##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549


Form 10-K

|                                                |  |                                                                                             
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                                      |  |                                                                                             
|                                               
|þ                                               |  | ANNUAL REPORT PURSUANT TO SECTION 13 or
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31,
    2002
|or                                             
|                                               
|o                                               |  | TRANSITION REPORT PURSUANT TO SECTION 13 or
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period
from                     to

Commission file number 000-23092

National Dentex Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Massachusetts                                                      |  | 04-2762050                          
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                                  
|526 Boston Post Road, Wayland, MA                                  |  | 01778                               
|(Address of Principal Executive
    Offices)                       |  | (Zip Code)                          

(508) 358-4422

(Registrants Telephone No., including
Area Code)


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

None


Securities registered pursuant to
Section 12(g) of the Act: Common Stock, par value $.01 per
share

(Title of Class)


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

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).  Yes þ          No o

As of February 18, 2003, the aggregate
market value of the 3,321,914 outstanding shares of voting stock
held by non-affiliates of the registrant was $58,731,440, based
upon the last reported sale of the Common Stock on the Nasdaq
National Market on such date.

As of February 18, 2003,
3,665,209 shares of the registrants Common Stock, par
value $.01 per share, were issued and 3,403,009 were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrants definitive Proxy Statement
for the Registrants Special Meeting in Lieu of Annual
Meeting of Stockholders to be held on April 8, 2003 is
incorporated by reference into Part III.



---






---



##### 



PART I

Item 1.     Business

General

National Dentex Corporation (the
Company) was founded in 1982 as H&M Laboratories
Services, Inc., a Massachusetts corporation, which acquired six
full-service dental laboratories and related branch laboratories
from Healthco, Inc. In 1983, the Company changed its name to
National Dentex Corporation and acquired 20 additional
full-service dental laboratories and related branch laboratories
from Lifemark Corporation. The Companys acquisition
strategy is to consolidate within the dental laboratory industry
and use its financial and operational synergies to create a
competitive advantage. Over the last five years the Company has
acquired the following stand-alone laboratory facilities; in
1998 Continental Dental Laboratory, in 1999 Advanced Dental
Arts, in 2000 Oral Arts and Ideal Dental, in 2001 Creative
Dental Ceramics, Bauer Dental Laboratory, Aronovitch Dental
Laboratory, Crown Dental Laboratory and The Freeman Center and
in 2002 Fox Dental Company and E&S Dental Laboratory. In
addition, various smaller laboratories were acquired and
consolidated into existing operations.

The Company today owns and operates 37 dental
laboratories, consisting of 34 full-service dental
laboratories and three branch laboratories located in
27 states throughout the United States. The Companys
dental laboratories custