10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004, 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

OCA, INC.

(Exact name of registrant as specified in its charter)

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

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)

Orthodontic Centers of America, Inc.

(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 December 20, 2004 there were approximately 50,345,000 outstanding shares of the Registrant’s Common Stock, $.01 par value per share.

OCA, INC.
TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION		3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS		3
Condensed Consolidated Balance Sheets — September 30, 2004 (Unaudited) and December 31, 2003		3
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) — Three and Nine Months Ended September 30, 2004 and 2003 (Unaudited)		4
Condensed Consolidated Statements of Cash Flows — Three and Nine Months Ended September 30, 2004 and 2003 (Unaudited)		5
Notes to Condensed Consolidated Financial Statements — September 30, 2004 (Unaudited)		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		42
ITEM 4. CONTROLS AND PROCEDURES		43
PART II. OTHER INFORMATION		44
ITEM 1. LEGAL PROCEEDINGS		44
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		45
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K		45
EX-4.5 LEASE AGREEMENT
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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 collection of patient receivables, patient revenue, financial results attributable to base practices, critical accounting policies, net operating loss carryforwards and income tax liability, effects of changes in accounting, amounts payable to affiliated practices under incentive programs, liquidity, capital resources, cash needs, use of the Company’s services and payment of service fees by inactive practices, buy-outs of Service Agreements, transitions of affiliated practices, pending litigation, advancement of funds to affiliated practices, recoverability of assets related to certain practices, updates to internal controls and hiring additional personnel, results of internal controls testing, preparation for and compliance with disclosure requirements under Section 404 of the Sarbanes-Oxley Act of 2002, repayment of outstanding indebtedness, future debt financing, capital expenditures and operating losses for development of de novo centers, capital expenditures for remodeling of existing centers, investment activities, OCA OutSource, stock repurchases, deferred tax assets, future growth and operating results. 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 condition, 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, difficulties in staffing and managing foreign offices, foreign currency exchange fluctuations and other risks relating to international expansion and the Company’s foreign operations, changes in the Company’s operating or expansion strategy, inability of the Company to attract and retain qualified management, 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, 2003, 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.

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

OCA, Inc.

Condensed Consolidated Balance Sheets
(in thousands, except share amounts) (Unaudited)

	September 30,			December 31,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	10,701		$	7,391
Patient receivables, net of allowance for uncollectible amounts of $8,289 at September 30, 2004		124,339			—
Current portion of service fees receivable, net of allowance for uncollectible amounts of $8,382 at December 31, 2003		—			96,720
Current portion of advances to practitioners, net of allowance for uncollectible amounts of $0 at September 30, 2004 and $1,438 at December 31, 2003		10,588			16,544
Deferred income taxes		41,063			43,346
Supplies inventory		11,018			13,726
Prepaid expenses and other assets		1,260			2,769
Total current assets		198,969			180,496
Financed practice-related expense portion of service fees receivable		—			51,558
Advances to affiliated practices, less current portion, net of allowance for uncollectible amounts of $2,214 at December 31, 2003		—			12,921
Property, equipment and improvements, net		94,402			91,668
Advances and other amounts due from OutSource Practices		570			—
Assets associated with inactive practices, net of allowance for uncollectible amounts of $15,526 at September 30, 2004 and $2,249 at December 31, 2003		30,237			26,682
Deferred tax assets, net		17,101			—
Goodwill and identifiable intangible assets, net		278,951			288,804
Other assets		13,996			13,547
TOTAL ASSETS	$	634,226		$	665,676
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,702		$	8,985
Accrued salaries and other accrued liabilities		12,692			13,977
Service fee prepayments		—			1,157
Deferred revenue		91,803			—
Amounts payable to practitioners		6,773			5,373
Current portion of notes payable to practitioners		1,355			2,122
Current portion of long-term debt		8,333			8,333
Total current liabilities		126,658			39,947
Deferred income tax liability, net		—			41,268
Notes payable to practitioners, less current portion		2,635			4,050
Long-term debt, less current portion		81,473			87,724
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 51,478,000 shares issued and outstanding at September 30, 2004 and 51,341,000 shares issued and outstanding at December 31, 2003		516			513
Additional paid-in capital		219,033			218,530
Retained earnings		221,303			289,976
Accumulated other comprehensive loss		(1,179	)		(119	)
Less cost of approximately 1,256,000 shares of treasury stock at September 30, 2004 and December 31, 2003		(16,213	)		(16,213	)
Total shareholders’ equity		423,460			492,687
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	634,226		$	665,676

See accompanying notes to condensed consolidated financial statements.

3

OCA, Inc.

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(in thousands, except per share data) (Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003
Patient revenue	$	103,958		$	—		$	319,166		$	—
Service fees from OutSource Practices		29			—			35			—
Fee revenue		—			92,730			—			293,583
Total revenue		103,987			92,730			319,201			293,583
Practice-related expenses:
Amounts retained by practitioners		29,738			—			91,737			—
Salaries and benefits		22,873			23,064			69,261			75,259
Clinical supplies and lab fees		9,157			9,734			27,748			30,057
Rent		6,849			6,953			20,356			25,310
Marketing and advertising		5,529			5,500			17,166			18,919
Other operating costs		8,560			9,168			26,928			27,278
Total practice-related expenses		82,706			54,419			253,196			176,823
General and administrative		6,348			10,861			23,821			27,104
Depreciation and amortization		3,968			6,380			11,837			18,588
Loss (gain) on sale of assets, net		1,704			(12	)		3,251			136
Provision for assets associated with inactive practices		13,540			—			14,220			—
Asset impairments		—			767			—			2,582
Operating income (loss)		(4,279	)		20,315			12,876			68,350
Other income (expense), net:
Interest expense, net		(1,277	)		(1,193	)		(3,524	)		(3,742	)
Non-controlling interest in subsidiary		(15	)		4			79			(25	)
Income (loss) before income taxes and cumulative effect of change in accounting principle		(5,571	)		19,126			9,431			64,583
Income taxes		(2,033	)		7,221			3,443			24,381
Income (loss) before cumulative effect of change in accounting principle		(3,538	)		11,905			5,988			40,202
Cumulative effect of change in accounting principle, net of income tax benefit		—			—			(74,661	)		—
Net income (loss)	$	(3,538	)	$	11,905		$	(68,673	)	$	40,202
Net income (loss) per share:
Basic before cumulative effect of change in accounting principle	$	(0.07	)	$	0.24		$	0.12		$	0.80
Cumulative effect of change in accounting principle, net of income tax benefit		—			—			(1.49	)		—
Basic	$	(0.07	)	$	0.24		$	(1.37	)	$	0.80
Diluted before cumulative effect of change in accounting principle	$	(0.07	)	$	0.24		$	0.12		$	0.80
Cumulative effect of change in accounting principle, net of income tax benefit		—			—			(1.49	)		—
Diluted	$	(0.07	)	$	0.24		$	(1.37	)	$	0.80
Average shares outstanding:
Basic		50,145			50,206			50,102			50,208
Diluted		50,145			50,483			50,102			50,504
Comprehensive income (loss):
Net income (loss)	$	(3,538	)	$	11,905		$	(68,673	)	$	40,202
Other comprehensive loss:
Foreign currency translation adjustment		(85	)		1,158			(1,060	)		814
Comprehensive income (loss)	$	(3,623	)	$	13,063		$	(69,733	)	$	41,016

See accompanying notes to condensed consolidated financial statements.

4

OCA, Inc.

Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited)

	Nine months ended
	September 30,
	2004			2003
Operating activities:
Net income (loss)	$	(68,673	)	$	40,202
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cumulative effect of change in accounting principle, net of income tax benefit		74,661			—
Provision for bad debt expense		426			5,340
Depreciation and amortization		11,837			18,588
Provision for assets associated with inactive practices		13,735			—
Asset impairments		—			2,582
Loss on sale of assets, net		3,251			136
Deferred income taxes		1,674			24,914
Changes in operating assets and liabilities:
Patient receivables		(10,007	)		—
Service fees receivable		—			(41,451	)
Deferred revenue		2,743			—
Service fee prepayments		—			(6,740	)
Accounts payable and other current liabilities		(5,582	)		(8,694	)
Advances to practitioners, net		(4,614	)		(2,516	)
Amounts payable to practitioners		1,400			—
Prepaid expenses and other		3,345			2,271
Supplies inventory		1,981			989
Net cash provided by operating activities		26,177			35,621
Investing activities:
Purchases of property, equipment and improvements		(16,187	)		(13,959	)
Proceeds from sale of assets		2,458			—
Notes receivable		(410	)		(2,605	)
Other		(1,429	)		(588	)
Net cash used in investing activities		(15,568	)		(17,152	)
Financing activities:
Repayment of notes payable to practitioners		(1,509	)		(4,823	)
Repayment of long-term debt		(6,251	)		(121,432	)
Proceeds from long-term debt		—			109,900
Purchase of treasury stock		—			(773	)
Issuance of common stock		506			691
Net cash used in financing activities		(7,254	)		(16,437	)
Effect of exchange rate changes on cash and cash equivalents		(45	)		814
Change in cash and cash equivalents		3,310			2,846
Cash and cash equivalents at beginning of period		7,391			7,522
Cash and cash equivalents at end of period	$	10,701		$	10,368
Supplemental cash flow information:
Cash paid during period for:
Interest	$	3,835		$	3,688
Income taxes	$	1,853		$	392
Supplemental disclosures of non-cash investing and financing activities:
Notes payable and common stock issued to obtain Service Agreements	$	—		$	544

See accompanying notes to condensed consolidated financial statements.

5

OCA, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2004

1. DESCRIPTION OF BUSINESS

     OCA, Inc. and its subsidiaries (“OCA”) provide purchasing, financial, marketing, administrative and other business services to orthodontic, pediatric and general dental practices operated by licensed practitioners and/or their wholly-owned professional entities (“Affiliated Practices”) in 43 states and five foreign markets. OCA changed its name from Orthodontic Centers of America, Inc. in August 2004. References to the “Company” are to OCA and the Affiliated Practices required to be consolidated pursuant to FIN 46R (as defined below), unless the context otherwise requires. OCA does not hold any ownership interest in the Affiliated Practices and does not employ the licensed practitioners in the Affiliated Practices. OCA does not practice orthodontics or other forms of dentistry, and is prohibited from doing so by the laws of each jurisdiction in which it operates.

     OCA generally provides business services to Affiliated Practices under long-term service, consulting and management service agreements (“Service Agreements”), through which OCA obtained the exclusive right to provide business services to the Affiliated Practices. OCA has affiliated with existing orthodontic or pediatric dental practices by entering into Service Agreements and acquiring substantially all of the non-professional assets of the practices. The Service Agreements generally provide that the practitioner and/or professional 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 practitioner has the option to terminate the Service Agreement after a certain number of years (typically seven) as prescribed in the Service Agreement. If the practitioner terminates his or her affiliation with OCA, he or she generally is required to pay OCA for the tangible and intangible assets associated with the practice at their current book value or sell his or her interest in the practice to another licensed practitioner who signs a similar agreement with OCA.

     Beginning in 2004, OCA began providing business services through its new division, OCA OutSource. OCA OutSource is initially focusing on general dental practices, and intends to expand to provide business services to other dental specialties and medical practices as well. OCA OutSource provides business services to its Affiliated Practices (“OutSource Practices”) under relatively short-term agreements (“OutSource Agreements”), with terms as short as two years. Unlike OCA’s traditional affiliations, OCA OutSource does not acquire the assets of an Affiliated Practice upon entering into an OutSource Agreement. The services provided by OCA OutSource otherwise are similar to those provided under OCA’s traditional affiliations, tailored to the particular needs of the practice’s dental or medical specialty. The Company’s experience has been that OCA OutSource generally enables practitioners to focus on quality care, while increasing their profitability and providing better information about the financial performance of their practice. OCA OutSource intends to continue to market its services to general and pediatric dentists at association meetings, through direct mail and through open houses at OCA’s corporate headquarters in Metairie, Louisiana. OCA OutSource also intends to begin marketing its services to medical practices during 2005.

     The following table provides information about OCA’s Affiliated Practices (including OutSource Practices) as of the dates indicated. These amounts exclude “Inactive Practices,” which are practices that were parties to Service Agreements but were engaged in litigation with OCA or its subsidiary, OrthAlliance, Inc., and/or had ceased paying service fees to OCA or OrthAlliance as of September 30, 2004 or as of September 30, 2003, respectively.

6

Number of Affiliated Practices
	As of September 30, 2004						As of September 30, 2003
			Pediatric and
Location	Orthodontic		General Dental		Total		Orthodontic		Pediatric Dental		Total
United States		246		14		260		270		21		291
Japan		25		—		25		26		—		26
Mexico		9		—		9		4		—		4
Puerto Rico		2		1		3		3		—		3
Spain		3		—		3		3		—		3
Total		285		15		300		306		21		327

2. BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The year-end condensed consolidated balance sheet was derived from the audited financial statements, but does not include all of the information and footnotes required by generally accepted accounting principles in the United States for financial statements. In the opinion of management, all normal and recurring adjustments, except for the adjustments resulting from the adoption of FIN 46R (as defined below), considered necessary for a fair presentation have been included. While all available information has been considered, actual amounts could differ from those estimates. Operating results for the three- and nine-month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in OCA’s Annual Report on Form 10-K for the year ended December 31, 2003.

Reclassifications

     Certain reclassifications have been made to prior period asset and expense categories in order to conform the prior period presentation to the current period presentation. This presentation primarily relates to the reclassification of “Assets associated with inactive practices” (Note 5) and to the reclassification of corporate expenses to “General and Administrative” and all expenses directly associated with the operation of the practices in practice-related expenses to their respective line items within “Practice-related expenses” in the Company’s condensed consolidated statements of income (loss). The reclassifications had no impact on previously reported shareholders’ equity, operating income or net income.

Adoption of New Accounting Standard

     Effective January 1, 2004, OCA adopted, as required, the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51” (“FIN 46R”). FIN 46R was issued by the FASB on December 24, 2003 and replaced Interpretation No. 46, which was issued in January 2003. FIN 46R requires the consolidation of a variable interest entity (“VIE”), as defined in FIN 46R, when an enterprise absorbs a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the VIE.

     OCA evaluated its contractual and economic relationships with its Affiliated Practices in light of FIN 46R, and concluded that the Affiliated Practices (other than Inactive Practices and OutSource Practices) are VIEs for purposes of FIN 46R. OCA also concluded that it is the primary beneficiary of these Affiliated Practices for purposes of FIN 46R, in that OCA absorbs a majority of the VIEs’ expected losses, receives a majority of the VIEs’ expected residual returns, or both, as a result of contractual or

7

other financial interests in the Affiliated Practices. Accordingly, effective January 1, 2004, OCA is consolidating the assets, liabilities, equity and financial results of the Affiliated Practices (other than Inactive Practices and OutSource Practices) in the Company’s consolidated financial statements. OCA was not required to consolidate the Affiliated Practices for financial reporting purposes prior to January 1, 2004, in accordance with Emerging Issues Task Force (“EITF”) Issue No. 97-2.

     Under FIN 46R, the Company is required to reevaluate whether it continues to be the primary beneficiary of the Affiliated Practices that it consolidates for financial reporting purposes in the event that certain events occur. During 2004, certain practices that were consolidated by the Company pursuant to FIN 46R ceased paying service fees to OCA or OrthAlliance, initiated litigation against OCA or OrthAlliance and/or alleged a breach by OCA or OrthAlliance of their Service Agreement and gave notice of their intentions to terminate the Service Agreement. (See Note 5). The Company believes that these events required the Company to reconsider whether it is the primary beneficiary of these practices under FIN 46R. The Company determined that, under these circumstances, it was no longer the primary beneficiary of these practices and ceased to consolidate these practices.

     The Company’s adoption of FIN 46R and consolidation of the Affiliated Practices for financial reporting purposes does not change the legal and contractual relationships between OCA and the Affiliated Practices. OCA does not hold any ownership interest in the Affiliated Practices and does not employ the orthodontists or other practitioners in the Affiliated Practices. The patients who are parties to patient contracts with Affiliated Practices are the patients of the Affiliated Practices, not patients of OCA. OCA does not practice orthodontics or other forms of dentistry, and is prohibited from doing so by the laws of each jurisdiction in which the Company operates.

     The Company’s consolidation of Affiliated Practices for financial reporting purposes effective January 1, 2004 has resulted in significant changes to the Company’s accounting policies and financial reporting. The Company now presents patient revenues and patient receivables associated with the activities of its Affiliated Practices in its consolidated financial statements. The Company’s revenue recognition policy now is reflective of the services performed by the Affiliated Practices for their patients rather than of the services performed by OCA on behalf of and for the Affiliated Practices. Service fees and service fees receivable now are eliminated upon consolidation of the Affiliated Practices. In addition, the Company now presents as practice-related expenses in its consolidated statements of income (loss) the amounts retained by practitioners under its Service Agreements. The Company has also changed its accounting for excess distributions to Affiliated Practices that are consolidated under FIN 46R, as well as its accounting for identifiable intangible assets and goodwill. The Company’s new accounting policies effective January 1, 2004 are summarized below following the analysis of the impact of FIN 46R.

8

     The table below presents the impact to the Company’s condensed consolidated balance sheet at January 1, 2004, including elimination of intercompany transactions, as a result of the Company’s adoption of FIN 46R (in thousands):

	At January 1, 2004
	OCA		Impact of
	Balance Sheet		Adopting FIN 46R			Consolidated
Cash and cash equivalents	$	7,391	$	—		$	7,391
Patient receivables, net		—		117,942	(a)		117,942
Current portion of service fees receivable, net		96,720		(96,720	) (a)		—
Current portion of advances to practitioners, net		16,544		(7,526	) (b)		9,018
Other current assets		62,051		—			62,051
Total current assets		182,706		13,696			196,402
Financed practice-related expense portion of service fees receivable		51,558		(51,558	) (a)		—
Advances to practitioners, less current portion, net		12,921		(12,921	) (b)		—
Assets associated with inactive practices		26,682		4,624			31,306
Deferred income taxes		—		41,420			41,420
Property, equipment and improvements, net		89,458		—			89,458
Identifiable intangible assets, net		201,163		(201,163	) (c)		—
Goodwill		87,641		202,804	(c)		290,445
Other assets		13,547		—			13,547
Total assets	$	665,676	$	(3,098	)	$	662,578
Accounts payable	$	8,985	$	—		$	8,985
Accrued salaries and other current liabilities		13,977		—			13,977
Amounts payable to practitioners		5,373		—			5,373
Service fee prepayments		1,157		(1,157	) (d)		—
Deferred revenue		—		89,060	(d)		89,060
Current portion of debt and notes payable		10,455		—			10,455
Total current liabilities		39,947		87,903			127,850
Deferred income tax liability		41,268		(16,340	)		24,928
Notes payable to practitioners, less current		4,050		—			4,050
Long-term debt		87,724		—			87,724
Shareholders’ equity		492,687		(74,661	) (e)		418,026
Total liabilities and shareholders’ equity	$	665,676	$	(3,098	)	$	662,578

     The following discusses the more significant adjustments to certain line items of the Company’s condensed balance sheet as a result of adopting FIN 46R effective January 1, 2004:

     (a) Patient Receivables and Service Fees Receivable. Effective January 1, 2004, the Company records patient receivables of Affiliated Practices in its consolidated balance sheets. Patient receivables represent amounts owed to Affiliated Practices by their patients or by third-party payors, as calculated under the Company’s revenue recognition policy (as discussed below). Patient receivables reflects amounts yet to be received after being recognized as patient revenue. These receivables are expected to be collected within 12 months. Because the Company now consolidates Affiliated Practices, the Company no longer records service fees receivable in its consolidated balance sheets, including the current and financed practice-related expense portion of service fees receivable.

     (b) Advances to Affiliated Practices and Amounts Payable to Affiliated Practices. Effective January 1, 2004, the Company does not record in its consolidated balance sheets cash advances to Affiliated Practices against future distributions. Because the Company now consolidates Affiliated Practices, at January 1, 2004, the Company made the following adjustments with respect to advances to Affiliated Practices: (A) eliminated advances to Affiliated Practices that related to cash advances to Affiliated Practices against future distributions, (B) reclassified advances related to amounts due under

9

Service Agreements with Inactive Practices to assets associated with inactive practices, and (C) eliminated advances to Affiliated Practices related to amounts due under Service Agreements. The Company will continue to record receivables and payables related to short-term differences between amounts distributed as monthly or biweekly draws to practitioners and the amounts that the practitioners are entitled to retain under their Service Agreements, until those amounts are reconciled.

     (c) Goodwill and Identifiable Intangibles. Pursuant to the consolidation provisions of FIN 46R, effective January 1, 2004, the Company accounts for affiliations with practices as business combinations and therefore was required to reclassify certain identifiable intangible assets related to Service Agreements with Affiliated Practices as goodwill. Prior to the adoption of FIN 46R, the Company recorded these amounts as identifiable intangible assets and amortized these assets. In addition, the Company determined that Affiliated Practices are its reporting units for purposes of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. Therefore, the Company now allocates goodwill, including goodwill associated with the OrthAlliance merger, to its practice-level reporting units based on management’s estimate of the fair values of the reporting units. Also, as of January 1, 2004, the Company reclassified identifiable intangible assets related to Inactive Practices into “Assets associated with inactive practices,” because the Company does not consolidate these practices. (See Note 5.) Goodwill and the identifiable intangible assets are not amortized but are tested for impairment under provisions of SFAS No. 142 by assessing the carrying amount of goodwill at the practice reporting unit level.

     (d) Deferred Revenue and Service Fee Prepayments. Effective January 1, 2004, the Company records deferred revenue in its condensed consolidated balance sheets. Deferred revenue represents amounts which Affiliated Practices receive from their patients or third party payors prior to the recognition of the related patient revenue, as calculated under the Company’s revenue recognition policy. The Company no longer records related service fee prepayments in its condensed consolidated balance sheets.

     (e) Cumulative Effect of Change in Accounting Principle. As a result of adopting FIN 46R, the Company recorded a cumulative effect charge of $74.7 million, net of income tax benefit of $41.4 million, during the first quarter of 2004. The charge was primarily due to the change in the Company’s revenue recognition policy, the reclassification of certain advances to Affiliated Practices as amounts retained by practitioners (as described above) and the reversal of previously-recorded amortization of identifiable intangible assets.

Summary of Significant Accounting Policies

     For a summary of the Company’s significant accounting policies, see OCA’s Annual Report on Form 10-K for the year ended December 31, 2003. New accounting policies resulting from the adoption of FIN 46R are outlined below.

Principles of Consolidation

     The accompanying condensed consolidated financial statements include the accounts of OCA, Inc. and its subsidiaries and other entities required to be consolidated pursuant to FIN 46R. Patient revenue is presented in the accompanying condensed consolidated statements of income (loss) because the Company consolidates the assets, liabilities, equity and financial results of Affiliated Practices (other than Inactive Practices and OutSource Practices) for financial reporting purposes. All significant intercompany accounts and transactions, including service fees, have been eliminated in consolidation.

10

Revenue Recognition

     The Company generally recognizes patient revenues related to services provided to patients on a straight-line basis over the term of treatment (which typically averages about 23 months). Revenues related to retainers (teeth retention appliances) are recognized in the final month of treatment when braces are removed and retainers are provided to the patients, in accordance with EITF No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.”

     The Company charges OutSource Practices a monthly service fee based on a percentage of the practice’s cash collections or a fixed monthly service fee. These amounts are recorded as revenue when earned.

Amounts Retained by Practitioners

     Amounts retained by practitioners represents amounts retained in accordance with contractual terms of the Service Agreements. Amounts retained by practitioners includes cash advances provided to practitioners to fund certain practice-related matters or to provide practices with unsecured financing which will be repaid from future distributions and which are reflected as an expense in the period such amounts are advanced. Amounts retained by practitioners are reduced by repayments in the period in which repaid. On a monthly or biweekly basis, the Company generally distributes cash draws to practitioners that are intended to approximate calculated amounts retained by the practitioners under their Service Agreements. At the end of each quarter, the Company calculates the actual amounts which the practitioners are entitled to retain in accordance with the Service Agreements. The Company then records a receivable or payable, as applicable, for any overpayment or underpayment. To the extent amounts are payable to the Company, the Company generally reduces the next monthly or biweekly draw to the practitioners.

Patient Receivables

     Effective January 1, 2004, patient receivables represent amounts owed to Affiliated Practices by their patients or by third-party payors, as calculated under the Company’s revenue recognition policy. The Company provides an allowance for uncollectible amounts based upon a percentage estimate of patient receivables that may not be collected by Affiliated Practices. The allowance percentage is based on the Company’s historical experience in collecting patient receivables on behalf of the Affiliated Practices and the Company’s write-off experience.

Advances and Other Amounts Due from OutSource Practices

     Advances and other amounts due from OutSource Practices represent advances relating to amounts due to OCA from OutSource Practices under OutSource Agreements. These amounts primarily represent funds that OCA has paid to third party vendors on behalf of OutSource Practices for capital expenditures and expenses associated with the operations of the OutSource Practices.

Deferred Revenue

     Deferred revenue represents down payments, prepayments and other cash received under patient contracts prior to the related services being provided by Affiliated Practices. The Company defers recognition of such amounts until they are recognized under the Company’s revenue recognition policy.

11

Goodwill and Identifiable Intangibles

     Pursuant to the consolidation provisions of FIN 46R, effective January 1, 2004, the Company generally accounts for affiliations with Affiliated Practices (other than Inactive Practices and OutSource Practices) as business combinations and has reclassified identifiable intangible assets as goodwill. Prior to the adoption of FIN 46R, the Company amortized the identifiable intangible assets over the lesser of the expected life of the Service Agreement or 25 years. In addition, the Company determined that Affiliated Practices are its reporting units and, therefore, the Company now allocates goodwill, including goodwill associated with the OrthAlliance merger, to its practice-level reporting units based on management’s estimate of the fair values of the reporting units. The Company now tests goodwill in accordance with SFAS No. 142 by assessing the carrying amount of goodwill at the practice reporting unit level.

Assets Associated with Inactive Practices

     Assets associated with inactive practices consist of goodwill and identifiable intangible assets property, equipment, improvements, inventory, service fees receivable and advances associated with practices that were parties to Service Agreements but which were engaged in litigation with OCA or its subsidiary, OrthAlliance, Inc. (“OrthAlliance”), and/or which had ceased paying service fees to OCA or OrthAlliance as of September 30, 2004. The Company assesses the recoverability of these assets on a quarterly basis based on, among other things, the status and results of pending litigation, recent settlements and buyouts, the lack of financial information about these practices, the uncertainty of these practices fulfilling their contractual obligations to OCA and the estimated amounts expected to be received from these practices in a buyout, settlement or under the terms of their Service Agreements. The Company estimates the amounts to be received from these practices using historical data, such as the Company’s experience in resolving these situations and the particular practitioner’s willingness to resolve the matter.

Rent Expense

     Facilities for OCA’s Affiliated Practices and administrative offices are generally rented under long-term leases accounted for as operating leases. These leases are not uniform and include varying provisions, including scheduled rent increases. Rent expense is recorded on a straight-line basis over the term of the original lease plus renewal terms.

New Accounting Pronouncement

     In December 2003, the FASB issued revised SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits —an amendment of FASB Statements No. 87, 88, and 106.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” and SFAS No. 106, “Employers Accounting for Postretirement Benefits Other Than Pensions.” Except as noted, this statement was effective for financial statements with fiscal years ending after December 15, 2003. The adoption of revised SFAS No. 132 on January 1, 2004 had no impact on the Company’s financial condition or results of operations.

     On December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which requires that all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, be treated the same as other forms of compensation by recognizing the related cost in the income statement. This statement would replace the existing requirements under SFAS No. 123 and APB No. 25. This statement would also eliminate the ability to account for stock-based compensation transactions using the intrinsic value method of APB No. 25 and generally would require that such transactions be accounted for using a fair-value option pricing model, either a binomial model or the Black-Scholes valuation model. The statement would apply to awards that are granted, modified or settled in cash in interim or annual periods beginning after June 15, 2005. The Company is currently analyzing the impact that adoption of the statement will have on its financial position and results of operations.

12

3. PROPERTY, EQUIPMENT AND IMPROVEMENTS

     Property, equipment and improvements, net, consisted of the following as of the dates indicated:

	September 30,		December 31,
	2004		2003
	(in thousands)
Leasehold improvements	$	84,205	$	77,874
Furniture, fixtures and equipment		64,222		62,286
Computer equipment		7,980		6,426
		156,407		146,586
Less accumulated depreciation and amortization		62,005		54,918
Property, equipment and improvements, net	$	94,402	$	91,668

     Property, equipment and improvements are recorded at cost. All repair and maintenance expenses are recognized and expensed as incurred. Depreciation expense is provided using the straight-line method over the estimated useful lives of the assets, which range from five to 10 years. Leasehold improvements are amortized over the term of the original lease plus renewal terms, which generally range from five to 15 years.

     Depreciation expense on property, equipment and improvements was $4.0 million and $11.6 million for the three and nine months ended September 30, 2004, respectively, compared to $3.8 million and $10.8 million for the three and nine months ended September 30, 2003, respectively.

4. IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL

     The consolidation provisions under FIN 46R generally requires that the Company treat affiliations with Affiliated Practices (other than Inactive Practices and OutSource Practices) as business combinations for financial reporting purposes from commencement of the affiliation. As a result, upon adoption of FIN 46R, the Company reclassified certain identifiable intangible assets associated with Affiliated Practices to goodwill. In addition, the Company determined that Affiliated Practices are its reporting units and, therefore, the Company now allocates goodwill, including goodwill associated with the OrthAlliance merger, to its practice-level reporting units based on management’s estimate of the fair values of the reporting units. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives, including such assets recorded in past business combinations, not be amortized, but instead be tested for impairment by measuring the reporting unit at fair value. SFAS No. 142 requires that the impairment test be performed at least annually with interim testing required if circumstances warrant.

     See Note 5 for discussion on the provision the Company recorded related to its review of assets associated with inactive practices.

     As of December 31, 2003, the Company’s goodwill related solely to the OrthAlliance merger.

13

5. INACTIVE PRACTICES

     At September 30, 2004 and December 31, 2003, the Company recorded the following assets in its condensed consolidated balance sheets related to Inactive Practices (in thousands):

	September 30, 2004			December 31, 2003
Service fees receivable, net	$	3,283		$	3,535
Patient receivables		1,510			—
Advances to inactive practices		10,237			6,536
Notes receivable		—			199
Inventory		731			—
Property, equipment and improvements, net		3,206			2,699
Goodwill and identifiable intangible assets, net		26,796			15,962
		45,763			28,931
Less allowance for assets associated with inactive practices		(15,526	)		(2,249	)
Total	$	30,237		$	26,682

     At September 30, 2004 and December 31, 2003, there were 112 and 100 Inactive Practices, respectively. The Company had generally ceased to record patient revenue and fee revenue with respect to all of these Inactive Practices as of the respective dates. OCA has commenced litigation and/or taken other actions to recover the amounts due to OCA from these practices.

     At September 30, 2004, the Company provided an allowance of $15.5 million for potential impairment of assets associated with inactive practices. At December 31, 2003, the allowance for these assets was $2.2 million. During the three months ended September 30, 2004, the Company performed an assessment of the recoverability of its assets associated with inactive practices. The Company increased the allowance due in part to certain recent settlement payments to OCA and a recent court award to OCA that were significantly less than the net book value of the goodwill, identifiable intangibles and other assets associated with the relevant Inactive Practices. The increase also reflected the Company’s renewed efforts to attempt to resolve pending litigation on mutually agreeable settlement terms. The Company has resolved disputes with some other Inactive Practices by permitting the practices to buy out of their Service Agreements for amounts in excess of the net book value of the assets associated with those practices. The Company performs this assessment on a practice-by-practice basis to determine whether the Company’s carrying value of assets and relative fair value of goodwill associated with a particular Inactive Practice exceeds the estimated amounts to be recovered from that practice. In performing this assessment, the Company is required to make significant judgments and estimates, including the outcome of litigation, settlements and buyouts and amounts expected to be received from these Inactive Practices, among other factors. Providing an allowance for assets associated with inactive practices does not reflect a belief by management that Inactive Practices will ultimately prevail in litigation pending between the practices and OCA or its subsidiary, OrthAlliance, that the Inactive Practices’ claims and allegations in these lawsuits have merit or that the Service Agreements with Inactive Practices are not binding. OCA believes that generally it will receive payment from these practices by either litigation settlement or permitting such practices to buy out of their Service Agreements. However, adverse changes in litigation pending between Inactive Practices and OCA or OrthAlliance could significantly affect the recoverability of these assets and may result in additional provisions related to these assets in the future.

6. DEBT

     The Company has a $125.0 million credit facility comprised of a $100.0 million revolving line of credit and a $25.0 million term loan. At September 30, 2004, approximately $79.6 million was outstanding under the revolving line of credit and $10.2 million under the term loan. The credit facility requires the Company to maintain certain financial and nonfinancial covenants under the terms of the agreement, including a maximum leverage ratio, minimum fixed charge coverage ratio, minimum

14

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 OCA common stock, acquisitions, investments, incurrence of other indebtedness and other transactions that may affect the Company’s liquidity. If the Company were to experience an event or matter that has, or is reasonably likely to have, a material adverse effect or an event of default (each as defined in the credit facility), then the Company would be unable to borrow additional amounts under the credit facility without a waiver by its lenders or an amendment to the credit facility. The Company cannot assure you that it would be able to obtain such a waiver or amendment, which could have a material adverse impact on the Company’s liquidity and capital resources.

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 the incentive programs implemented in connection with the OrthAlliance merger in accordance with EITF Issue No. 96-18 and Issue No. 00-18. The Company accounts for its restricted stock purchase program for affiliated orthodontists in accordance with EITF Issue No. 00-19.

	Three months ended					Nine months ended
	September 30,					September 30,
	2004			2003		2004			2003
	(in thousands, except per share data)
Net income (loss)	$	(3,538	)	$	11,905	$	(68,673	)	$	40,202
Less: stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect		129			147		412			444
Pro forma net income (loss)	$	(3,667	)	$	11,758	$	(69,085	)	$	39,758
Net income (loss) per share:
Basic, as reported	$	(0.07	)	$	0.24	$	(1.37	)	$	0.80
Basic, pro forma		(0.07	)		0.23		(1.38	)		0.79
Diluted, as reported		(0.07	)		0.24		(1.37	)		0.80
Diluted, pro forma		(0.07	)		0.23		(1.38	)		0.79

8. INCOME TAXES

     The Company has deferred tax assets primarily relating to net operating loss carryforwards and the future tax benefit of the cumulative effect from the adoption of FIN 46R. The net operating loss carryforwards primarily relate to the cumulative effect of (A) a change in accounting method for recognizing revenue for income tax purposes previously approved by the Internal Revenue Service (“IRS”) and (B) a change in accounting method related to applicable class lives for certain long-lived assets. At September 30, 2004, the Company reduced the deferred tax assets by the Company’s income taxes for the first three quarterly estimated tax installments for 2004, resulting in no current tax liability recorded by the Company. The Company expects that the remaining net operating loss carryforwards will offset the Company’s income tax liability in 2004. If the net operating loss carryforwards are not used, they will expire between 2017 and 2023.

15

9. SEGMENT INFORMATION

      OCA provides purchasing, financial, marketing, administrative and other business services under Service Agreements to Affiliated Practices operated by orthodontists, pediatric dentists and general dentists and/or their wholly-owned professional entities. OCA’s reportable segments as of September 30, 2004 are U.S. and “All Other,” which includes OCA’s foreign subsidiaries. All costs associated with OCA’s corporate headquarters have been allocated to U.S. The financial measures by which the Company evaluates segment performance and allocates resources is based on operating income (loss) of the segments. The Company’s primary measures of profit by which it formulates decisions and communicates to investors and analysts are net income (loss) and net income (loss) per share. The accounting policies of the reportable segments are the same as those described in Note 2. There are no intersegment sales. The Company’s segment financial information for the three and nine months ended September 30, 2004 and 2003 is as follows (in thousands):

	U.S.			All Other			Eliminations			Consolidated
Three months ended September 30, 2004:
Revenue from external customers	$	96,845		$	7,142		$	—		$	103,987
Loss (gain) on sale of assets, net		1,704			—			—			1,704
Provision for assets associated with inactive practices		13,346			194			—			13,540
Depreciation and amortization		3,343			625			—			3,968
Operating loss		(3,847	)		(432	)		—			(4,279	)
Additions to long-lived assets(1)		4,238			1,795			—			6,033
Three months ended September 30, 2003:
Revenue from external customers	$	89,819		$	2,911		$	—		$	92,730
Loss (gain) on sale of assets, net		(12	)		—			—			(12	)
Asset impairments		767			—			—			767
Depreciation and amortization		5,940			440			—			6,380
Operating income (loss)		21,951			(1,636	)		—			20,315
Additions to long-lived assets(1)		5,941			440			—			6,381
Nine months ended September 30, 2004:
Revenue from external customers	$	301,744		$	17,457		$	—		$	319,201
Loss (gain) on sale of assets, net		3,251			—			—			3,251
Provision for assets associated with inactive practices		14,026			194			—			14,220
Depreciation and amortization		10,001			1,836			—			11,837
Operating income (loss)		17,615			(4,739	)		—			12,876
Cumulative effect of change in accounting principle, net of income tax benefit		(54,980	)		(19,681	)		—			(74,661	)
Total assets		661,237			18,757			(45,768	)		634,226
Additions to long-lived assets(1)		12,553			3,634			—			16,187
Nine months ended September 30, 2003:
Revenue from external customers	$	281,903		$	11,680		$	—		$	293,583
Loss (gain) on sale of assets, net		136			—			—			136
Asset impairments		2,582			—			—			2,582
Depreciation and amortization		17,267			1,321			—			18,588
Operating income (loss)		68,600			(250	)		—			68,350
Total assets		657,602			40,463			(32,389	)		665,676
Additions to long-lived assets(1)		11,145			2,814			—			13,959

⁽¹⁾  Long-lived assets represent net property, equipment and improvements.

     A reconciliation of total segment operating income (loss) to total income (loss) before income taxes and cumulative effect of change in accounting principle for the three and nine months ended September 30, 2004 and 2003 is as follows.

	Three months September 30,						Three months September 30,
	2004			2003			2004			2003
Operating income (loss) of the reportable segments	$	(4,279	)	$	20,315		$	12,876		$	68,350
Interest expense, net		1,277			1,193			3,524			3,742
Non-controlling interest in subsidiary		15			(4	)		(79	)		25
Income (loss) before income taxes and cumulative effect of change in accounting principle	$	(5,571	)	$	19,126		$	9,431		$	64,583

16

10. NET INCOME (LOSS) PER SHARE

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

	Three months ended					Nine months ended
	September 30,					September 30,
	2004			2003		2004			2003
	(in thousands)
Numerator:
Net income (loss) for basic and diluted earnings per share	$	(3,538	)	$	11,905	$	(68,673	)	$	40,202
Denominator:
Denominator for basic earnings (loss) per share		50,145			50,206		50,102			50,208
Effect of dilutive securities		—			277		—			296
Denominator for diluted earnings (loss) per share		50,145			50,483		50,102			50,504

     No options to purchase shares of OCA’s common stock were included in the computation of diluted loss per share for the three and nine months ended September 30, 2004, because the effects would have been anti-dilutive. Options to purchase approximately 2.2 million and approximately 2.1 million shares of common stock were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2003, respectively, because the exercise prices were greater than the average market price of OCA’s common stock during these periods. The exercise prices for these options range from $8.00 to $33.13. These options expire between 2009 and 2012.

11. CONTINGENCIES

     OCA and its subsidiary, OrthAlliance, are engaged in litigation with a number of Inactive Practices. Before OCA agreed to acquire OrthAlliance in November 2001, OCA anticipated that some portion of OrthAlliance’s affiliated practices would oppose the transaction. 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 OCA’s Annual Report on Form 10-K for the year ended December 31, 2003.

     On April 23, 2002, Dr. David C. Hobson filed an action in the U.S. District Court for the Eastern District of California against OCA and its subsidiary, alleging that OCA breached its business services agreement with Dr. Hobson, breached an alleged fiduciary duty to Dr. Hobson and committed allegedly unfair business practices. On August 9, 2002, OCA filed a counterclaim against Dr. Hobson seeking contract and equitable damages. The case was tried from July 13 to August 13, 2004. The jury in the case rendered a verdict in favor of OCA on Dr. Hobson’s claim that OCA breached its fiduciary duty, but found that OCA had breached a provision of Dr. Hobson’s business services agreement and awarded Dr. Hobson approximately $82,000 in damages. On September 14, 2004, the court entered an amended judgment awarding $301,000 in damages to OCA in connection with its counterclaims against Dr. Hobson. On November 23, 2004, the court granted Dr. Hobson’s motion for attorneys fees in the amount of approximately $485,000, and denied OCA’s motions for attorneys fees and changes in the amounts previously awarded to OCA and Dr. Hobson. The Company is considering an appeal of these rulings. On September 28, 2004, the Company filed an action against Dr. Hobson seeking payment of approximately $80,000 of indebtedness owed to the Company by Dr. Hobson under three promissory notes. The Company has provided an allowance for assets associated with Dr. Hobson’s practice as part of its review of the recoverability of assets associated with inactive practices (see Note 5) and believes it has adequately reserved for the estimated outcome of this lawsuit.

17

     On May 22, 2001, Dr. T. Barry Clower, D.M.C. and his professional corporation filed an action in the U.S. District Court for the Northern District of Georgia against OrthAlliance, alleging OrthAlliance had breached its service agreement with Dr. Clower’s practice and that the agreement violated Georgia’s prohibition of the corporate practice of dentistry. On September 24, 2004, the court ruled in favor of OrthAlliance that the service agreement between OrthAlliance and Dr. Clower’s practice is legal and enforceable and does not violate Georgia law governing the practice of dentistry. The court also ruled that the parties’ covenants not to compete were reasonable and enforceable against Dr. Clower. In addition, the court held that Dr. Clower’s practice breached his service agreement with OrthAlliance and that OrthAlliance is owed damages for such breach. The court rejected Dr. Clower’s claim that OrthAlliance had breached his service agreement. The court also held that OrthAlliance could enforce over $200,000 of promissory notes owed by Dr. Clower’s practice to OrthAlliance. The Company had previously adjusted the book value of assets associated with this practice as part of the Company’s purchase accounting adjustments made in connection with the OrthAlliance merger in November 2001.

     Because litigation is inherently uncertain, the Company cannot assure you that OCA or its subsidiaries will prevail in any of these or other lawsuits, nor can the Company estimate with reasonable certainty the amount of damages it might incur or the amount of any award it might receive. OCA and its affiliated practices are, and from time to time may become, party to other litigation or administrative proceedings which arise in the normal course of business. Regardless of the outcome of such litigation and proceedings, they could be costly and time-consuming and could divert the time and attention of OCA’s senior management.

18

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

     The following discussion summarizes our financial condition at September 30, 2004 and results of operations for the three and nine months ended September 30, 2004, and should be read in conjunction with the condensed consolidated financial statements and accompanying notes included elsewhere in this Report. References to “OCA” are to OCA, Inc. and its subsidiaries and references to “us”, “we” or “our” are to OCA and its affiliated practices required to be consolidated pursuant to FIN 46R (as defined below), unless the context otherwise requires. OCA changed its name from Orthodontic Centers of America Inc. in August 2004.

OVERVIEW

     Founded in 1985, OCA is the leading provider of business services to orthodontic and pediatric dental practices. OCA provides affiliated practices operated by licensed practitioners and/or wholly-owned professional entities (“affiliated practices”) with a full range of operational, purchasing, financial, marketing, administrative and other business services, as well as capital and proprietary information systems. It generally provides its services to affiliated practices under long-term service, consulting or management service agreements (“Service Agreements”), with terms that typically range from 20 to 25 years. The Service Agreements generally provide that the affiliated practices will pay OCA monthly service fees based upon a percentage of the practices’ operating profit or practice revenue and reimbursement of practice-related expenses.

     At September 30, 2004, OCA was affiliated with 300 practices located throughout the United States and parts of Japan, Spain, Puerto Rico and Mexico. This number excludes 112 “Inactive Practices,” which are practices that were parties to Service Agreements but were engaged in litigation with OCA or its subsidiary, OrthAlliance, Inc. (“OrthAlliance”), and/or had ceased paying service fees to OCA or OrthAlliance as of September 30, 2004. We had generally ceased to record patient revenue with respect to all of these Inactive Practices at or before September 30, 2004. In October 2004, OCA affiliated with an orthodontic practice in Brazil.

     During the first quarter of 2004, OCA began providing business services through its new division, OCA OutSource. OCA OutSource is initially focusing on general dental practices, but intends to expand to providing business services for other dental specialties and medical practices as well. OCA OutSource provides business services to its affiliated practices (“OutSource Practices”) under relatively short-term agreements (“OutSource Agreements”), with terms as short as two years. OCA OutSource currently charges the OutSource Practices a monthly service fee generally based on a percentage of the practice’s cash collections or a fixed monthly service fee. In addition, OCA OutSource’s affiliations differ from OCA’s traditional affiliations in that, among other things, OCA OutSource generally does not lease the practice office space or own the practice’s fixed assets. The services provided by OCA OutSource otherwise are similar to those provided under OCA’s traditional affiliations, tailored to the particular needs of the practice’s dental or medical specialty. OCA’s experience has been that OCA Outsource generally enables practitioners to focus on quality care, while increasing their profitability and providing better information about the financial performance of their practice. OCA OutSource intends to continue to market its services to general and pediatric dentists at association meetings, through direct mail and through open houses at OCA’s corporate headquarters in Metairie, Louisiana. OCA OutSource also intends to begin marketing its services to medical practices during 2005.

     Affiliated practices reimburse OCA for practice-related expenses that it incurs on their behalf, including costs to treat patients of the affiliated practices. These practice-related expenses are recorded in our condensed consolidated statements of income (loss) when incurred. Affiliated practices typically incur approximately 30% to 35% of the total expense of treating a patient during the first month of the patient’s treatment.

19

     We believe that the dollar amount of new patient contracts of our affiliated practices is the greatest predictor of our future patient revenue. During the nine months ended September 30, 2004, our affiliated orthodontic practices generated new patient contracts totaling approximately $496.5 million, which we expect to provide us with a future stream of patient revenue and cash flow.

ADOPTION OF FIN 46R

     We have made a number of changes in our accounting and financial statement presentation effective as of January 1, 2004, in connection with our adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51” (“FIN 46R”). FIN 46R was issued by the FASB in December 2003 and replaced Interpretation No. 46, which was issued by the FASB in January 2003.

     FIN 46R requires that we consolidate the assets, liabilities, equity and financial results of certain entities (known as variable interest entities or “VIEs”) if we are the primary beneficiary of the VIEs. Under FIN 46R, we are the primary beneficiary of a VIE if we absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the VIE.

     In connection with our required adoption of FIN 46R effective January 1, 2004, we evaluated our contractual and economic relationships with affiliated practices, including an economic analysis of these relationships with the assistance of third party consultants. We concluded that the affiliated practices (other than Inactive Practices and OutSource Practices) are VIEs for purposes of FIN 46R. We also concluded that we are the primary beneficiary of these affiliated practices for purposes of FIN 46R, in that we absorb a majority of the affiliated practices’ expected losses and/or receive a majority of the affiliated practices’ expected residual returns, as a result of contractual or other financial interests in the affiliated practices.

     Accordingly, effective January 1, 2004, we are consolidating the assets, liabilities, equity and financial results of our affiliated practices (other than Inactive Practices and OutSource Practices) in our consolidated financial statements. We did not consolidate the affiliated practices for financial reporting purposes prior to January 1, 2004, in accordance with EITF Issue No. 97-2. These changes resulted in a cumulative effect of change in accounting principle charge of $74.7 million (net of an income tax benefit of $41.4 million), which was recorded during the first quarter of 2004.

     We believe that the changes required under FIN 46R enhance the transparency and clarity of our financial reporting. With these changes, our reported earnings more closely reflect the net cash provided by operating activities reported on our consolidated statements of cash flows. These changes are described in more detail below and in the notes to our condensed consolidated financial statements included in this Report.

     Briefly, these changes include the following, effective as of January 1, 2004:

• Patient revenue. We now record patient revenue under patient contracts between affiliated practices (other than Inactive Practices and OutSource Practices) and their patients, rather than the fee revenue portion that represented our service fees, because we are now consolidating the affiliated practices for financial reporting purposes.

• Amounts retained by practitioners. The portion of patient revenue that is retained by practitioners of affiliated practices is now reflected as an expense in our consolidated statements of income (loss).

20

• Revenue recognition. We now reflect affiliated practices’ patient activity in our consolidated financial statements. As a result, we now recognize patient revenue based upon a straight-line allocation of patient contract balances over the term of treatment (which averages about 23 months), except that a portion relating to retainers will be recognized in the final month of treatment when braces are removed and retainers are provided to patients, in accordance with EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This change eliminated the recognition of revenue related to retainers over the term of treatment, which resulted in increasing amounts of unbilled service fees receivable under our prior revenue recognition policy.

• Patient receivables. We now record patient receivables owed to affiliated practices (other than Inactive Practices and OutSource Practices) under their patient contracts because we now consolidate the affiliated practices for financial reporting purposes. We no longer record service fees receivable, including service fees receivable relating to retainers, from our affiliated practices. This change caused our patient receivables to more closely match the actual timing of billing and collection for retainers, which is typically in the final month of treatment. We also no longer record the financed practice-related expense portion of service fees receivable. The impact of these expenses on our statements of income (loss) more closely reflect the timing of payment and reimbursement for these expenses.

• Identifiable intangibles and goodwill. We now generally record amounts paid to practices to affiliate or to amend Service Agreements as goodwill, rather than as identifiable intangibles. As a result, we test goodwill for impairment under provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” rather than record amortization expense relating to our intangible investments in Service Agreements.

• Advances to practitioners. We now record cash advances to practitioners during the start-up or expansion phase of a new center as expenses when incurred (in the line item “Amounts retained by practitioners”), rather than as receivables. These advances primarily relate to funding of practitioner compensation and additional funding related to the practices. Repayment of the cash advances now reduces amounts retained by practitioners during the period in which the advance is repaid. This change resulted in the earnings impact of these advances more closing matching the actual timing of the advance and repayment.

     Our adoption of FIN 46R and consolidation of affiliated practices for financial reporting purposes did not change our business practices, nor did it change our legal and contractual relationships with affiliated practices. We continue to provide high-quality business services to orthodontic, pediatric dental and other practices under service and consulting agreements. We do not have any ownership interest in our affiliated practices and we do not employ the orthodontists, dentists or other practitioners in the affiliated practices. The patients who are parties to patient contracts with affiliated practices remain the patients of the affiliated practices.

21

     The table below provides the impact to our condensed consolidated balance sheet at January 1, 2004, including elimination of intercompany transactions, as a result of our adoption of FIN 46R (in thousands).

			At January 1, 2004
			Impact of
	OCA		Adopting FIN
	Balance Sheet		46R			Consolidated
Cash and cash equivalents	$	7,391	$	—		$	7,391
Patient receivables, net				117,942	(a)		117,942
Current portion of service fees receivable, net		96,720		(96,720	) (a)		—
Current portion of advances to practitioners, net		16,544		(7,526	) (b)		9,018
Other current assets		62,051		—			62,051
Total current assets		182,706		13,696			196,402
Financed practice-related expense portion of service fees receivable		51,558		(51,558	) (a)		—
Advances to practitioners, less current portion, net		12,921		(12,921	) (b)		—
Assets associated with inactive practices		26,682		4,624			31,306
Deferred income taxes		—		41,420			41,420
Property, equipment and improvements, net		89,458		—			89,458
Identifiable intangible assets, net		201,163		(201,163	) (c)		—
Goodwill		87,641		202,804	(c)		290,445
Other assets		13,547		—			13,547
Total assets	$	665,676	$	(3,098	)	$	662,578
Accounts payable	$	8,985	$	—		$	8,985
Accrued salaries and other current liabilities		13,977		—			13,977
Amounts payable to practitioners		5,373		—			5,373
Service fee prepayments		1,157		(1,157	) (d)		—
Deferred revenue		—		89,060	(d)		89,060
Current portion of debt and notes payable		10,455		—			10,455
Total current liabilities		39,947		87,903			127,850
Deferred income tax liability		41,268		(16,340	)		24,928
Notes payable to practitioners, less current		4,050		—			4,050
Long-term debt		87,724		—			87,724
Shareholders’ equity		492,687		(74,661	) (e)		418,026
Total liabilities and shareholders’ equity	$	665,676	$	(3,098	)	$	662,578

     The following discusses the more significant adjustments to certain line items of our condensed balance sheet as a result of adopting FIN 46R.

     (a) Patient Receivables and Service Fees Receivable. Effective January 1, 2004, we record patient receivables of affiliated practices in our consolidated balance sheets. Patient receivables represent amounts owed to affiliated practices by their patients or third-party payors, as calculated under our revenue recognition policy. They reflect amounts yet to be received after being recognized as patient revenue. We no longer record service fees receivable in our consolidated balance sheets, including the current and financed practice-related expense portion of service fees receivable.

     (b) Advances to Practitioners and Amounts Payable to Practitioners. Effective January 1, 2004, we do not record in our condensed consolidated balance sheets cash advances to affiliated practices against future distributions. At January 1, 2004, we made the following adjustments with respect to advances to affiliated practices: (A) eliminated advances to affiliated practices that related to cash

22

advances to affiliated practices against future distributions, (B) reclassified advances related to amounts due under Service Agreements with Inactive Practices to assets associated with Inactive Practices, and (C) eliminated advances to affiliated practices related to amounts due under Service Agreements. We will continue to record receivables and payables related to short-term differences between amounts distributed as monthly or biweekly draws to practitioners and the amounts that the practitioners are entitled to retain under their Service Agreements, until those amounts are reconciled.

     (c) Goodwill and Identifiable Intangibles. Pursuant to the consolidation provisions of FIN 46R, effective January 1, 2004, we account for affiliations with practices (other than Inactive Practices and OutSource Practices) as business combinations and reclassified certain identifiable intangible assets related to Service Agreements with affiliated practices to goodwill. Prior to the adoption of FIN 46R, we recorded these amounts as identifiable intangible assets and amortized these assets. In addition, we determined that affiliated practices are our reporting units for purposes of SFAS No. 142. Therefore, we now allocate goodwill, including goodwill associated with the OrthAlliance merger, to our practice-level reporting units based on management’s estimate of the fair values of the reporting units. Also, as of January 1, 2004, we reclassified identifiable intangible assets related to Inactive Practices into “Assets associated with inactive practices,” because we do not consolidate these practices. Goodwill and identifiable intangibles are not amortized but are tested for impairment under provisions of SFAS No. 142 by assessing the carrying amount of goodwill at the practice reporting unit level.

     (d) Deferred Revenue and Service Fee Prepayments. Effective January 1, 2004, we record deferred revenue in our condensed consolidated balance sheets. Deferred revenue represents amounts which affiliated practices receive from their patients or third party payors prior to recognition of the related patient revenue, as calculated under our revenue recognition policy. We no longer record service fee prepayments in our condensed consolidated balance sheets.

     (e) Cumulative effect of change in accounting principle. As a result of adopting FIN 46R, we recorded in the first quarter of 2004 a cumulative effect charge of $74.7 million, net of income tax benefit of $41.4 million. The charge was primarily due to the change in our revenue recognition policy, the reclassification of certain advances to affiliated practices as amounts retained by practitioners (as described above) and the reversal of previously-recorded amortization of identifiable intangible assets.

PATIENT RECEIVABLES AND DEFERRED REVENUE

     We now record patient receivables of affiliated practices in our condensed consolidated balance sheets, rather than service fee receivable. Patient receivables represent amounts owed to affiliated practices by their patients or third-party payors, as calculated under our revenue recognition policy. They reflect amounts yet to be received after being recognized as patient revenue under our revenue recognition policy.

     Patient receivables may occur due to several factors, including delay in payment by patients, delay in payment by third party payors, and timing differences between when the patient or third party payor is contractually obligated to remit payment for services and the straight-line calculation under our revenue recognition policy. Under our revenue recognition policy, we recognize patient revenue based upon a straight-line allocation of patient contract balances over the term of treatment (which averages about 23 months), except that a portion relating to retainers will be recognized in the final month of treatment when braces are removed and retainers are provided to patients. Most of our affiliated practices use our recommended payment plan for their patients, which provides for (a) no down payment, (b) an initial record fee, (c) equal monthly payments (ranging from $109 to $139, with most practices using $129 per month) over the term of treatment and (d) a final retainer payment that is typically four times the monthly payment.

23

     Deferred revenue represents down payments, prepayments and other cash received under patient contracts prior to the related services being provided by affiliated practices and in advance of the straight-line calculation under our revenue recognition policy. We defer recognition of these amounts until they are recognized as patient revenue under our revenue recognition policy.

     Because patient receivables and deferred revenue generally relate to different affiliated practices, we generally do not have a right to offset amounts owed against amounts prepaid, and the patient receivables and deferred revenue are recorded separately in our condensed consolidated balance sheets and not on a net basis. At September 30, 2004, we had a total of $124.3 million of patient receivables and $91.8 million of deferred revenue.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     OCA’s management is required to make estimates and assumptions in the preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. The following are critical accounting policies that resulted from our adoption of FIN 46R effective January 1, 2004. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 to our consolidated financial statements in OCA’s Annual Report on Form 10-K for the year ended December 31, 2003 for information about other critical accounting policies.

     These 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 condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions and estimates.

Consolidation

     FIN 46R requires the consolidation of entities known as variable interest entities (or VIEs) when an enterprise absorbs a majority of the VIEs’ expected losses, receives a majority of the VIEs’ expected residual returns, or both, as a result of ownership, contractual or other financial interests in the VIEs. Management must make assessments whether our affiliated practices are VIEs and whether we hold a controlling financial interest in the VIEs, as determined under FIN 46R. Accordingly, we will consolidate the assets, liabilities, equity and financial results of those affiliated practices in our consolidated financial statements if we determine that we do hold a controlling financial interest. We are required to reevaluate whether or not we consolidate our VIEs when an event occurs that requires reconsideration of consolidation under applicable accounting pronouncements. During 2004, certain practices that we consolidated pursuant to FIN 46R ceased paying service fees to OCA or OrthAlliance, initiated litigation against OCA or OrthAlliance and/or alleged a breach by OCA or OrthAlliance of their Service Agreement and gave notice of their intentions to terminate the Service Agreement. We believe that these events required that we reconsider whether OCA is the primary beneficiary of these practices under FIN 46R. We determined that, under these circumstances, OCA was no longer the primary beneficiary of these practices and we ceased to consolidate these practices. We do not consolidate the assets, liabilities, equity and financial results of the Inactive Practices and OutSource Practices.

24

     The laws of each of the jurisdictions in which we operate prohibit OCA from owning orthodontic or pediatric dental practices. OCA enters into exclusive Service Agreements with practitioners and professional entities that operate orthodontic and pediatric dental practices. OCA does not have any ownership interest in affiliated practices and it does not employ the orthodontists, dentists or other practitioners in the affiliated practices. The patients who are parties to patient contracts with affiliated practices remain the patients of the affiliated practices.

Amounts Retained by Practitioners

     Amounts retained by practitioners represents amounts retained in accordance with contractual terms of the Service Agreements. Amounts retained by practitioners includes cash advances provided to practitioners to fund certain practice-related matters or to provide practices with unsecured financing which will be repaid from future distributions and which are reflected as an expense in the period such amounts are advanced. Amounts retained by practitioners is reduced by repayments in the period in which repaid. On a monthly or biweekly basis, we generally distribute cash draws to practitioners that are intended to approximate calculated amounts retained by the practitioners under their Service Agreements. At the end of each quarter, we calculate the actual amounts which the practitioners are entitled to retain in accordance with the Service Agreements. We then record a receivable or payable, as applicable, for any overpayment or under payment. To the extent amounts are owed to us, we generally reduce the next monthly or biweekly draw to the practitioners.

Advances to Affiliated Practices

     We apply the provisions of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” when assessing advances to affiliated practices and amounts retained by affiliated practices. Accordingly, we do not record cash advances against future distributions to affiliated practices in our consolidated financial statements as advances to affiliated practices. Such amounts are recorded as an expense, in amounts retained by affiliated practices, in the period in which the distributions are made. However, as these amounts are repaid from future earnings of the affiliated practices, we record the repayments as a reduction of amounts retained by affiliated practices. We record as advances to practitioners or amounts payable to practitioners the short-term differences between amounts distributed as monthly or bi-weekly draws to practitioners and the amounts that the practitioners are entitled to retain under their Service Agreements.

Revenue Recognition and Realization of Patient Receivables

     We generally recognize patient revenues related to services provided to patients on a straight-line basis over the term of treatment (which averages about 23 months). Revenues related to retainers, or teeth retention appliances, are recognized in the final month of treatment when braces are removed and retainers are provided to the patients, in accordance with EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.”

     Patient receivables represent amounts owed by patients or third-party payors to affiliated practices, as calculated under our revenue recognition policy. In addition, in some instances, management is required to estimate patient receivables from certain affiliated practices based upon information provided by those affiliated practices. Management provides an allowance for uncollectible amounts based upon a percentage estimate of patient receivables that may not be collected by affiliated practices. The allowance percentage is determined based upon our experience in collecting patient receivables on behalf of affiliated practices. Management’s estimates may change based on future conditions and circumstances.

25

     We currently charge OutSource Practices a monthly service fee based on a percentage of the practice’s cash collections or a fixed monthly service fee. These amounts are recorded as revenue when earned.

Impairment of Goodwill and Identifiable Intangible Assets

     Typically, when OCA has affiliated with an established practice, it has entered into a long-term Service Agreement with the practice and/or the affiliated practitioner under which it provides business services to the practice in exchange for monthly service fee payments. We generally allocated a portion of the related costs of acquiring the Service Agreement to identifiable intangible assets. In addition, OCA’s balance sheet reflected approximately $87.6 million of goodwill related to the OrthAlliance merger as of December 31, 2003.

     Upon adopting the provisions of FIN 46R effective January 1, 2004, we now account for affiliations with practices as business combinations and, therefore, reclassified certain identifiable intangible assets related to Service Agreements as goodwill. In addition, we determined that affiliated practices are our reporting units for purposes of SFAS No. 142. Therefore, we now allocate the goodwill associated with the practice affiliations to our practice-level reporting units based on management’s estimate of the fair values of the reporting units. We now test goodwill in accordance with SFAS No. 142 by assessing the carrying amount of goodwill at the practice reporting unit level. For purposes of this assessment, fair value is measured by estimating future cash flows under the Service Agreements with the affiliated practices based on several factors, including current operational levels of the practice, expected growth in the practice based on management’s experience, the status of affiliation of the practice and the recoverability of assets associated with Inactive Practices. If the total projected cash flows of the affiliated practice exceed the carrying amount of goodwill associated with that practice, there would be no impairment. If the cash flows of the affiliated practice were to be less than the carrying amount of goodwill associated with that practice, the goodwill would be considered impaired and management would adjust the carrying value of the goodwill to estimated fair value. Management’s estimate may change based on future events, including adverse results in pending litigation and lawsuits that may be filed by or against OCA or OrthAlliance in the future.

Recoverability of Assets Related to Inactive Practices

     At September 30, 2004, we had recorded in our condensed consolidated balance sheets approximately $30.2 million of assets associated with Inactive Practices, net of an allowance of $15.5 million. These assets consisted of $26.8 million of goodwill and identifiable intangible assets, $3.2 million of property, equipment, and improvements, net of accumulated amortization and depreciation, $3.3 million of service fees receivable, $1.5 million of patient receivables, $0.7 million of inventory and $10.2 million of advances to affiliated practices. The assessment of the recoverability of these assets is complex and requires significant judgment by management due to a number of factors, including the status and results of pending litigation, recent settlements and buyouts, the lack of financial information about these practices, the uncertainty of these practices fulfilling their contractual obligations to us and the estimated amounts expected to be received from these practices in a buyout, settlement, judgment or under the terms of their Service Agreements. Management estimates the amounts to be received from these practices using, among other things, historical data and experience in resolving these situations and the particular practitioner’s willingness to resolve the matter. We have established allowances for assets associated with these practices and believe the net amounts recorded as assets associated with inactive practices are realizable as of September 30, 2004. However, adverse litigation results could significantly affect the recoverability of these assets and may require us to record additional provisions related to these assets in the future.

PRACTICE COLLECTIONS AND RESULTS

     Our financial success is dependent on the financial success of our affiliated practices. The following chart illustrates, by quarter, the increases in patient fees collected by affiliated practices during 2003 and the first nine months of 2004. The graph also illustrates the growth in collections of patient fees by Base Practices for which we were recording patient revenue at September 30, 2004, and the diminishing impact of Inactive Practices on total patient fees collected by affiliated practices during 2003 and the first nine months of 2004. The graph also illustrates patient revenue for these periods, calculated on a pro forma basis as if our adoption of FIN 46R was effective on January 1, 2003. As depicted in the graph below, our patient revenue generally parallels the patient fees collected by affiliated practices.

26

(1)	These amounts reflect patient fees collected from patients or third party payors by or on behalf of affiliated practices during the respective periods. These amounts do not include any collections by Inactive Practices after we ceased recording fee revenue or patient revenue for the practices.
(2)	Represents patient fees collected by or on behalf of Base Practices for which we were recording patient revenue as of September 30, 2004.
(3)	Represents patient fees collected by or on behalf of Inactive Practices, including practices that have bought out of or otherwise terminated their Service Agreements, for which we recorded fee revenue or patient revenue during the respective periods but for which we had ceased to record revenue at or before September 30, 2004. Accordingly, we ceased to include collections by these Inactive Practices in the graph above after we ceased recording fee revenue or patient revenue for the practices.
(4)	Represents total patient fees collected by Base Practices and Inactive Practices, including practices that have bought out of or otherwise terminated their Service Agreements, during the periods.
(5)	Represents pro forma patient revenue for the respective quarters, calculated as if our adoption of FIN 46R was effective as of January 1, 2003. Patient revenue for each of the three quarters of 2004 represent as reported patient revenue as we adopted FIN 46R effective January 1, 2004.

AGREEMENTS WITH AFFILIATED PRACTICES

     OCA provides business services to an affiliated practice under an agreement with an affiliated licensed professional and/or his or her wholly-owned professional entity. 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. In most states, we use a form of service agreement, with some minor variations from state to state. In a small number of states with particularly stringent laws relating to the practice of dentistry, we use a consulting agreement, which also varies somewhat from state to state. OrthAlliance and its affiliated practices are parties to service, management service and consulting agreements that differ in some respects from the service and consulting agreements that OCA has historically used. The terms of the Service Agreements typically range from 20 to 40 years, with most ranging from 20 to 25 years. The Service Agreements generally provide for monthly service fees based

27

upon a percentage of the practice’s operating profit or practice revenue and reimbursement of practice-related expenses.

     OCA OutSource provides business services to a practice under agreements with terms as short as two years. Under an OutSource Agreement, affiliated practices currently are charged a monthly service fee based on a percentage of the practice’s cash collections or fixed monthly fee.

RESULTS OF OPERATIONS

     The following tables provide information about (1) the percentage of total revenue represented by certain items in our condensed consolidated statements of income (loss) for the periods indicated, (2) for those same items, the percentage of patient revenue for the three and nine months ended September 30, 2003 on a pro forma basis calculated as if our adoption of FIN 46R was effective as of January 1, 2003 (“Pro Forma Basis”), and (3) the percentage increase or decrease in those items from period to period on an actual and pro forma basis:

							Pro Forma			Percentage
	Three Months Ended September 30,						Three Months Ended			Increase/(Decrease)
							September 30,			2004 to 2003			2004 to 2003
	2004			2003			2003(1)			Actual			Pro Forma
Total revenue		100.0	%		100.0	%		100.0	%		N/A			(4.9	)%
Practice-related expenses:
Amounts retained by practitioners		28.6			—			30.7			N/A			(11.4	)
Salaries and benefits		22.0			24.9			21.1			(0.8	)%		(0.8	)
Clinical supplies and lab fees		8.8			10.5			8.9			(5.9	)		(5.9	)
Rent		6.6			7.5			6.4			(1.5	)		(1.5	)
Marketing and advertising		5.3			5.9			5.0			0.5			0.5
Other operating costs		8.2			9.9			8.4			(6.6	)		(6.6	)
Total practice-related expenses		79.5			58.7			80.5			52.0			(6.0	)
General and administrative		6.1			11.7			7.9			(41.6	)		(26.2	)
Depreciation		3.8			4.1			3.5			4.3			4.3
Amortization		—			2.8			—			N/A			0.0
Loss (gain) on sale of assets		1.6			—			—			(14,298.8	)		(14,298.8	)
Provision for assets associated with inactive practices		13.0			—			—			N/A			N/A
Asset impairments		—			0.8			0.7			N/A			N/A
Operating income (loss)		(4.1	)		21.9			7.4			(124.8	)		(152.6	)
Income (loss) before income taxes		(5.4	)		20.6			6.4			(129.1	)		(180.2	)
Net income (loss)		(3.4	)%		12.8	%		4.0	%		(129.7	)%		(181.8	)%

28

	Nine Months						Pro Forma			Percentage
	Ended						Nine Months			Increase/(Decrease)
	September 30,						Ended
							September 30,			2004 to 2003			2004 to 2003
	2004			2003			2003(1)			Actual			Pro Forma
Total revenue		100.0	%		100.0	%		100.0	%		N/A			(4.2	)%
Practice-related expenses:
Amounts retained by practitioners		28.7			—			27.4			N/A			0.4
Salaries and benefits		21.7			25.6			22.6			(8.0	)%		(8.0	)
Clinical supplies and lab fees		8.7			10.2			9.0			(7.7	)		(7.7	)
Rent		6.4			8.6			7.6			(19.6	)		(19.6	)
Marketing and advertising		5.4			6.4			5.7			(9.3	)		(9.3	)
Other operating expenses		8.4			9.3			8.2			(1.3	)		(1.3	)
Total practice-related expenses		79.4			60.2			80.5			43.2			(5.6	)
General and administrative		7.5			9.2			7.0			(12.1	)		2.7
Depreciation		3.6			3.7			3.2			7.9			7.9
Amortization		0.1			2.7			0.1			(97.6	)		0.0
Loss (gain) on sale of assets		1.0			—			—			2,290.6			2,290.6
Provision for assets associated with inactive practices		4.5			—			—			N/A			N/A
Asset impairments		—			0.9			0.8			N/A			N/A
Operating income		4.0			23.3			8.4			(81.2	)		(63.4	)
Income before income taxes and cumulative effect		3.0			22.0			7.3			(85.4	)		(61.0	)
Income before cumulative effect of change in accounting principle		1.9			13.7			4.5			(85.1	)		(60.3	)%
Cumulative effect, net of income tax benefit		(23.4	)		—			—			N/A			N/A
Net income (loss)		(21.5	)%		13.7	%		4.5	%		(270.8	)%		N/A

(1) Presented on a pro forma basis as if our adoption of FIN 46R was effective as of January 1, 2003.

Financial Results Attributable to Base Practices and Inactive Practices

     The following tables provide information about financial results attributable to Base Practices, Inactive Practices and our corporate operations for the three and nine months ended September 30, 2004 and 2003, and for the three and nine months ended September 30, 2003 on a Pro Forma Basis. “Base Practices” are affiliated practices for which we were recording patient revenue as of September 30, 2004. “Inactive Practices” are practices that were engaged in litigation with OCA or OrthAlliance and/or had ceased paying service fees and for which we had ceased to record patient revenue at September 30, 2004. At September 30, 2004, there were 300 Base Practices and 112 Inactive Practices that were parties to Service Agreements. At September 30, 2003, there were 327 Base Practices and 89 Inactive Practices that were parties to Service Agreements.

     As reflected in the following tables, during the three and nine months ended September 30, 2004, our financial results were almost entirely attributable to Base Practices, as the amount of patient revenue, expense and operating income (loss) attributable to Inactive Practices during the first nine months of 2004 was significantly less than during the same period in 2003 on a Pro Forma Basis. The tables also indicate the impact of de novo centers, which typically incur operating losses during their first 12 to 18 months of operation.

29

	Base Practices (1)
	Mature		De Novo			Inactive			OutSource
	Centers (2)		Centers (3)			Practices (4)			Practices		Corporate (5)			Total
For the three months ended September 30, 2004:
Patient revenue	$	101,989	$	1,144		$	825		$	—	$	—		$	103,958
Service fees from OutSource Practices		—		—			—			29		—			29
Total revenue		101,989		1,144			825			29		—			103,987
Practice-related expenses (6)		79,539		2,059			1,108			—		—			82,706
General and administrative (5)		—		—			—			—		6,348			6,348
Depreciation		2,773		218			521			—		456			3,968
Provision for assets associated with inactive practices		—		—			13,540			—		—			13,540
Loss on sale of assets		—		—			1,704			—		—			1,704
Operating income (loss)		19,677		(1,133	)		(16,048	)		29		(6,804	)		(4,279	)
Interest expense (net) (5)		—		—			—			—		1,277			1,277
Non-controlling interest (5)		—		—			—			—		15			15
Income (loss) before income taxes (5)		19,677		(1,133	)		(16,048	)		29		(8,096	)		(5,571	)
Income taxes (5)		7,183		(414	)		(5,858	)		11		(2,955	)		(2,033	)
Net income (loss) (5)	$	12,494	$	(719	)	$	(10,190	)	$	18	$	(5,141	)	$	(3,538	)
For the three months ended September 30, 2003:	Actual
Fee revenue	$	86,334	$	486		$	5,910		$	—	$	—		$	92,730
Practice-related expenses (6)		46,724		787			6,908			—		—			54,419
General and administrative (5)		—		—			—			—		10,861			10,861
Depreciation and amortization		4,987		128			584			—		681			6,380
Gain on sale of assets		—		—			12			—		—			12
Asset impairments		—		—			767			—		—			767
Operating income (loss)		34,623		(429	)		(2,337	)		—		(11,542	)		20,315
Interest expense (net) (5)		—		—			—			—		1,193			1,193
Non-controlling interest (5)		—		—			—			—		(4	)		(4	)
Income (loss) before income taxes (5)		34,623		(429	)		(2,337	)		—		(12,731	)		19,126
Income taxes (5)		13,071		(162	)		(882	)		—		(4,806	)		7,221
Net income (loss) (5)	$	21,552	$	(267	)	$	(1,455	)	$	—	$	(7,925	)	$	11,905

30

	Base Practices (1)
	Mature		De Novo			Inactive			OutSource
	Centers (2)		Centers (3)			Practices (4)			Practices		Corporate (5)			Total
For the three months ended September 30, 2003:	Pro Forma
Patient revenue	$	98,859	$	334		$	10,098		$	—	$	—		$	109,291
Practice-related expenses (6)		76,020		878			11,096			—		—			87,994
General and administrative (5)		—		—			—			—		8,603			8,603
Depreciation and amortization		2,412		128			584			—		681			3,805
Gain on sale of assets		—		—			12			—		—			12
Asset impairments		—		—			767			—		—			767
Operating income (loss)		20,427		(672	)		(2,337	)		—		(9,284	)		8,134
Interest expense (net) (5)		—		—			—			—		1,193			1,193
Non-controlling interest (5)		—		—			—			—		(4	)		(4	)
Income (loss) before income taxes (5)		20,427		(672	)		(2,337	)		—		(10,473	)		6,945
Income taxes (5)		7,711		(254	)		(882	)		—		(3,952	)		2,623
Net income (loss) (5)	$	12,716	$	(418	)	$	(1,455	)	$	—	$	(6,521	)	$	4,322
For the nine months ended September 30, 2004:
Patient revenue	$	310,018	$	2,250		$	6,898		$	—	$	—		$	319,166
Service fees from OutSource Practices		—		—			—			35		—			35
Total revenue		310,018		2,250			6,898			35		—			319,201
Practice-related expenses (6)		240,111		4,991			8,094			—		—			253,196
General and administrative (5)		—		—			—			—		23,821			23,821
Depreciation and amortization		8,608		625			1,257			—		1,347			11,837
Provision for assets associated with inactive practices		—		—			14,220			—		—			14,220
Loss on sale of assets		—		—			3,251			—		—			3,251
Operating income (loss)		61,299		(3,366	)		(19,924	)		35		(25,168	)		12,876
Interest expense (net) (5)		—		—			—			—		3,524			3,524
Non-controlling interest (5)		—		—			—			—		(79	)		(79	)
Income (loss) before income taxes (5)		61,299		(3,366	)		(19,924	)		35		(28,613	)		9,431
Income taxes (5)		22,375		(1,229	)		(7,273	)		13		(10,443	)		3,443
Income (loss) before cumulative effect of change in accounting principle(5)	$	38,924	$	(2,137	)	$	(12,651	)	$	22	$	(18,170	)	$	5,988
For the nine months ended September 30, 2003:	Actual
Fee revenue	$	260,579	$	1,447		$	31,557		$	—	$	—		$	293,583
Practice-related expenses (6)		139,618		2,537			34,668			—					176,823
General and administrative (5)		—		—			—			—		27,104			27,104
Depreciation		15,277		340			1,488			—		1,483			18,588
Loss on sale of assets		—		—			136			—		—			136
Asset impairments		—		—			2,582			—		—			2,582
Operating income (loss)		105,684		(1,430	)		(7,317	)		—		(28,587	)		68,350
Interest expense (net) (5)		—		—			—			—		3,742			3,742
Non-controlling interest (5)		—		—			—			—		25			25
Income (loss) before income taxes (5)		105,684		(1,430	)		(7,317	)		—		(32,354	)		64,583
Income taxes (5)		39,896		(540	)		(2,762	)		—		(12,213	)		24,381
Net income (loss) (5)	$	65,788	$	(890	)	$	(4,555	)	$	—	$	(20,141	)	$	40,202

31

	Base Practices (1)
	Mature		De Novo			Inactive			OutSource
	Centers (2)		Centers (3)			Practices (4)			Practices		Corporate (5)			Total
For the nine months ended September 30, 2003:	Pro Forma
Patient revenue	$	287,730	$	1,112		$	44,389		$	—	$	—		$	333,231
Practice-related expenses (6)		217,875		2,838			47,499			—		—			268,212
General and administrative (5)		—		—			—			—		23,194			23,194
Depreciation and amortization		7,678		340			1,488			—		1,483			10,989
Loss on sale of assets		—		—			136			—		—			136
Asset impairments		—		—			2,582			—		—			2,582
Operating income (loss)		62,177		(2,066	)		(7,316	)		—		(24,677	)		28,118
Interest expense (net) (5)		—		—			—			—		3,877			3,877
Non-controlling interest (5)		—		—			—			—		25			25
Income (loss) before income taxes (5)		62,177		(2,066	)		(7,316	)		—		(28,579	)		24,216
Income taxes (5)		23,472		(780	)		(2,762	)		—		(10,788	)		9,142
Net income (loss) (5)	$	38,705	$	(1,286	)	$	(4,554	)	$	—	$	(17,791	)	$	15,074

(1)	Represents operating results attributable to Base Practices for which we were recording patient revenue as of September 30, 2004.
(2)	Represents centers that had been operating and affiliated with us for more than 18 months as of the respective date, or that had been operating for less than 18 months as of the respective date but had begun to generate operating profits.
(3)	Represents recently-developed centers that had been operating for 18 months or less and that had not begun to generate operating profits on a cash basis as of the respective date.
(4)	Represents operating results attributable to Inactive Practices, including practices that have bought out of or otherwise terminated their Service Agreements, during the three and nine months ended September 30, 2004 and 2003.
(5)	For purposes of this table only, in determining the expenses and operating income, we did not allocate our corporate overhead costs, interest expense (net) and non-controlling interest to these practices. We did, however, allocate income taxes to the respective practices.
(6)	Practice-related expenses include all expenses directly associated with the operations of the practice, including amounts retained by practitioners.

Comparison of Financial Results of Three and Nine Months Ended September 30, 2004 and 2003

     The following discussion provides an analysis of our results of operations for the three and nine months ended September 30, 2004 and 2003. As a result of adopting the provisions of FIN 46R, the presentation of our condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2004 and 2003 has changed. Our adoption of FIN 46R had a significant impact on our results of operations and financial condition and significantly impacts the comparability of our consolidated financial statements for prior periods. As a result, we have included in our discussion below a comparison of actual results for the three and nine months ended September 30, 2004 to pro forma results for the three and nine months ended September 30, 2003 assuming the adoption of FIN 46R was effective January 1, 2003. In addition, we now classify expenses associated with our corporate headquarters into “General and Administrative” expense and classify expenses directly associated with the operation of affiliated practices (except for OutSource Practices) to their respective line items within “Practice-related expenses.”

     Net Income (Loss). Net loss for the three months ended September 30, 2004 was $3.5 million compared to net income of $11.9 million for the same period in 2003. The $15.4 million decrease was

32

primarily due to an increase of $13.5 million in provision for assets associated with inactive practices, an increase of $1.7 million in loss on sale of assets, and an increase of $29.7 million due to amounts retained by practitioners. Partially offsetting these amounts was a decrease of $4.5 million in general and administrative expense, a decrease of $2.6 million in amortization expense and a net change of $11.3 million in revenue as a result of the change in our revenue recognition policy.

     Net loss for the nine months ended September 30, 2004 was $68.7 million compared to net income of $40.2 million for the same period in 2003. Our net loss during the nine months of 2004 was primarily related to a cumulative effect of a change in accounting principle of $74.7 million, net of income tax benefit of $41.4 million, recorded during the first quarter of 2004. Also contributing to the net loss for the nine months ended September 30, 2004 was an increase of $14.2 million in provision for assets associated with inactive practices, an increase of $3.1 million in loss on sale of assets, and an increase of $91.7 million due to amounts retained by practitioners. Partially offsetting these amounts was a decrease of $3.3 million in general and administrative expense, a decrease of $7.6 million in amortization expense and a net change of $25.6 million in revenue as a result of the change in our revenue recognition policy.

     On a Pro Forma Basis, net income for the three months ended September 30, 2003 was $4.3 million. The decrease of $7.9 million in net income during the third quarter of 2004 compared to the same period in 2003 on a Pro Forma Basis was primarily due to the following:

• a decrease of $5.3 million in patient revenue;

• an increase of $13.5 million in provision for assets associated with inactive practices; and

• an increase of $1.7 million in loss on sale of assets.

The overall decrease was partially offset by a decrease of $5.3 million in practice-related expenses and a decrease of $2.3 million in general and administrative expense.

     On a Pro Forma Basis, income before cumulative effect of change in accounting principle for the nine months ended September 30, 2003 was $15.1 million. The $9.1 million decrease in income before cumulative effect of change in accounting principle on a Pro Forma Basis was primarily due to the following:

• a decrease of $14.0 million in patient revenue,

• an increase of $14.2 million in provision for assets associated with inactive practices; and

• an increase of $3.1 million in loss on sale of assets.

The overall decrease was partially offset by a decrease of $15.0 million in practice-related expenses and a decrease of $2.6 million in asset impairments.

33

     Our net income (loss) during the three and nine months ended September 30, 2004 also was negatively impacted by operating losses and other expenses incurred in connection with the development of de novo centers. During the three months ended September 30, 2004, we incurred operating losses associated with de novo centers of approximately $1.1 million, compared to $0.4 million during the same period in 2003. During the nine months ended September 30, 2004, we incurred operating losses associated with de novo centers of approximately $3.4 million, compared to $1.4 million for the same period in 2003. The development of de novo centers with new and existing affiliated practices provides us with opportunities for future growth and increased revenue and profits in the long-term, and we believe that it is more effective and less capital-intensive than affiliating with established practices. However, these developments have a negative impact on our net income in the short-term in that de novo centers typically generate initial operating losses during their first 12 to 18 months of operations and experience relatively lower operating margins than mature centers. We typically finance all of the operating losses incurred in connection with de novo practices and centers, and we typically fund a portion of the compensation of affiliated practitioners during the startup or expansion phase of their practices. We record these amounts as practice-related expenses in our condensed consolidated statements of income (loss) when incurred. The practices generally repay these amounts, including accrued interest, over a five-year period when the de novo center becomes profitable. We expect operating losses associated with the de novo centers to be short-term and that these centers will have a positive contribution to our financial results after their startup phase. Despite the short-term losses, we intend to continue to invest in our existing affiliated centers and develop additional de novo centers to grow our business.

     The following discussion relates to significant factors that affected our consolidated net income (loss) during the three and nine months ended September 30, 2004:

     Patient Revenue and Fee Revenue. The consolidation provisions of FIN 46R requires us to record patient revenue of affiliated practices in our consolidated financial statements. Patient revenue is recognized on a straight-line basis over the term of the patient contract, except for a portion related to retainers, which is recognized in the final month of treatment when braces are removed and a retainer is provided to the patient. Prior to January 1, 2004, fee revenue represented amounts related to services provided to affiliated practices and recorded under our revenue recognition policy. Fee revenue was $92.7 million and $293.6 million for the three and nine months ended September 30, 2003, respectively. Service fees from OutSource Practices are recognized as revenue when earned. We currently charge OutSource Practices a monthly service fee based either on a percentage of the practice’s cash collections or a fixed monthly service fee.

34

     Patient revenue for the three months ended September 30, 2004 decreased $5.3 million, or 4.9%, to $104.0 million from $109.3 million for the same period in 2003 on a Pro Forma Basis. Patient revenue for the nine months ended September 30, 2004 decreased $14.0 million, or 4.2%, to $319.2 million from $333.2 million for the same period in 2003 on a Pro Forma Basis. These decreases were primarily due to a significant decrease in the amount of patient revenue attributable to Inactive Practices, as indicated in the following table:

	Three months ended						Increase/
	September 30,						(Decrease)
	2004		2003				Dollar amount						Percentage
																Pro
			Actual		Pro Forma (3)		Actual			Pro Forma			Actual			Forma
	(in thousands, except percentage data)
Base Practices (1)	$	103,133	$	86,820	$	99,193	$	16,313		$	3,940			18.8	%		4.0	%
OutSource Practices		29		—		—		N/A			N/A			N/A			N/A
Inactive Practices (2)		825		5,910		10,098		(5,085	)		(9,273	)		(86.0	)%		(91.8	)%
Total revenue	$	103,987	$	92,730	$	109,291	$	11,257		$	(5,304	)		12.1	%		(4.9	)%

	Nine months ended						Increase/
	September 30,						(Decrease)
	2004		2003				Dollar amount						Percentage
																Pro
			Actual		Pro Forma (3)		Actual			Pro Forma			Actual			Forma
	(in thousands, except percentage data)
Base Practices (1)	$	312,268	$	262,026	$	288,842	$	50,242		$	23,426			19.2	%		8.1	%
OutSource Practices		35		—		—		N/A			N/A			N/A			N/A
Inactive Practices (2)		6,898		31,557		44,389		(24,659	)		(37,491	)		(78.1	)%		(84.5	)%
Total revenue	$	319,201	$	293,583	$	333,231	$	25,618		$	(14,030	)		8.7	%		(4.2	)%

(1)	Represents patient revenue of Base Practices for which we were recording patient revenue as of September 30, 2004.
(2)	Represents patient revenue attributable to Inactive Practices during the three and nine months ended September 30, 2004 and 2003 for which we recorded patient revenue or fee revenue during the respective period but for which we had ceased to record patient revenue at September 30, 2004.
(3)	Represents patient revenue on a Pro Forma Basis as if our change in accounting principle pursuant to FIN 46R was effective as of January 1, 2003.

     As indicated in the table above, during the three months ended September 30, 2004, patient revenue attributable to Base Practices increased $3.9 million or 4.0%, which was offset by a $9.3 million or 91.8% decrease in patient revenue attributable to Inactive Practices, as compared to the same period in 2003 on a Pro Forma Basis. This increase in patient revenue attributable to Base Practices was primarily due to a 2.6% increase in patient revenue during the three months ended September 30, 2004, compared to the same period of 2003 on a Pro Forma Basis, for comparable Base Practices for which we recorded patient revenue throughout the three months ended September 30, 2004 and 2003. During the three months ended September 30, 2004, Florida and the Gulf coast experienced several hurricanes, which disrupted the operations of our affiliated practices located in those areas. These disruptions resulted in lower than expected patient revenue for these practices during the quarter.

     Similarly, during the nine months ended September 30, 2004, the $23.4 million or 8.1% increase in patient revenue attributable to Base Practices was offset by a $37.5 million or 84.5% decrease in patient revenue attributable to Inactive Practices, as compared to the same period in 2003 on a Pro Forma Basis. This increase in patient revenue attributable to Base Practices was primarily due to a 7.8% increase in patient revenue during the nine months ended September 30, 2004, compared to the same

35

period of 2003 on a Pro Forma Basis, for comparable Base Practices for which we recorded patient revenue throughout the entire nine months ended September 30, 2004 and 2003. These decreases in patient revenue attributable to Inactive Practices resulted as we ceased to record patient revenue during the nine months ended September 30, 2004 for Inactive Practices for which we recorded fee revenue during the same period during 2003.

     We expect some continued fluctuations in patient revenue as some affiliated practices may buy out of their Service Agreements or stop paying service fees and providing certain financial information which we use to compute patient revenue. However, certain practices that are not currently included in our results may begin utilizing our services and paying service fees in the future or may be transitioned to another practice. The decline in patient revenue from practices for which we discontinued recording revenue also contributed to a decline in direct expenses, as discussed below. We expect the results attributable to Base Practices to increase over time and to offset the decrease in patient revenue from Inactive Practices for which we no longer record patient revenue.

     Practice-Related Expenses. Practice-related expenses are expenses that directly relate to the operation of affiliated practices (other than OutSource Practices), including the following:

• Amounts retained by practitioners, which represents amounts that have been retained by practitioners under the contractual terms of their Service Agreements. The consolidation provisions of FIN 46R require us to record these amounts in our financial statements. Amounts retained by practitioners primarily includes compensation of owner-practitioners and associate-practitioners;

• Salaries and benefits, which includes payroll and benefits costs for employees at our affiliated centers (which do not include the amounts retained by orthodontists, dentists and other practitioners);

• Clinical supplies and lab fees, which primarily represents the costs of bands, brackets, wires, retainers and other removable or fixed appliances and laboratory costs incurred in treating patients by our affiliated practices;

• Rent expense, which primarily consists of costs of leasing office space, including common area maintenance charges, for our affiliated centers;

• Marketing and advertising expense, which represents costs associated with television, radio and print media advertising for affiliated practices; and

• Other operating costs, which represents other costs incurred in the operation of our practices, including costs for telephone, utilities, office supplies, general liability and property insurance coverage.

     During the three months ended September 30, 2004, practice-related expenses increased $28.3 million, or 52.0%, to $82.7 million from $54.4 million for the same period in 2003. This overall increase during the three months ended September 30, 2004 was primarily due to amounts retained by practitioners. On a Pro Forma Basis, practice-related expenses decreased $5.3 million, or 6.0%, to $82.7 million for the three months ended September 30, 2004 from $88.0 million for the three months ended September 30, 2003. Amounts retained by practitioners totaled $29.7 million, or 28.6% of patient revenue, for the three months ended September 30, 2004. On a Pro Forma Basis, amounts retained by practitioners was $33.6 million, or 30.7% of patient revenue, for the three months ended September 30, 2003. The decrease of $3.8 million on a Pro Forma Basis in amounts retained by practitioners during the

36

three months ended September 30, 2004 was primarily due to a decrease in amounts retained by practitioners from Inactive Practices.

     During the nine months ended September 30, 2004, practice-related expenses increased $76.4 million, or 43.2%, to $253.2 million from $176.8 million for the same period in 2003. Excluding amounts retained by practitioners, all other practice-related expenses decreased $15.4 million or 8.7% to $161.5 million for the nine months ended September 30, 2004 from $176.8 million for the same period in 2003. The decrease in all other practice-related expenses was due to the following:

• Salaries and benefits decreased $6.0 million, or 8.0%, to $69.3 million from $75.3 million;

• Rent decreased $5.0 million, or 19.6%, to $20.4 million from $25.3 million;

• Clinical supplies and lab fees decreased $2.3 million, or 7.7%, to $27.7 million from $30.1 million; and

• Marketing and advertising expenses decreased $1.8 million, or 9.3%, to $17.2 million from $18.9 million.

These decreases were primarily due to a net reduction in the number of affiliated practices for which we recorded practice-related expenses during the three and nine months ended September 30, 2004, as a result of practices that bought out of their Service Agreements or for which we generally ceased to record fee revenue or patient revenue after September 30, 2003. Our adoption of FIN 46R did not affect practice-related expenses other than amounts retained by affiliated practices.

     Offsetting the overall decrease in all other practice-related expenses is amounts retained by practitioners which totaled $91.7 million, or 28.7% of patient revenue, for the nine months ended September 30, 2004. On a Pro Forma Basis, amounts retained by practitioners was $91.4 million, or 27.4% of patient revenue, for the nine months ended September 30, 2003. During the nine months ended September 30, 2004, we experienced an increase in amounts retained by practitioners from our Base Practices primarily as a result from the growth in patient revenue of these practices. The increase in amounts retained by practitioners as a percentage of patient revenue on a Pro Forma Basis was primarily due to an increase in the profitability of certain affiliated practices, increased participation in our service fee rebate incentive program for higher revenue producing practices, the phase-out of corporate-level expense allocation among certain affiliated practices, and the increase in compensation of practitioners as a result of changes in economic arrangements with us. The decrease in amounts retained by practitioners from Inactive Practices during the nine months ended September 30, 2004 more than offset the increase in amounts retained by practitioners from our Base Practices.

     General and Administrative. General and administrative expense represents all costs associated with the operation of our corporate headquarters, including corporate overhead associated with providing centralized collections, financial reporting and other business services to our affiliated practices. These costs include salaries and benefits for corporate employees, rent of our corporate office, telephone, utilities, accounting and legal services, office supplies, general liability and property insurance coverage and provisions for uncollectible amounts. During the three months ended September 30, 2004, general and administrative expense decreased $4.5 million, or 41.6%, to $6.3 million, from $10.9 million during the same period of 2003. During the nine months ended September 30, 2004, general and administrative expense was $23.8 million, which represented a $3.3 million or 12.1% decrease from $27.1 million during the same period of 2003. These decreases during the three and nine months ended September 30, 2004 were primarily due to decreases in the provision for uncollectible amounts of $3.1 million and $4.9 million, respectively. Partially offsetting the decrease in general and administrative expense during the nine months ended September 30, 2004 was an increase in accounting and legal expenses associated with our change in independent auditors, our annual audit, our change in accounting principle as a result of adopting FIN 46R and accounting and legal costs relating to the requirements under the Sarbanes-Oxley Act of 2002, including preparation for management’s assessment of our internal control over financial reporting and a related attestation report by our independent auditors. We expect to incur additional accounting and legal costs during the remainder of 2004, relating to the requirements under the Sarbanes-Oxley Act of 2002. As a result of our adoption of FIN 46R effective January 1, 2004, we no longer record on our balance sheet cash advances to affiliated practices against future distributions and amounts due under Service Agreements and, accordingly, we no longer

37

provide an allowance associated with these advances, which decreased our provision for uncollectible amounts for the three and nine months ended September 30, 2004. Also contributing to the decrease in our provision for uncollectible amounts is our change in revenue recognition policy. We changed our revenue recognition policy as a result of FIN 46R. We now provide an allowance for uncollectible amounts based on a percentage of patient receivables as compared to a percentage of service fees receivable. At September 30, 2004, advances to practitioners primarily relate to short-term differences between amounts distributed to practitioners and amounts that the practitioners are entitled to retain under their Service Agreements.

     Gain (Loss) on Sale of Assets. During the three and nine months ended September 30, 2004, we incurred loss on sale of assets of approximately $1.7 million and $3.3 million ($1.1 million and $2.1 million, net of income tax benefit), respectively, as a result of practices buying out of their Service Agreements at amounts less than the book value of assets associated with those practices. We received an aggregate of $0.1 million and $2.5 million in cash from these buyouts during the three and nine months ended September 30, 2004.

     Provision for Assets Associated with Inactive Practices. During the three months ended September 30, 2004, we recorded $13.5 million in provision for assets associated with inactive practices to increase the allowance for these assets and reduce the carrying value of these assets to estimated fair value. For the nine months ended September 30, 2004, we recorded a total of $14.2 million in provision for assets associated with inactive practices. At September 30, 2004, we had a total of $30.2 million of assets associated with inactive practices, net of an allowance of $15.5 million. These provisions were based upon management’s assessment of the recoverability of the goodwill, identifiable intangibles and other assets associated with inactive practices, which involved significant judgments and estimates by management. We increased the allowance during the three months ended September 30, 2004 due in part to certain recent settlement payments to OCA and a recent court award to OCA that were significantly less than the net book value of the goodwill, identifiable intangibles and other assets associated with the relevant Inactive Practices. The increase also reflected our renewed efforts to attempt to resolve pending litigation on mutually agreeable settlement terms. We have resolved disputes with some other Inactive Practices by permitting the practices to buy out of their Service Agreements for amounts in excess of the net book value of the assets associated with those practices. Management evaluated the assets associated with inactive practices on a practice-by-practice basis. Among other things, management considered the amounts that we have received in recent settlements, the results of pending litigation since June 30, 2004, the estimated amount that a particular practice could afford to pay in settlement based upon our knowledge of the practice’s profitability, the age of the practitioner and the likelihood of locating a replacement practitioner and the amount originally paid to the practice in consideration for affiliating with us. We particularly focused on practices that had relatively large goodwill and identifiable intangible assets associated with them. We believe the net amounts recorded as assets associated with inactive practices are realizable as of September 30, 2004. However, adverse litigation results could significantly affect the recoverability of these assets and may require us to record additional impairment of these assets in the future. Providing an allowance for assets associated with inactive practices does not reflect a belief by management that Inactive Practices will ultimately prevail in litigation pending between the practices and OCA or OrthAlliance, that the Inactive Practices’ claims and allegations or these lawsuits have merit or that our Service Agreements with Inactive Practices are not binding.

      Depreciation and Amortization. We depreciate our property, equipment and improvements using the straight-line method over their useful lives. Amortization represented the amortization expense recorded in connection with the amortization of our identifiable intangible assets. Depreciation and amortization expense was $4.0 during the three months ended September 30, 2004, compared to $6.4 million for the three months ended September 30, 2003. For the nine months ended September 30, 2004, depreciation and amortization expense was $11.8 million compared to $18.6 million for the same period in 2003. The consolidation provisions under FIN 46R required us, for financial reporting purposes only, to recognize affiliations with our affiliated practices (other than Inactive Practices and OutSource Practices) as business combinations, which resulted in us recording as goodwill the amount of affiliation payments to obtain or amend Service Agreements that exceed the fair value of tangible assets acquired. We do not amortize goodwill or identifiable intangible assets but test them for impairment under SFAS No. 142 at the practice reporting unit level. We believe that no events or circumstances arose during the third quarter of 2004 that would warrant an interim impairment test other than the provision recorded in connection with our review of the assets associated with inactive practices. Amortization expense during the three and nine months ended September 30, 2004 decreased compared to the same periods in 2003 due to our adoption of FIN 46R.

38

     Asset Impairments. During the three and nine months ended September 30, 2003, we recorded impairments of approximately $0.6 million and $1.8 million, respectively, related to property, equipment and improvements for offices closed during 2003 and approximately $0.2 million and $0.8 million, respectively, related to intangible assets.

     Income Taxes. Our effective income tax rate was 36.5% for the three and nine months ended September 30, 2004, compared to 37.8% for the three and nine months ended September 30, 2003. We record a liability for matters of uncertainty or dispute with tax authorities as a component of deferred taxes. We assess this liability on a quarterly basis and reduced our effective rate during the three and nine months ended September 30, 2004.

     Cumulative Effect. During the nine months ended September 30, 2004, we recorded a cumulative effect of a change in accounting principle of $74.7 million, net of income tax benefit of $41.4 million, with respect to our adoption of FIN 46R effective January 1, 2004. See the table under “—Adoption of FIN 46R – Consolidated Balance Sheets” above for additional information about the components of this cumulative effect.

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents was $10.7 million at September 30, 2004 and $7.4 million at December 31, 2003. Our working capital (total current assets less total current liabilities) was $72.3 million at September 30, 2004, compared to $140.5 million at December 31, 2003. Our current ratio (total current assets divided by total current liabilities) was 1.6 at September 30, 2004, compared to 4.5 at December 31, 2003. The decrease in working capital at September 30, 2004 compared to December 31, 2003 was primarily due to a decrease of $96.7 million in service fees receivable and an increase of $91.8 million in deferred revenue, offset by an increase of $124.3 million in patient receivables. The changes in these accounts were primarily due to our adoption of FIN 46R effective January 1, 2004 and the impact these changes had on certain of our balance sheet items, including the items mentioned above.

Uses of Capital

     We believe that our cash needs will primarily relate to capital expenditures for existing affiliated practices and for the development of additional centers, repayment of indebtedness, incentive payments, repurchasing shares of OCA common stock, 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.

     Capital Expenditures. Our capital expenditures primarily consist of costs related to developing de novo centers and remodeling, refurbishing and maintaining existing centers for our affiliated practices. The average cost of developing a new orthodontic center in the United States is about $350,000, including the cost of equipment, leasehold improvements, working capital and start-up losses associated with the initial operations of the orthodontic center. We generally bear an affiliated practice’s portion of these costs until we are reimbursed by the practice. Under most of our Service Agreements, the affiliated practices repay these costs over a five-year period. 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. We generally no longer guarantee new debt for our affiliated practices.

     To facilitate growth in recent years, our capital expenditures have been directed toward developing de novo centers for our affiliated practices and to a lesser extent, remodeling and expanding

39

our existing affiliated centers to increase potential capacity. We have committed to develop additional de novo centers and remodel existing centers for affiliated practices. We currently estimate that these developments and remodelings will require approximately $6.0 million of capital expenditures, which we expect to incur during the remainder of 2004 and in 2005. We may commit to additional developments and remodelings as well.

     Advances to Affiliated Practices. We advance cash to affiliated practices primarily against future distributions of the practice or provide advances relating to amounts due to us under service agreements. We generally advance cash to affiliated practices to (a) fund compensation for the practice’s affiliated practitioners during the startup or expansion phase of a newly developed center, or (b) provide additional funds to affiliated practices for certain practice-related matters or other unsecured financing. 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 startup or expansion phase of their practices. We also provide advances related to amounts due to us under Service Agreements by (1) remitting more funds during the quarter to the affiliated practice than the practice was actually entitled to retain under its service agreement, or (2) paying expenses to third parties on behalf of certain affiliated practices that collect their own patient fees and currently have not reimbursed us for those expenses.

     These advances are payable on demand and generally interest free and unsecured. We intend to fund these advances and any continued financing using cash from operations and borrowings under our credit facility, if needed. See “—Adoption of FIN 46R” regarding accounting treatment of these advances.

     Advances and other amounts due from OutSource Practices represent advances relating to amounts due to OCA from OutSource Practices under OutSource Agreements. These amounts primarily represent funds that OCA has paid to third party vendors on behalf of OutSource Practices for capital expenditures and expenses associated with the operations of the OutSource Practices.

     Incentive Program Payments, Notes Payable and Debt Obligations. Certain OrthAlliance affiliated practices are eligible, in connection with amending or extending Service Agreements, to receive annual payments under our incentive programs. In 2004, participants under these incentive programs earned $6.0 million, of which we have paid $4.9 million to certain participants after offsetting amounts due from these practices and will pay $0.3 million to two participants in early 2005. Participants in these programs are eligible to receive annual payments under these programs in 2005. At September 30, 2004, we had current maturities of $8.3 million under our credit facility and $1.4 million due to our affiliated practices.

     Stock Repurchase Program. In August 2003, OCA’s Board of Directors approved a common stock repurchase program that authorizes us to repurchase up to 2.0 million shares of OCA common stock from time to time in the open market at prevailing market prices or in privately negotiated transactions. OCA anticipates making repurchases of its common stock in the future under this program. Repurchased shares are held in treasury, and may be available for use in connection with OCA’s stock option plans, stock programs and acquisitions or for other corporate purposes. Our credit facility limits our ability to repurchase shares of OCA common stock.

Sources of Capital

     We currently believe that we will be able to meet our anticipated funding requirements for at least the next 12 months. We may consider a debt financing during 2005 to refinance our existing credit facility and fund the repurchase of shares of our common stock. We cannot assure you, however, that we will be able to obtain such debt financing or that such financing will be available on favorable terms. 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

40

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.

     Cash from Operations. During the nine months ended September 30, 2004, we used our deferred tax assets relating to net operating loss carryforwards to offset our tax provision for the first three quarters of 2004. These net operating loss carryforwards primarily related to the cumulative effect of (a) a change in accounting method for recognizing revenue for income tax purposes approved by the IRS in January 2003 and (b) a change in accounting method related to applicable class lives for certain long-lived assets filed during 2003 pursuant to IRS rules that provide for an automatic change in accounting method. We expect that the remaining net operating loss carryforwards will offset our income tax liability for the remainder of 2004. We expect to use the cash arising from this benefit to fund other operational needs for the remainder of 2004. We also have deferred tax assets of $41.4 million recorded as a result of the cumulative effect from the adoption of FIN 46R. We anticipate monetizing this deferred tax asset in the future.

     Our Service Agreements generally provide that our service fees generally equal about 40% to 50% of a practice’s operating profit or about 17% of a practice’s revenue, excluding reimbursement of practice-related expenses. Beginning in 2003, we implemented an incentive program whereby we reduced service fees charged to certain practices that achieve certain performance levels which negatively affected our cash flow from operations. For the nine months ended September 30, 2004, this incentive program resulted in a $2.2 million reduction in service fees charged to these practices compared to a $1.4 million reduction for the same period in 2003. We expect to continue this incentive program in 2005. We have also reduced service fees charged to certain other practices, which resulted in lower service fees collected from these practices compared to the nine months ended September 30, 2003. In addition, we have phased out 100% of the reimbursement of corporate-level expense allocation among certain affiliated practices as of September 30, 2004. We expect to continue using cash generated from operations and borrowings under our credit facility to fund our growth and capital needs.

     Credit Facility. 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 National 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%. This margin is based on our leverage ratio as 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. At December 20, 2004, $85.6 million was outstanding under the revolving line of credit and $10.2 million was outstanding under the term loan. The term loan is fully amortizing over three years with level, quarterly principal payments of $2.1 million, plus interest.

     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 or limit our ability to borrow funds under the credit facility. If we were to experience an event or matter that has, or is reasonably likely to have, a material adverse effect (as defined in the credit facility) on us, we would be unable to borrow additional amounts under the credit facility without a waiver by our lenders or an amendment to the credit facility. We cannot assure you that we could obtain such a waiver or amendment, which could have a material adverse impact on our liquidity and capital

41

resources.

Cash Flows

     The following table summarizes cash flow information for the nine months ended September 30, 2004 and 2003:

	Nine months ended September 30,
	2004			2003
Net cash provided by operating activities	$	26,177		$	35,621
Net cash used in investing activities		(15,568	)		(17,152	)
Net cash used in financing activities		(7,254	)		(16,437	)
Change in cash and cash equivalents		3,310			2,846

     Operating Activities. See our discussion of net income in the section above captioned “— Results of Operations.” Our working capital decreased 48.5% to $72.3 million at September 30, 2004 from $140.5 million at December 31, 2003, primarily as a result of our adoption of FIN 46R.

