.1            |  | Specimen Stock Certificate (incorporated by reference to exhibits filed
with the Registrants Registration Statement on Form S-1, Registration
Statement No. 33-85326)                                                                                                                                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.1           |  | First Amendment to Credit Agreement, dated as of June 30, 2003, among
Orthodontic Centers of America, Inc., as Borrower, certain of its domestic
subsidiaries, as Guarantors, the Lenders named therein, and Bank of
America, N.A., as Administrative Agent, L/C Issuer and Alternative Rate
Lender, Bank One, NA, as Syndication Agent, and U.S. Bank, National
Association, as Documentation Agent
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.2           |  | Amendment of Orthodontic Centers of America, Inc. 1994 Incentive Stock
Plan, as Amended and Restated, dated as of April 18, 2003*                                                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.3           |  | Orthodontic Centers of America, Inc. 1994 Non-Qualified Stock Option Plan
for Non-Employee Directors, as Amended and Restated, dated as of April 18,
2003*                                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|31.1           |  | Certification of the Chief Executive Officer of Orthodontic Centers of
America, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|31.2           |  | Certification of the Chief Financial Officer of Orthodontic Centers of
America, Inc. pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|32.1           |  | Certification of the Chief Executive Officer of Orthodontic Centers of
America, Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (1)                                                                                                                                                                                                         





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##### Table of Contents



|               |  |                                                                                                                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit number |  | Description                                                                                                                                                                                
|               |  |                                                                                                                                                                                            
|32.2           |  | Certification of the Chief Financial Officer of Orthodontic Centers of
America, Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (1)



---

|*   |  | Compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | This certification shall not be deemed filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, or otherwise subject
to liability pursuant to that section. This certification shall not be
deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent that we specifically incorporate it
by reference.