     Investing Activities. Net cash used in investing activities during the nine months ended September 30, 2004 was $15.6 million compared to $17.2 million during the same period in 2003. The decrease in cash used was primarily due to our receipt of $2.5 million in cash from practices that have bought out of their Service Agreements during the nine months ended September 30, 2004 and a $2.2 million decrease in notes receivable. Partially offsetting this decrease was an increase of $2.2 million in purchases of property, equipment and improvements. We used $16.2 million and $13.9 million in cash to purchase property, equipment and improvements during the nine months ended September 30, 2004 and 2003, respectively. These expenditures primarily related to the development of new or de novo centers in the United States and abroad and to a lesser extent, the remodeling or refurbishing of existing centers. We expect to make additional purchases of property, equipment and improvements in future periods as we open and refurbish additional centers. We have committed to develop additional de novo centers and remodel existing centers for affiliated practices. We currently estimate that these developments and remodeling will require approximately $6.0 million of capital expenditures, which we expect to incur during the remainder of 2004 and during 2005. We may commit to additional developments and remodeling as well.

     Financing Activities. Net cash used in financing activities was $7.3 million and $16.4 million for the nine months ended September 30, 2004 and 2003, respectively. During the nine months ended September 30, 2004, we repaid $5.3 million less of principal and interest under our credit facility compared to the same period in 2003. During the nine months ended September 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. At December 20, 2004, $85.6 million was outstanding under the revolving line of credit and $10.2 million was outstanding under the term loan components of the credit facility. We may incur additional indebtedness to fund the development of additional de novo centers and remodeling of existing centers.

NEW ACCOUNTING PRONOUNCEMENTS

     In December 2003, the FASB issued revised SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits —an amendment of FASB Statements No. 87, 88, and 106.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” and SFAS No. 106, “Employers Accounting for Postretirement Benefits Other Than Pensions.” Except as noted, this statement was effective for financial statements with fiscal years ending after December 15, 2003. The adoption of revised SFAS No. 132 on January 1, 2004 had no impact on OCA’s financial condition or results of operations.

     On December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which requires that all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, be treated the same as other forms of compensation by recognizing the related cost in the income statement. This statement would replace the existing requirements under SFAS No. 123 and APB No. 25. This statement would also eliminate the ability to account for stock-based compensation transactions using the intrinsic value method of APB No. 25 and generally would require that such transactions be accounted for using a fair-value option pricing model, either a binomial model or the Black-Scholes valuation model. The statement would apply to awards that are granted, modified or settled in cash in interim or annual periods beginning after June 15, 2005. We are currently analyzing the impact that adoption of the statement will have on our financial position and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     During the nine months ended September 30, 2004, there were no material changes to the quantitative and qualitative disclosures about market risks presented in OCA’s Annual Report on Form 10-K for the year ended December 31, 2003.

42

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     OCA, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act 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 this Report, OCA’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures are effective in timely alerting them to information required to be disclosed in reports that OCA files with or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, subject to the matters discussed in the following subsections.

Changes in Internal Control Over Financial Reporting

     In April 2004, OCA received a letter dated March 15, 2004 from Ernst & Young LLP, its former independent auditors, stating that they believed that there were material weaknesses in internal controls over OCA’s financial statement close process. OCA’s senior management has reviewed each of the items cited as material weaknesses in the letter from Ernst & Young and discussed these matters with our Audit Committee. Management determined that certain items in the letter are no longer applicable due to our adoption of FIN 46R and the change in revenue recognition policy effective January 1, 2004. Among other results, these changes eliminated the need to calculate fee revenue and service fees receivable, since these accounts are no longer recorded in our consolidated financial statements. The determination of fee revenue under our prior revenue recognition policy required complex and data-intensive calculations by management, including determination of the portion of a straight-line allocation of patient contract amounts estimated to be retained by affiliated practices in future periods, and the portion of unreimbursed practice-related expenses that was secured by patient fees receivable and hence currently recognizable as fee revenue. These calculations are not applicable under our new revenue recognition policy. In addition, some of the items cited in the letter from Ernst & Young are being addressed in connection with our ongoing efforts to prepare for the management’s assessment of our internal control over financial reporting and related attestation by our independent auditors to be required under rules adopted by the SEC under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).

     Since June 30, 2004, we have taken certain steps to enhance our internal control over financial reporting. We intend to add additional resources in our financial accounting area, which we believe will improve segregation of duties with respect to our financial accounting. We have taken steps to improve communication between our operations and financial accounting areas by having periodic meetings to discuss operational changes and practice transitions, and by appointing representatives of both areas to our Disclosure Committee that considers disclosure to be included in periodic reports we file with the SEC. We also have formed a committee that includes representatives of our operations, legal and financial accounting areas to discuss and assess periodically our pending litigation with affiliated practices and assets associated with inactive practices. We continue to further document and enhance our controls and procedures, but we have not yet completed the testing of their operating effectiveness.

Section 404 Assessment and Attestation

The SEC has adopted rules under Section 404 that require that we include in our Annual Report on Form 10-K (beginning with our 2004 Form 10-K) a report by OCA’s management about its assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year (the “Management Assessment”), including a statement as to whether or not our internal control over financial reporting is effective. We must also include in the Form 10-K an attestation report by our independent auditors on the Management Assessment (the “Attestation”). Management is not permitted to conclude that our internal control over financial reporting is effective if there are one or more material weaknesses in our internal control over financial reporting, and we must disclose any material weaknesses identified. The SEC issued an exemptive order on November 30, 2004 that granted certain public companies, including OCA, up to an additional 45 days to file their Management Assessment and related Attestation in connection with their 2004 Annual Report on Form 10-K. In order to take advantage of this extension, OCA must file its 2004 Form 10-K within the SEC’s prescribed time limit and note in the Form 10-K that the Management Assessment and Attestation have been omitted, and then file an amendment to the Form 10-K which includes the Management Assessment and Attestation by May 2, 2005. We currently anticipate that we will seek to take advantage of this extension in order to provide additional time for us and our independent auditors to prepare for the Management Assessment and Attestation.

We are in the process of documenting and testing our internal control over financial reporting in connection with the Management Assessment and related Attestation for our 2004 Form 10-K. We have devoted significant resources to this process and have engaged outside consultants to advise us. We have not completed the testing of the operating effectiveness of these controls and procedures, which may indicate deficiencies and weaknesses that need to be remediated. We may be unable to remediate these deficiencies and weaknesses before the deadline for the Management Assessment. We have experienced delays in completing our preparations for the Management Assessment and Attestation, and we have very limited time remaining to complete the preparations. Our current plan and timeline for this project contains many time-critical milestones. We may not meet these milestones, which could prevent us from achieving our goal. Our independent auditors advised us and our Audit Committee that they had serious concerns that we would not be in a position to complete our Management Assessment on a timely basis. If we do not timely complete the Management Assessment, our independent auditors might not have sufficient time to successfully test our internal control over financial reporting in connection with their Attestation before the filing deadline for the Management Assessment and Attestation. We are working to meet these deadlines, but we cannot assure you that we will be able to do so.

During the Section 404 process, we may identify one or more material weaknesses in our internal control over financial reporting, and we may be unable to remediate those weaknesses before the Management Assessment. We cannot assure you that our management will conclude that our internal control over financial reporting is effective. Our independent auditors may not be satisfied with our internal control over financial reporting or the level at which these controls are documented, designed, operated or reviewed, and they may decline to attest to management’s assessment or may issue a qualified attestation report. If any of these events were to occur, it could subject us to regulatory scrutiny and could lessen investor confidence in the reliability of our internal control over financial reporting. We also expect that the evaluation, documentation and testing process and any required remediation will increase our accounting, legal and other expenses and will require a significant amount of our management’s time and attention.

43

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     OCA and its subsidiary OrthAlliance are engaged in litigation with a number of Inactive Practices. Before OCA agreed to acquire OrthAlliance in November 2001, OCA anticipated that some portion of OrthAlliance’s affiliated practices would oppose the transaction. 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 OCA’s Annual Report on Form 10-K for the year ended December 31, 2003.

     On April 23, 2002, Dr. David C. Hobson filed an action in the U.S. District Court for the Eastern District of California against OCA and its subsidiary, alleging that OCA breached its business services agreement with Dr. Hobson, breached an alleged fiduciary duty to Dr. Hobson and committed allegedly unfair business practices. On August 9, 2002, OCA filed a counterclaim against Dr. Hobson seeking contract and equitable damages. The case was tried from July 13 to August 13, 2004. The jury in the case rendered a verdict in favor of OCA on Dr. Hobson’s claim that OCA breached its fiduciary duty, but found that OCA had breached a provision of Dr. Hobson’s business services agreement and awarded Dr. Hobson approximately $82,000 in damages. On September 14, 2004, the court entered an amended judgment awarding $301,000 in damages to OCA in connection with its counterclaims against Dr. Hobson. On November 23, 2004, the court granted Dr. Hobson’s motion for attorneys fees in the amount of approximately $485,000, and denied OCA’s motions for attorneys fees and changes in the amounts previously awarded to OCA and Dr. Hobson. OCA is considering an appeal of these rulings. On September 28, 2004, OCA filed an action against Dr. Hobson seeking payment of approximately $80,000 of indebtedness owed to OCA by Dr. Hobson under three promissory notes.

     On May 22, 2001, Dr. T. Barry Clower, and his professional corporation filed an action in the U.S. District Court for the Northern District of Georgia against OrthAlliance, alleging OrthAlliance had breached its service agreement with Dr. Clower’s practice and that the agreement violated Georgia’s prohibition of the corporate practice of dentistry. On September 24, 2004, the court ruled in favor of OrthAlliance that the service agreement between OrthAlliance and Dr. Clower’s practice is legal and enforceable and does not violate Georgia law governing the practice of dentistry. The court also ruled that the parties’ covenants not to compete were reasonable and enforceable against Dr. Clower. In addition, the court held that Dr. Clower’s practice breached his service agreement with OrthAlliance and that OrthAlliance is owed damages for such breach. The court rejected Dr. Clower’s claim that OrthAlliance had breached his service agreement. The court also held that OrthAlliance could enforce over $200,000 of promissory notes owed by Dr. Clower’s practice to OrthAlliance.

44

     Because litigation is inherently uncertain, we cannot assure you that OCA or its subsidiaries will prevail in any of these or other lawsuits, nor can we estimate with reasonable certainty the amount of damages we might incur or the amount of any award we might receive. OCA and its affiliated practices are, and from time to time may become, party to other litigation or administrative proceedings which arise in the normal course of business. Regardless of the outcome of such litigation and proceedings, they could be costly and time-consuming and could divert the time and attention of our senior management.

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

A special meeting of OCA stockholders was held on August 26, 2004. At this meeting, the following matters were voted upon by OCA stockholders:

(a) Name change of Orthodontic Centers of America, Inc. to OCA, Inc.

Votes Cast	Votes Cast		Abstentions/
In Favor	Against		Non-Votes
44,039,431		320,843		124,316

(b) Stockholder proposal that OCA adopt a policy that independent directors would constitute two-thirds of the Board of Directors.

Votes Cast	Votes Cast		Abstentions/
In Favor	Against		Non-Votes
190,664		15,511,842		18,668,662

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)
3.3	Certificate of Ownership and Merger merging OCA, Inc., a wholly-owned subsidiary of the Registrant, with and into the Registrant (incorporated by reference to exhibits filed with the Registrant’s Current Report on Form 8-K filed on August 30, 2004 (File No. 001-13457))
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)
4.2	Rights Agreement, dated as of March 3, 2004, including as Exhibit A the form of

45

Exhibit number	Description
	Certificate of Designation of Series A Junior Participating Preferred Stock of Orthodontic Centers of America, Inc., as Exhibit B the form of Rights Certificate and as Exhibit C the summary of Rights to Purchase Preferred Shares (incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form 8-A filed on March 4, 2004 (File No. 001-13457))
4.3	Amendment to Rights Agreement, dated as of May 27, 2004, between Orthodontic Centers of America, Inc. and EquiServe Trust Company, N.A (incorporated by reference to exhibits filed with the Registrant’s Amendment to Registration Statement on Form 8-A/A filed on May 28, 2004 (File No. 001-13457))
4.4	Certificate of Designation of Series A Junior Participating Preferred Stock of Orthodontic Centers of America, Inc. (incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.1	Lease Agreement, dated August 4, 2004, between Orthodontic Centers of Florida, Inc. and CDB, LLC
31.1	Certification of the Chief Executive Officer of OCA, 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 Senior Vice President of Finance and Chief Financial Officer of OCA, 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 OCA, Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Senior Vice President of Finance and Chief Financial Officer of OCA, Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) REPORTS ON FORM 8-K

     On July 26, 2004, we filed a current report on Form 8-K/A, reporting information under “Item 4. Changes in Registrant’s Certifying Accountants” and “Item 7. Financial Statements and Exhibits” and on August 30, 2004, we filed a current report on Form 8-K, reporting information under “Item 8.01. Other Events” and “Item 9.01. Financial Statements and Exhibits.” During the three months ended September 30, 2004, we also furnished a current report on Form 8-K on August 10, 2004 reporting information under “Item 7. Financial Statements and Exhibits” and “Item 12. Results of Operations and Financial Condition.”

46

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.

	OCA, Inc.
	(Registrant)
Date: December 23, 2004	/s/ Bartholomew F. Palmisano, Sr.
	Bartholomew F. Palmisano, Sr.
	Chairman of the Board, President
	and Chief Executive Officer
	/s/ David E. Verret
	David E. Verret
	Senior Vice President of Finance and
	Chief Financial Officer

47

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)
3.3	Certificate of Ownership and Merger merging OCA, Inc., a wholly-owned subsidiary of the Registrant, with and into the Registrant (incorporated by reference to exhibits filed with the Registrant’s Current Report on Form 8-K filed on August 30, 2004 (File No. 001-13457))
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)
4.2	Rights Agreement, dated as of March 3, 2004, including as Exhibit A the form of Certificate of Designation of Series A Junior Participating Preferred Stock of Orthodontic Centers of America, Inc., as Exhibit B the form of Rights Certificate and as Exhibit C the summary of Rights to Purchase Preferred Shares (incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form 8-A filed on March 4, 2004 (File No. 001-13457))
4.3	Amendment to Rights Agreement, dated as of May 27, 2004, between Orthodontic Centers of America, Inc. and EquiServe Trust Company, N.A (incorporated by reference to exhibits filed with the Registrant’s Amendment to Registration Statement on Form 8-A/A filed on May 28, 2004 (File No. 001-13457))
4.4	Certificate of Designation of Series A Junior Participating Preferred Stock of Orthodontic Centers of America, Inc. (incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.1	Lease Agreement, dated August 4, 2004, between Orthodontic Centers of Florida, Inc. and CDB, LLC
31.1	Certification of the Chief Executive Officer of OCA, 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 Senior Vice President of Finance and Chief Financial Officer of OCA, 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 OCA, Inc. pursuant to 18 U.S.C. §

48

Exhibit number	Description
	1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Senior Vice President of Finance and Chief Financial Officer of OCA, Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

49

EX-10.1

                                                                    EXHIBIT 10.1

                                 LEASE AGREEMENT

      This Lease Agreement (the "Lease") is made and entered into as of the 4th
day of August 2004 (the "Effective Date") by and between CDB, LLC, a Florida
Limited Liability Company (the "Landlord"), and ORTHODONTIC CENTERS OF FLORIDA,
INC., a Delaware corporation (the "Tenant").

      1. PREMISES. In consideration of the rents, mutual covenants and
agreements set forth herein, Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord those certain premises located in that certain building
located at 1205 West Baker Street. Plant City. Florida 33563 (herein called the
"Building"), which premises are 1,740 square feet (measured in accordance with
Building Owners and Managers Association International ("BOMA") American
National Standard ANSI 265.1 - 1996, for rentable area) as more particularly
shown on the floor plan attached hereto as EXHIBIT "A" (the "Leased Space"),
together with the non-exclusive right in common with the other tenants of the
Building, to use and occupy the "Common Areas" (as hereinafter defined) on and
subject to the terms and conditions hereinafter set forth (the Leased Space and
such rights to the Common Areas are hereinafter referred to as the "Premises").
As used herein the term "Common Areas" shall mean and include all entrances,
lobbies, corridors, stairways, stairwells, public restrooms, elevators, parking
areas, loading and unloading areas, trash areas, roadways, walkways, sidewalks,
driveways, and landscaped areas, located in, on, adjacent to or under the
Building. The Building and the Common Areas are collectively referred to herein
as the "Project."

      2. TERM. The term of this Lease (the "Lease Term") shall commence on
August 15, 2004 (the "Lease Term Commencement Date") and shall continue for a
term of five (5) years plus any additional days as may be required for the Lease
Term to expire on the last day of a month.

      3. RENT. Tenant shall pay to Landlord Rent in monthly installments as
follows:



PERIOD                   MONTHLY RENT
                      
Year 1                    $2,030.00
Year 2                    $2,091.00
Year 3                    $2,154.00
Year 4                    $2,218.00
Year 5                    $2,285.00


      Rent shall be paid in advance in equal monthly installments on the first
day of each and every calendar month during the Lease Term; provided, however,
that in the event the Lease Term commences on a day other than the first day of
a calendar month, then upon the Lease Term Commencement Date Tenant shall pay to
Landlord a pro rata portion of

                                       1


Rent for that portion of the calendar month remaining from the Lease Term
Commencement Date to the first day of the next following calendar month. Each
twelve (12) month period commencing on the Lease Term Commencement Date or any
anniversary thereof is referred to herein as a "Lease Year".

      4. OPTION TO RENEW.

      (a) Following the initial Lease Term, Tenant shall have an option to
extend the Lease Term for two (2) consecutive additional terms of three (3)
years each (each such optional extended term is hereinafter called an "Extended
Lease Term"). Each Extended Lease Term shall be on and subject to all of the
same terms, covenants and conditions as herein contained except for the payment
of Rent as provided below. Each option for an Extended Lease Term shall be
exercised only by written notice from Tenant to Landlord given not less than one
hundred eighty (180) days prior to the expiration of the term then in effect.
The phrases "Lease Term," "term of this Lease," "Term" and similar phrases, as
used in this Lease shall mean the initial Lease Term and any exercised Extended
Lease Term, as appropriate. During any Extended Lease Term, Tenant shall pay
Rent calculated based on the prevailing Market Rental Rate (as hereinafter
defined) at the time the Renewal Term commences. Whenever used in this Lease,
the term "Market Rental Rate" shall mean the annual gross rental rate per square
foot of rentable area then being charged in similar buildings located in the
same submarket and city as the Building for space comparable to the Leased Space
in its condition prior to the date of this Lease (excluding from consideration
any alterations or improvements to the Leased Space made during the prior Term
by either Tenant or Landlord). Landlord and Tenant will negotiate in good faith
to determine the Market Rental Rate within Thirty (30) days after Tenant's
notice of tentative intent to exercise the renewal option.

      (b) If Landlord and Tenant are unable to agree upon the Market Rental Rate
within such (30) thirty day period then Landlord and Tenant, at their own
respective cost, shall each appoint a reputable and locally licensed commercial
real estate appraiser with a minimum of five (5) years of local experience to
determine their opinion of Market Rental Rate. No later than one hundred twenty
(120) days prior to the expiration of the Lease, each appraiser will submit to
both Landlord and Tenant their determinations of Market Rental Rate. Upon such
submittals, the Market Rental Rate shall be the average of the finding of the
two appraisers. Landlord shall immediately submit to Tenant an amendment to this
Lease confirming such Rent for the Renewal Term and affirming the renewal option
has been exercised. In the event Tenant fails to execute and return said
amendment within thirty (30) days after submittal thereof from Landlord to
Tenant, the Option to Renew shall be considered not exercised and null and void
and the Lease Term will expire as of the date set forth in this Lease.

      5. GROSS LEASE. The Rent as specified above is a "gross rate." Tenant
shall not be responsible for any other costs or expenses associated with the
occupancy of the Premises unless otherwise specifically provided for herein.

                                       2


      6. USE OF PREMISES.

      (a) During the Lease Term and any renewals or extensions of this Lease,
Tenant may use and occupy the Premises for the operation of an orthodontic
and/or dental services facility, offices incidental to the operation of such
facility or any other use permitted by applicable zoning ordinances. Landlord
acknowledges that Tenant presently intends to use the Premises for an
orthodontic and/or dental services facility, and in connection therewith, may
operate and maintain on the Premises such orthodontic, dental, surgical and
office equipment and other facilities for the use of its patients, personnel,
invitees and licensees, as the Tenant may deem necessary, desirable or
convenient for the conduct of its business or for the comfort, convenience or
well-being of its patients, personnel, invitees and licensees. Landlord
represents that Tenant's use of the Premises as an orthodontic and/or dental
services facility is permitted by current zoning ordinances and any other
comprehensive land use requirements. In the event such zoning ordinances or
comprehensive land use requirements are altered or revised such that the
Tenant's use of the Premises as an orthodontic and/or dental services facility
is no longer permitted, Tenant at its option, may terminate this Lease upon
sixty (60) days notice to Landlord. Upon such termination this Lease shall
become null and void and neither Landlord nor Tenant shall have any remaining
obligations hereunder.

      (b) The days on which and business hours during which Tenant elects to be
open for business to the public shall be at Tenant's sole discretion. Tenant, at
Tenant's option, may temporarily, or permanently, close for business to the
public so long as Tenant timely remits all payments due Landlord under this
Lease.

      7. ENVIRONMENTAL COMPLIANCE.

      (a) Landlord represents and warrants to Tenant that as of the date hereof
no "Hazardous Substances" (as hereafter defined) or any other toxic material or
medical waste are present on or in the Building, and Landlord shall indemnify
Tenant against any and all claims, demands, liabilities, losses and expenses,
including consultant fees, court costs and reasonable attorneys' fees, arising
out of any breach of the foregoing warranty.

      (b) Except for Hazardous Substances or other toxic materials or medical
waste brought, kept or used in the Premises in commercial quantities similar to
those quantities usually kept on similar premises by others in the same
business, profession or dental specialty, and which are used and kept in full
compliance with applicable public health, safety and environmental laws, Tenant
shall not allow any Hazardous Substance, or other toxic material or medical
waste to be located in, on or under the Premises or allow the Premises to be
used for the manufacturing, handling, storage, distribution or disposal of any
Hazardous Substance or other toxic material.

      (c) Tenant shall at all times and in all respects comply with all federal,
state or local laws, ordinances, regulations and orders applicable to the
Premises or the use thereof relating to industrial hygiene, the handling,
storage and disposal of medical waste, environmental protection, or the use,
analysis, generation, manufacture, storage, disposal or transportation of any
Hazardous Substance, toxic material or medical waste.

      (d) If Tenant causes the presence of any Hazardous Substance in or on the
Premises (except for those Hazardous Substances or other toxic material or
medical waste brought, kept or used in the Premises by Tenant in commercial
quantities similar to those quantities usually kept on similar premises by
others in the same business, profession or dental specialty and which are used
and kept in compliance with applicable public health,

                                       3


safety and environmental laws) or if Tenant becomes subject to any order of any
federal, state or local agency to repair, close, detoxify, decontaminate or
otherwise remediate the Premises, Tenant shall, at its own cost and expense,
carry out and complete any repair, closure, detoxification, decontamination or
other cleanup of the Premises; provided that Tenant shall not be responsible for
any of the foregoing relating to any Hazardous Substance, or other toxic
materials or medical waste located on, in or under the Premises on the date of
this Lease, all of which shall be the responsibility of Landlord. If Tenant
fails to implement and diligently pursue any such repair, closure,
detoxification, decontamination other cleanup of the Premises, Landlord shall
have the right, but not the obligation, to carry out such action and to recover
all of the costs and expenses from Tenant.

      (e) "Hazardous Substances" as such term is used in this Lease means any
hazardous or toxic substance, material or waste, regulated or listed pursuant to
any federal, state or local environmental law, including without limitation, the
Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide,
Rodenticide Act, the Safe Drinking Water Act and the Occupational Safety and
Health Act as well as gasoline or any other petroleum product or byproduct,
poly-chlorinated byphenyls, asbestos and urea formaldehyde.

      8. TAXES. Landlord shall pay and discharge prior to their delinquency, all
real estate taxes and assessments for public improvements, now or hereinafter
assessed or levied against the Premises during the term of this Lease, and all
penalties and interest thereon.

      9. MAINTENANCE. Landlord shall maintain or cause to be maintained in good
repair and condition all of the Building (except the interior of the Leased
Space), and the Common Areas, including without limiting the generality of the
foregoing, all of the doors and the windows of the Leased Space, all other doors
of the Building, the roof, walls, floors, slab, foundations and other components
of the Building and all mechanical (heating, air conditioning, plumbing,
electrical) elements and components of the Building; and Landlord shall keep all
of the foregoing clean and free of all refuse and rubbish, dust and dirt and
otherwise in sightly first class condition and appearance. Tenant shall maintain
the interior of the Leased Space in good repair and condition. Landlord shall
make or cause to be made all repairs and replacements, whether foreseen or
unforeseen, ordinary or extraordinary, and do such other things as may be
required to maintain the Common Areas and the Building in the condition
specified in the preceding two sentences, and all of the foregoing shall be
performed in a good and workman-like manner. Subject to the provisions of
Section 15(e), Tenant, however, shall promptly repair, in a good and workmanlike
manner, any damage to the Leased Space or other part of the Building caused by
any willful or negligent act or omission of Tenant, or of any employee, agent
of. Tenant.

      10. COMPLIANCE WITH AUTHORITIES. Notwithstanding anything to the contrary
contained in this Lease, Landlord shall be responsible for compliance with any|
requirements of any board of fire underwriters or similar body relating to the
Leased Space and Building or any other law, rule, statute, regulation or
ordinance of any governmental agency or body having jurisdiction over the
Building including, but not limited to applicable codes and parking requirements
(collectively, "Laws") that apply to similar buildings in the city and state in
which the Building is located. Landlord hereby covenants and agrees at its
expense to maintain the Building and Common Areas in compliance with all
applicable Laws, including but not limited to, ADA (as hereinafter defined).
Landlord

                                       4


represents and warrants that the Leased Space, Building and Common Areas will be
in compliance with such applicable Laws, in effect as of the Lease Term
Commencement Date. Landlord hereby agrees that Tenant shall have no
responsibility for failure of the Leased Space, Building, or Common Areas to
comply with applicable laws, statutes, ordinances and regulations which are in
effect and applicable to the Leased Space, Building, or Common Areas as of the
Lease Term Commencement Date.

As used in this Section, the Americans with Disabilities Act shall mean the
Americans with Disabilities Act of 1991, 42 U.S.C. Section 12.101 et seq. and
all regulations applicable thereto promulgated as of the date hereof
(collectively, "ADA"). Tenant shall indemnify Landlord against claims arising
out of the failure of any Tenant Improvements completed by Tenant comply with
the requirements of the ADA. Landlord represents and warrants that the Leased
Space, Building and the Common Areas shall otherwise be in compliance with or
shall be made to comply with the requirements of ADA.

      11. UTILITIES AND SERVICES. Landlord agrees to furnish the Premises with
heat and air conditioning, elevator services, if installed, water, sanitary
sewer, and electric current for lighting, ordinary orthodontic, dental and
medical equipment and business appliances. If any utilities provided to Tenant
are separately metered, Tenant shall pay all costs associated with the usage of
such utilities and all costs of telephone installations and service.

      Notwithstanding anything contained in the Lease to the contrary, if any
interruption of utilities or services shall continue for more than three (3)
consecutive business days and shall render any portion of the Premises unusable
for the normal conduct of Tenant's business, and if Tenant does not in fact use
or occupy such portion of the Premises, then all rent payable hereunder with
respect to such portion of the Premises which Tenant does not occupy shall be
abated retroactively to the first (1st) business day of such interruption and
such abatement shall continue until full use of such portion of the Premises is
restored to Tenant. Provided that if such interruption continues for more than
twenty (20) consecutive business days, Tenant shall have the right to terminate
the Lease upon written notice to Landlord. Thereupon, this Lease shall terminate
and expire on the date set forth in such notice, which date shall not be more
than ninety (90) days after the date of such notice.

      Except in the case of an emergency, the Landlord will give Tenant at least
five (5) business days prior notice if Landlord intends to interrupt any
services required to be furnished by the Landlord. Landlord shall insure that
any such interruptions are minimized to the extent possible.

      12. ALTERATION OF PREMISES; SIGNAGE.

      (a) Tenant may make alterations and improvements to the interior of the
Leased Space, and the mechanical or electrical components within the Leased
Space, without the prior consent of Landlord so long as such alterations and
improvements do not alter any structural components of the Building. In the
event Landlord's consent is required hereunder, such consent shall not be
unreasonably withheld or delayed following Tenant's submission of plans and
specifications for approval. All such alterations and improvements shall be
performed in a good and workmanlike manner by licensed contractors and in
compliance with all applicable laws, rules and regulations. At its sole expense
Tenant shall repair any damage to the Building or the Leased Space resulting

                                       5


from the removal from the Leased Space of any of Tenant's property or any such
alterations and improvements. In the case that Tenant removes any such
alterations or improvements, Tenant shall restore the Leased Space to
substantially its condition prior to the time such alterations and improvements
were made, unless Tenant makes further alterations or improvements in accordance
with this Lease. All alterations and improvements made by Tenant that remain in
the Leased Space at the expiration of this Lease shall become the property of
Landlord.

      (b) Tenant may, without Landlord's consent, install temporary partitions,
shelves, bins, equipment, trade fixtures and other personal property in the
Premises. These items shall remain Tenant's property and may be removed by
Tenant prior to the expiration or earlier termination of this Lease. Tenant
shall repair any damage to the Premises caused by such removal.

      (c) Tenant shall have the right to install signage on the exterior of the
Leased Space in a maximum size and configuration allowed by applicable Laws.
Furthermore, Tenant shall have the right to signage on the pylon or any other
major sign at any and all entrance points of the Building or on the front
entrance of the Project. All such signage rights shall be granted at no
additional costs or expense to Tenant.

      13. PARKING. Tenant shall be entitled to use all available parking spaces
throughout the Term at no additional cost.

      Notwithstanding anything to the contrary contained in this Lease, if any
event or action or omission by Landlord renders the parking areas for the
Project and/or Tenant's parking space allocation (including reserved spaces, if
any) for whatever reason inaccessible, unusable, unsafe, or which causes the
number of parking spaces for the Project and/or Tenant's parking space
allocation for the Premises to be reduced below applicable local code
requirements (which reasons may include but are not limited to repairs,
maintenance, casualty, condemnation, or displacement or dislocation caused by
future construction), Landlord shall immediately provide substitute parking
areas for Tenant's use and its invitees which areas shall (i) cause no net
reduction in Tenant's parking space allocation, (ii) be similarly convenient in
terms of location, quality and safety, and (iii) except in the case of an
emergency, be designated by prior written notice to Tenant with the exact
location of such substitute parking areas subject to Tenant's approval not to be
unreasonably withheld, conditioned or delayed.

      14. MUTUAL INDEMNIFICATION.

      (a) Subject to the provisions of Section 15(e), Tenant shall indemnify and
hold Landlord harmless from and against any and all claims of third parties
arising out of (i) any breach or default by Tenant in the performance of any of
its obligations under this Lease, or (ii) any negligent act or intentional
misconduct of Tenant, or any officer, agent, employee, contractor, servant,
invitee or guest of Tenant; and in each case from and against any and all
damages, losses, liabilities, lawsuits, costs and expenses (including reasonable
attorneys' fees at all tribunal levels) arising in connection with any such
claim or claims as described in (i) or (ii) above, or any action brought
thereon, provided that Tenant shall not be liable to indemnify Landlord with
respect to any of the foregoing arising out of the negligence or willful
misconduct of Landlord and any of its contractors, agents, employees, officers,
partners, or their invitees.

      (b) Subject to the provisions of Section 15(e) Landlord shall indemnify
and hold

                                       6


Tenant harmless from and against any and all claims of third parties arising out
of (i) any breach or default by Landlord in the performance of any of its
obligations under this Lease or (ii) any negligent act or intentional misconduct
of Landlord, or any officer, agent, employee, contractor, servant, invitee or
guest of Landlord; and in each case from and against any and all damages,
losses, liabilities, lawsuits, costs and expenses (including reasonable
attorneys' fees at all tribunal levels) arising in connection with any such
claim or claims as described in the above (i) or (ii) of this sentence, or any
action brought thereon, provided that Landlord shall not be liable to indemnify
Tenant with respect to any of the foregoing arising out of the negligence or
willful misconduct of Tenant and any of its contractors, agents, employees,
officers, partners, or their invitees.

      (c) If a claim is made against the indemnitee which the indemnitee
believes to be covered by an indemnitor's indemnification obligations hereunder,
the indemnitee shall promptly notify the demnitor of the claim and, in such
notice shall offer to the indemnitor the opportunity to assume the defense of
the claim within ten (10) business days after receipt of the notice (with
counsel reasonably acceptable to the indemnitee). If the indemnitor timely
elects to assume the defense of the claim, the indemnitor shall have the right
to settle the claim on any terms it considers reasonable and without the
indemintee's prior written consent, as long as the settlement shall not require
the indemnitee to render any performance or pay any consideration, and the
indemnitee shall ot have the right to settle any such claim. If the indemnitor
fails timely to elect to assume he defense of the claim or fails to defend the
claim with diligence, then the indemnitee hall have the right to take over the
defense of the claim and to settle the claim on any terms the indemnitee
considers reasonable. Any such settlement shall be valid as against he
indemnitor. If the indemnitor assumes the defense of a claim, the indemnitee may
employ its own counsel but such employment shall be at the sole expense of the
indemnitee. If any claim arises out of the negligence of both Landlord and
Tenant,| responsibility for such claim shall be allocated between Landlord and
Tenant based on their respective degrees of negligence.

      15. INSURANCE; WAIVER OF SUBROGATION.

      (a) Throughout the Term, Tenant, at its sole cost and expense, shall
provide and keep in force, with responsible insurance companies, (i) commercial
general liability insurance with respect to this Lease and the Leased Space in
the following amounts for any one accident or occurrence: property damage not
less than $300,000 and personal injury or death not less than $1,000,000; and
(ii) property insurance insuring Tenant against loss or damage to its leasehold
improvements, equipment and other personal property in the Leased Space by fire
and all other casualties usually covered under an fire and extended coverage
policy of casualty insurance. In addition, Tenant shall maintain workers
compensation coverage to the extent required by law.

      (b) Landlord shall keep the Premises, the Building and the Common Areas
insured against loss by fire, windstorm, sprinkler leakage, flood, earthquake,
water damage and all the risks and perils insured against in an "all risk" of
physical loss insurance policy, in an amount equal to not less than the full
replacement value thereof. Throughout the Term, Landlord shall also keep in
force, with responsible insurance companies commercial general liability
insurance in the following amounts for any one accident or occurrence: property
damage not less than $300,000 and personal injury or death not less than
$1,000,000.

      (c) Every policy required by this Section (i) shall be provided by
insurance

                                       7


companies with an A.M. Best rating of at least (A-)(VII) and licensed to do
business in the State in which the Premises is located and (ii) shall contain an
agreement by the insurer that it will endeavor to provide Landlord and Tenant
with at least thirty (30) days written notice prior to the cancellation of such
policy.

      (d) At the commencement of the term of this Lease, Landlord and Tenant
shall each deliver to the other certificates of the insurance required to be
maintained hereunder. Landlord and Tenant shall also deliver to each other at
least ten days prior to the expiration date of such policy or policies (or of
any renewal policy or policies), certificates for renewal policies of such
insurance. In the event either Landlord or Tenant receives notice of
cancellation or other material change in the insurance policies required
hereunder, such party shall immediately forward a copy of such notice to the
other party.

      (e) Landlord and Tenant on behalf of themselves and all others claiming
under them, including any insurer, waive all claims against each other,
including all rights of subrogation, for loss or damage to their respective
property (including, but not limited to, the Premises) arising from fire, smoke
damage, windstorm, hail, vandalism, theft, malicious mischief and any of the
other perils normally insured against in an "all risk" of physical loss
insurance policy, regardless of whether insurance against those perils is in
effect with respect to such party's property and regardless of the negligence of
either party. Each party shall obtain from its respective insurer a written
waiver of all rights of subrogation that it may have against the other party.
This provision, however, shall not apply to the extent that it would render void
the insurance coverage obtained by Landlord or Tenant, but only if that party
(a) makes reasonable efforts to obtain insurance coverage that would not be
voided by this waiver of liability and (b) notifies the other party in writing
prior to any loss or damage that this waiver will not apply.

      16. MECHANIC'S LIENS. Tenant shall not suffer or permit any mechanic's
liens or materialman's liens to be filed against the real property of which the
Premises form a part nor against the Tenant's leasehold interest in the Premises
with respect to work or services performed or materials furnished to Tenant or
the Premises, and, in case any such lien attaches, or claim of lien is asserted,
Tenant covenants and agrees at its sole option to do any one of the following:
(i) to cause such lien or claim of lien to be promptly released and removed of
record or cause Landlord's title insurer to insure over said lien, (ii) post a
surety bond in amount necessary to remove the lien of record pursuant to the
laws and regulations of the jurisdiction in which the Premises is located, or
(iii) deliver such other security or indemnity that Landlord may reasonably
require.

      17. LANDLORD'S RIGHT OF ENTRY. At reasonable times during normal business
hours, Landlord or its agents shall have the right to enter the Premises in
order to examine it, to show it to prospective tenants, lenders, ground lessors,
and purchasers, or to make such repairs, alterations, improvements or additions
as Landlord shall reasonably deem necessary. Landlord, however, must provide
Tenant not less than 48 hours prior written notice and must conduct any such
work so as not to impair Tenant's use and enjoyment of the Premises.

      18. CONDEMNATION, FIRE AND OTHER CASUALTY.

      (a) If the Building, the Common Areas, the Leased Space or any material
part of any of them shall be taken by any authorized entity by eminent domain or
by negotiated purchase under threat thereof, and as a consequence thereof the
Premises shall become totally untenantable or the use of the Common Areas is
impaired, this Lease shall

                                       8


terminate as of the date when possession thereof is surrendered and all rights
and obligations of Tenant in and under this Lease shall immediately cease and
terminate. If a part of the Building or the Common Areas or a portion of the
Leased Space shall be so taken or purchased so that the Premises becomes only
partially untenantable or the suitability and use of the Premises or the Common
Areas are slightly impaired, Landlord at its expense shall promptly repair the
Premises and the Common Areas, and the Rent shall be equitably and
proportionately abated during the period of such partial untenantability. All
compensation awarded for any taking (or the proceeds of negotiated sale under
threat thereof) whether for the whole or a part of the Building or the Premises,
shall be the property of Landlord, whether such proceeds or award are
compensation for loss or damage to Landlord's or Tenant's property or their
respective interests in the Premises, except that the portion of such
compensation which is allocable to leasehold or other tenant improvements made
at Tenant's cost and expense shall be the property of Tenant. Tenant may also
make a separate claim for Tenant's relocation expenses. If less than all of the
Leased Space, Building or the Common Areas shall be taken as aforesaid and this
Lease does not terminate, Landlord, at its sole cost and expense, shall promptly
restore the Leased Space, Building or the Common Areas, as the case may be, to
such condition which is nearly as possible the same as prior to such taking.

      (b) If the Premises or the Building shall be damaged by fire or other
casualty and (i) the Premises are thereby rendered wholly unsuitable for its
intended use, or (ii) the cost of repair or restoration as estimated by a
contractor, architect or other construction consultant selected by Landlord and
Tenant, exceeds 1/3 of the full replacement cost of the Building and/or the
Premises (whichever is applicable); then in either such event either party may
terminate this Lease. In addition, if the contractor, engineer or other
construction consultant estimates that the required repair or restoration work
cannot be completed within 180 days of the occurrence of such damage, either
Landlord or Tenant may terminate this Lease. If either party is entitled to
terminate this Lease and desires to do so, it shall give the other party written
notice of termination within thirty (30) days of the occurrence of such damage,
and upon the giving of such notice, this Lease shall terminate as of the date of
the casualty, and any prepaid Rent shall be refunded to Tenant. If the Premises
shall be damaged by any casualty as described in the first sentence of this
Section 18(b), but are rendered only partially untenantable, Landlord shall
promptly repair the same at its expense, and the Rent shall proportionately
abate during the period of such partial untenantability.

      19. REMEDIES IN THE EVENT OF DEFAULT.

      (a) The following shall constitute an "Event of Default" hereunder: (i)
Tenant fails to make payment of any installment of Rent or any Additional Rent
or other sum payable by Tenant hereunder within ten (10) days after receipt of
written notice of non-payment or (ii) Tenant fails to promptly or fully perform
any other provision of this Lease on Tenant's part to be performed and fails to
cure such failure within thirty (30) days after receipt of written notice, or if
such breach cannot be cured within such thirty (30) day period, such longer
period of time as may be reasonably required. Upon the occurrence of an Event of
Default, Landlord shall have the option to pursue any one of the following
remedies:

            (i)   Terminate this Lease and re-enter and retake possession by
                  legal process, and declare immediately due and payable the
                  entire amount of the Rent then remaining to be paid under this
                  Lease for the balance of the lease term, adjusted to

                                       9


                  present value at six percent (6%) per annum, less the fair
                  rentable value of the Premises for the balance of the term
                  also adjusted to present value at the rate of six percent (6%)
                  per annum; or

            (ii)  Terminate Tenant's right of possession without terminating
                  this Lease and re-enter and retake possession by legal
                  process, expel Tenant and remove all property therefrom and
                  re-let the Premises for the Tenant's account and receive the
                  rent therefrom. Landlord shall make reasonable efforts to
                  re-let the premises to a responsible tenant at the best
                  possible rent. Tenant shall thereafter be obligated to pay to
                  Landlord an amount equal to the rent due under this Lease for
                  the remaining term, less the amount of any rent from any
                  substitute tenant, together with the Landlord's costs of
                  re-letting including, without limitation, the alterations,
                  redecorating and reasonable and customary real estate broker's
                  fees and commissions. For purposes of this remedy, the parties
                  agree that the statute of limitations for the Landlord's
                  recovery of rent from Tenant shall not begin to run until the
                  expiration of the original term of this Lease.

      No waiver by Landlord of any violation or breach of any of the terms,
provisions and covenants of this Lease shall be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants herein contained. Forbearance by Landlord to enforce
one or more of the foregoing remedies provided upon an event of default by
Tenant shall not be deemed or construed to constitute a waiver of such default
or the ability to select which remedy Landlord desires. If landlord incurs
reasonable expense, including court costs and attorney fees, as a result of a
default by Tenant under this Lease, and pursues one of the remedies set forth
above, then such expenses shall be reimbursed by Tenant as Additional Rent,
whether or not such default is subsequently cured.

      (b) If Tenant shall fail to make any payment or perform any act required
to be made or performed under this Lease, Landlord, without waiving or releasing
any obligation or default, may (but shall be under no obligation to), at any
time, and upon reasonable notice to Tenant, make the payment or perform the act
for the account of and at the expense of Tenant, and may enter upon the Premises
for that purpose and take all actions as may be necessary to correct Tenant's
breach. No such entry shall be deemed an eviction of Tenant. All sums so paid by
Landlord and all costs and expenses (including, but not limited to, reasonable
attorneys' fees and expenses) so incurred, together with interest at the rate of
2% per annum in excess of the prime rate of interest as announced from time to
time by The Wall Street Journal from the date of payment, shall constitute
additional rent and shall be paid by Tenant to Landlord on demand.

      (c) In the event Landlord is in default under the terms of this Lease,
Tenant may provide written notice of such default to Landlord. Upon the
expiration of thirty (30) days following the giving of such notice, if Landlord
(i) has failed to cure such default or (ii) in the case of a default (other than
the payment of money) which by its nature cannot be completely cured within such
thirty (30) day period, Landlord does not within such period commence to cure
the default, and diligently pursue and complete the cure in a reasonable period
of time, then in either such event Tenant may do all things necessary or
desirable to remedy such default and perform the obligations of Landlord which
have not been fully or

                                       10


properly performed. Landlord shall immediately upon demand reimburse Tenant for
all costs and expenses incurred by Tenant in connection with the foregoing plus
interest at the rate set forth in Section 19(b) above and, in addition, if
Landlord fails to make such payment within thirty (30) days of Tenant's written
demand, Tenant may set off the amount of all costs and expenses incurred by
Tenant in connection with the foregoing, plus interest at the rate defined in
this Section against rent payment coming due under this Lease, and if at the end
of the Term, extend the Lease for a period sufficient to recover such amount.

      (d) The aforementioned thirty (30) day period of time permitted for
Landlord to cure its default and the periods of time permitted for Tenant to
cure defaults hereunder shall be extended if the default cannot be cured within
the time period allowed herein, so long as such party is diligently and
continuously attempting to cure. The cure periods shall also be extended for any
period of time during which the defaulting party is delayed in, or prevented
from, curing due to fire or other casualty, or acts of God, strikes, lockouts,
power shortages or outages, enactment, adoption, or promulgation of new laws, or
the application or enforcement of laws. Notwithstanding the foregoing, there
shall be no extended period in which to cure a monetary default.

      20. NOTICES. All notices, demands and requests which may be given or which
are required to be given by either party to the other must be in writing. All
notices, demands and requests by Landlord or Tenant shall be addressed as
follows (or to such other address as a party may specify by duly given notice):

      RENT PAYMENT             CDB. LLC
      ADDRESS:                 241 Royal Tern Road. N.
                               Ponte Vedra Beach. FL 32082
                               TaxID# 35-2234390

     LEGAL NOTICE              CDB. LLC
     ADDRESS FOR               241 Royal Tern Road. N.
     LANDLORD                  Ponte Vedra Beach. FL 32082

     WITH A COPY TO:

                               ______________________________
                               ______________________________

     TENANT:                   Orthodontic Centers of Florida. Inc.
                               3850 North Causeway Boulevard. Suite 800
                               Metairie. LA 70002

     WITH A COPY TO:

                                       11


      Notices, demands or requests which Landlord or Tenant are required or
desire to give the other hereunder shall be deemed to have been properly given
for all purposes if (i) delivered against a written receipt of delivery, (ii)
mailed by express, registered or certified mail of the United States Postal
Service, return receipt requested, postage prepaid, or (iii) delivered to a
nationally recognized overnight courier service for next business day delivery,
to its addressee at such party's address as set forth above. Each such notice,
demand or request shall be deemed to have been received upon the earlier of the
actual receipt or refusal by the addressee. The parties shall notify the other
of any change in address, which notification must be at least fifteen (15) days
in advance of it being effective. Notices may be given on behalf of any party by
such party's legal counsel.

      21. ASSIGNMENT AND SUBLETTING. With Landlord's prior consent, which
consent shall not be unreasonably withheld or delayed, Tenant shall have the
right to sublet all or any portion of the Premises. Landlord hereby
affirmatively consents to the sublease of all or any portion of the Premises to
Dr. Alan Shoopak. Each such sublease shall be subject and subordinate to this
Lease and Tenant shall remain liable for the performance of all of its covenants
and agreements under this Lease. Notwithstanding the

                                       12


foregoing, Tenant shall not assign this Lease in whole or in part without the
consent of Landlord, which consent shall not be unreasonably withheld; provided
that, without the consent of Landlord, Tenant may assign this Lease to (i)
Orthodontic Centers of America, Inc. ("OCA") or any subsidiary or other entity
owned at least 51%, directly or indirectly, by Tenant or OCA, or (ii) to any
person, firm or corporation who is the purchaser of all or substantially all of
the assets of Tenant or is the successor to substantially all the assets and
business of Tenant by virtue of a corporate merger or consolidation of, with or
into Tenant. No such assignment without the consent of Landlord, as described in
clauses (i) or (ii) shall be effective unless each such assignee by written
instrument or operation of law, shall assume and become bound to perform and
observe all of the covenants and agreements of Tenant under this Lease but upon
the effectiveness of any such assignment, Tenant and OCA shall be released of
all further liability for the payment of rent and for the performance and
observance of all of the other covenants and agreements of Tenant under the
Lease.

      22. ATTORNEY'S FEES. In the event of any legal or equitable action arising
out of this Lease, the prevailing party shall be entitled to recover all fees,
costs and expenses, together with reasonable attorneys' fees incurred in
connection with such action. 23. GOVERNING LAW. This Lease shall be governed by
the laws of the state in which the Premises are located.

      24. QUIET ENJOYMENT. Landlord represents and covenants that Landlord owns
the Project in fee simple, and has full right, power and authority to enter into
this Lease for the term herein granted and Landlord covenants and agrees with
Tenant that upon Tenant paying the Rent and Additional Rent and observing and
performing all the terms, covenants and conditions on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the Demised
Premises, free from any interference or molestation.

      25. HOLDING OVER AND SURRENDER OF PREMISES. A hold over beyond the
expiration of the Term shall operate as an extension of this Lease from month to
month on the same terms and conditions as herein provided, except for duration
and that the monthly rental shall be 125% of the amount of the monthly
installment due and payable hereunder for the last full month of the Term. Such
extended term may be terminated either by Landlord or Tenant by giving 30 days'
prior written notice to the other. This Section shall in no way constitute a
consent by Landlord to any holding over by Tenant upon the expiration or earlier
termination of this Lease, provided, however, Landlord's monetary remedies for
such holdover shall be limited to collection of holdover rental as specified
above. At the expiration of the Term or any holdover, Tenant shall yield the
Leased Space to Landlord in as good order and repair as when delivered to
Tenant, ordinary wear and tear and damage by fire and extended coverage perils
and other causes beyond the reasonable control of Tenant, excepted.

      26. SUBORDINATION TO MORTGAGES. Landlord hereby guarantees to Tenant as a
condition to the performance of Tenant's other obligations under this Lease,
that this Lease shall be senior to and shall at all times have priority over all
liens and encumbrances, now existing or hereafter affecting the Project. In the
event that in connection with the financing or refinancing of the Project,
Landlord shall have obtained or

                                       13


shall hereafter obtain a mortgage loan from an institutional lender and such
lender requires that this Lease be subordinated to the hen of the mortgage or
deed of trust securing repayment of such loan (the "Mortgage"). Tenant agrees to
subordinate its interest under this Lease to such Mortgage; provided that the
holder of such mortgage shall execute and deliver to Tenant a non-disturbance
and attornment agreement which provides that so long as no default has occurred
and is continuing beyond the period of time allowed for the remedy thereof under
the terms of this Lease, the holder of the Mortgage (i) shall not disturb
Tenant's leasehold interest in or possession of the Premises in accordance with
the terms hereof, (ii) shall permit application of all proceeds of insurance and
all awards and payments in connection with the exercise or threatened exercise
of the power of eminent domain in accordance with the provisions of this Lease,
and (iii) waives all rights or interests in any trade fixtures of either Tenant
or any of its subtenants. It shall be a condition to the effectiveness of this
Lease that Landlord deliver to Tenant a subordination, nondisturbance and
attornment agreement in accordance with the terms of the preceding sentence and
in the form reasonably satisfactory to Tenant, with respect to each Mortgage
which now constitutes a lien against the Project.

      27. WAIVER OF LANDLORD'S LIEN; LEASEHOLD MORTGAGE

      (a) Landlord hereby waives any lien rights which it may otherwise have
concerning Tenant's property, which shall include furniture, fixtures,
equipment, any and all equipment and/or supplies utilized by Tenant in its
business operations ("Tenant's Property"), and Tenant shall have the right to
remove the same at any time without Landlord's consent.

      (b) Landlord acknowledges that Tenant has financed or may finance some or
all of Tenant's Property through financing arrangements including promissory
notes and a financial and security agreement for the financing of Tenant's
Property with a third party or parties (collectively, "Leasehold Mortgagee"). In
connection therewith, Landlord (i) consents to this installation of Tenant's
Property, (ii) hereby disclaims any interest in Tenant's Property, as fixtures
or otherwise, and (iii) hereby agrees that Tenant's Property shall be exempt
from execution, foreclosure, sale, levy, attachment or distress for any rent due
or to become due and that such collateral may be removed at any time in
accordance with the conditions and limitations of the Lease, without recourse to
legal proceeding.

      (c) Landlord hereby consents to the assignment by Tenant of this Lease to
Leasehold Mortgagee as security for the payment of all indebtedness and
performance of obligations under the financing referred to in clause (b) above
(collectively, the "Leasehold Mortgage Documents"). Landlord agrees that so long
as any such Leasehold Mortgage Documents shall remain unsatisfied, the following
provisions shall apply:

            (i)   Landlord shall, upon serving Tenant with any notice of
                  default, promptly serve a copy of such notice upon Leasehold
                  Mortgagee. Leasehold Mortgagee shall thereupon have the same
                  period as is allowed to Tenant, to remedy or cause to be
                  remedied the defaults specified by Landlord, and Landlord
                  shall accept such performance by or at the instigation of
                  Leasehold Mortgagee in response to any such notice of default
                  as if the same had been performed by Tenant;

                                       14


            (ii)  Should Tenant be in default under the terms of such Leasehold
                  Mortgage Documents, Leasehold Mortgagee shall have the right,
                  but not the obligation, to receive an assignment of this Lease
                  for the remainder of its term and assume all of Tenant's
                  rights, duties and obligations under the Lease, provided that
                  as a condition to such assignment and assumption Leasehold
                  Mortgagee shall have remedied or caused to be remedied
                  defaults, if any, under this Lease of which Leasehold
                  Mortgagee shall have been given written notice prior to such
                  assignment and assumption, and provided further that the use
                  of the Premises by any such Leasehold Mortgagee shall be
                  substantially similar to that of Tenant immediately prior to
                  the assumption; and

            (iii) If Landlord shall elect to terminate this Lease by reason of
                  the default of Tenant and the Leasehold Mortgagee assumes the
                  obligations of Tenant as provided above, Leasehold Mortgagee
                  shall have the right to take possession of the Premises for a
                  period of not more than 30 days after the date of termination
                  for the sole and exclusive purpose of liquidating and/or
                  removing Tenant's Property; provided, however, that as a
                  condition to taking such possession Leasehold Mortgagee shall
                  prepay the rent and all other charges and comply with and
                  perform all of the other terms, conditions and provisions of
                  this Lease on Tenant's part to be complied with and performed
                  during such period of possession, had this Lease not been
                  terminated, and provided further that if it is impractical for
                  Leasehold Mortgagee to so liquidate and/or remove Tenant's
                  Property within the thirty (30) day period prescribed above,
                  Leasehold Mortgagee may, subject to prepayment of rent and
                  compliance with the other terms of the Lease, extend its right
                  to take possession for up to an additional sixty (60) days.

      28. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 21, this
Lease shall bind and inure to the benefit of the respective heirs, personal
representatives, successors and assigns of Landlord and Tenant.

      29. BROKERS. Landlord and Tenant agree that no brokerage commissions or
similar compensation is due in connection with this transaction. Each party
agrees to indemnify the other against all claims for brokerage commissions or
other compensation for services rendered at its instance in connection with this
transaction.

      30. PARTIAL INVALIDITY. If any provision of this Lease or its application
to any person or circumstances shall to any extent be invalid or unenforceable,
the remainder of this Lease, or the application of that provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected, and each provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.

                                       15


      31. MEMORANDUM OF LEASE. Upon the written request of either party hereto,
the parties shall execute a memorandum of lease in recordable form, which in
addition to the matters which may be required by applicable law shall also
include a description of all of Tenant's purchase options and purchase rights
hereunder.

      32. ENTIRE AGREEMENT. This Lease contains the entire agreement between the
parties and cannot be amended unless the amendment is in writing and executed by
the party against whom the enforcement of the amendment is sought.

      33. COUNTERPARTS. This Lease may be executed in one or more counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute one and the same document.

      34. GUARANTY OF LEASE. Notwithstanding anything herein to the contrary,
Landlord's obligations under this Lease are conditioned on OCA executing and
delivering to Landlord a Guaranty of Lease in the form attached hereto as
Exhibit "34".

      35. TERMINATION. Upon the expiration or earlier termination of that
certain Business Service Agreement by and between Tenant and Dr. Alan Shoopak,
Tenant may elect to terminate this Lease effective immediately upon notice to
Landlord. Upon such termination this Lease shall become null and void and
neither Landlord, Tenant, nor OCA shall have any remaining obligations
hereunder.

      39. OPTION TO TERMINATE FOR DEATH OR DISABILITY. Provided an Event of
Default shall not have occurred and be ongoing hereunder, if Tenant's Occupant
Orthodontist (hereinafter defined) dies or becomes totally and permanently
disabled (physically or mentally), Tenant may terminate this Lease following
such death or onset of disability upon providing Landlord written notice of
termination at least sixty (60) days prior to the desired termination date. For
purposes of this Lease, Tenant's Occupant Orthodontist shall mean the
orthodontist operating within the Leased Space under either a sublease from
Tenant or a business services agreement with Tenant.

                  (Remainder of Page intentionally left blank)

                                       16


      THE PARTIES HERETO have executed this Lease as of the Effective Date.

                                    LANDLORD:

                                    CDB, LLC

                                    By:  /s/ Dennis J. L. Buchman
                                    Name:  Dennis J. L. Buchman
                                    Title:  Manager

                                    TENANT:

                                    ORTHODONTIC CENTERS OF FLORIDA, INC.

                                    By:  /s/ John Masserano
                                    Name:  John Masserano
                                    Title:  Vice President of Real Estate

                                       17


                                 EXHIBIT "1(A)"

                             Floor Plan of Premises

                                       18


                                  EXHIBIT "34"

                                GUARANTY OF LEASE

                                    GUARANTY

      Forming a part of that certain lease ("Lease"), dated August 4, 2004
between CDB, LLC, a Florida Limited Liability Company the "Landlord"), and
ORTHODONTIC CENTERS OF FLORIDA, INC., a Delaware corporation (the "Tenant") for
space located at 1205 West Baker Street. Plant City, FL, 33563. For the sum of
Ten Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned: ORTHODONTIC
CENTERS OF AMERICA, INC. (hereinafter referred to as the "Guarantor"), hereby
guarantees to Landlord, its successors and assigns, the full and prompt payment
of Rent, Additional Rent, and any and all other sums and charges payable under
the Lease by Tenant, its successors and assigns, and hereby further guarantees
the full and timely performance and observance of all of the covenants, terms,
conditions and agreements under the Lease provided to be performed and observed
by Tenant, its successors and assigns.

      Guarantor hereby covenants and agrees to and with Landlord, its successors
and assigns, that if Tenant shall at any time be in default, or if Tenant should
fail to pay any other sums and charges required of Tenant under the Lease, or
default in the performance and observance of any of the terms, covenants,
conditions or agreements contained in the Lease, Guarantor shall and will
immediately pay such sums and charges to Landlord, its successors and assigns,
and any arrears thereof, and shall and will immediately perform and fulfill all
of such terms, covenants, conditions and agreements, and will immediately pay to
Landlord all damages that may arise as a consequence of any default by Tenant,
its successors and assigns, under the Lease, including, without limitation, all
reasonable attorneys' fees and costs incurred by Landlord or caused by any such
default and/or by the enforcement of this Guaranty.

      This Guaranty is an absolute and unconditional Guaranty of payment and
performance. The obligations of Guarantor hereunder are independent of the
obligations of Tenant and shall be enforceable against Guarantor, and
Guarantor's heirs, administrators, executors, successors and assigns, without
the necessity for any suit or proceedings on Landlord's part of any kind or
nature whatsoever against Tenant, its successors and assigns, and without the
necessity of any notice of nonpayment, non-performance or non-observance or of
any notice of acceptance of this Guaranty or of any other notice or demand to
which Guarantor might otherwise be entitled, all of which Guarantor hereby
expressly waives.

      This Guaranty shall be a continuing Guaranty, and the liability of
Guarantor hereunder shall in no way be affected, modified or diminished by
reason of any assignment, renewal, modification or extension of the Lease or by
reason of any modification or waiver of or change in any of the terms,
covenants, conditions or provisions of the Lease, or by reason of any extension
of time that may be granted by Landlord to Tenant, its successors or assigns, or
by reason of any dealings or

                                       19


transactions or matter or thing occurring between Landlord and Tenant, its
successors or assigns, whether or not notice thereof is given to Guarantor.

      Guarantor hereby expressly agrees that (i) the validity of this Guaranty
and the obligations of Guarantor hereunder shall not be terminated, affected,
diminished or impaired by reason of the assertion or the failure to assert by
Landlord against Tenant, or its successors and assigns, of any of the rights or
remedies reserved to Landlord pursuant to the provisions of the Lease, (ii) no
delay on the part of Landlord in enforcing any of its rights and remedies or
insisting thereupon shall in any way limit, affect or impair the liability of
Guarantor hereunder, and (iii) that all rights and remedies of Landlord under
the Lease and hereunder shall survive any discharge, moratorium or other relief
granted any person primarily or secondarily liable in any proceeding under
federal or state law relating to bankruptcy, insolvency or the relief or
rehabilitation of debtors, and any consent by Landlord to or participation by
Landlord in the proceeds of, any assignment, trust or mortgage for the benefit
of creditors or any composition or arrangement of debts, may be made without
Guarantor being discharged or affected in any way thereby.

      The obligations of Guarantor shall not be affected by any insolvency,
bankruptcy, liquidation, reorganization, readjustment, composition, dissolution,
winding-up or similar proceeding involving or affecting Tenant (whether or not
Guarantor shall have notice or knowledge thereof).

      This Guaranty shall in no event terminate until the expiration of the
period during which the final payment hereunder or in connection herewith may be
subject to rescission, restoration or return under any bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar law of general
applicability relating to or affecting creditor's rights and shall continue to
be effective if at any time payment, or any part thereof, or any of the
obligations guaranteed hereby is rescinded or must otherwise be restored or
returned by Landlord upon the insolvency, bankruptcy or reorganization of Tenant
or other circumstances affecting Tenant, all as though such payment has not been
made.

      Guarantor further represents and warrants to Landlord, as an inducement
for it to execute the Lease, that Guarantor has a financial interest in Tenant,
and, if Guarantor is a corporation, that the execution and delivery of this
Guaranty is not in contravention of its charter or by-laws and has been duly
authorized by its board of directors.

      All of Landlord's rights and remedies under the Lease and under this
Guaranty are intended to be distinct, separate and cumulative and no such right
or remedy therein or herein mentioned is intended to be in exclusion of or a
waiver of any of the others.

      This Guaranty shall be governed by and construed in accordance with the
laws of the State in which the Premises are located. By execution and delivery
of this Guaranty, Guarantor submits to and accepts, with regard to any such
action or proceeding related hereto, the jurisdiction of those courts.

                                       20


Wherever possible, each provision of this Guaranty shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Guaranty shall be prohibited by or invalid under applicable law, said
provision shall be ineffective only to the extent of such provision and shall
not affect the remaining provisions of this Guaranty.

All terms used herein shall have the same meaning herein provided in the Lease.

Dated this 4th day of August, 2004.

ORTHODONTIC CENTERS OF AMERICA, INC.

By: /s/ John V. Masserano
    John V. Masserano
   Vice President of Real Estate

                                       21

EX-31.1

                                                                    EXHIBIT 31.1

                                    OCA, INC.
     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bartholomew F. Palmisano, Sr., certify that:

1.    I have reviewed this quarterly report on Form 10-Q of OCA, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

      (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

      (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

      (c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

5.    The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

      (a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: December 23, 2004                  /s/ Bartholomew F. Palmisano, Sr.
                                         --------------------------------------
                                         Bartholomew F. Palmisano, Sr.
                                         Chairman of the Board, President and
                                         Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                                    OCA, INC.
     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David E. Verret, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of OCA, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

      (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

      (c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

5.    The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

      (a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: December 23, 2004                    /s/ David E. Verret
                                           ------------------------------------
                                           David E. Verret
                                           Senior Vice President of Finance and
                                           Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                                    OCA, INC.
     CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the quarterly report on Form 10-Q for the quarter ended
September 30, 2004, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), of OCA, Inc. (the "Company"), I, Bartholomew F.
Palmisano, Sr., Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

      (1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

      (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

Date: December 23, 2004                  /s/ Bartholomew F. Palmisano, Sr.
                                         ------------------------------------
                                         Bartholomew F. Palmisano, Sr.
                                         Chairman of the Board, President and
                                         Chief Executive Officer

EX-32.2

                                                                    EXHIBIT 32.2

                                    OCA, INC.
     CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the quarterly report on Form 10-Q for the quarter ended
September 30, 2004, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), of OCA, Inc. (the "Company"), I, David E. Verret,
Senior Vice President of Finance and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

      (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

December 23, 2004                       /s/ David E. Verret
                                        ------------------------------------
                                        David E. Verret
                                        Senior Vice President of Finance and
                                        Chief Financial Officer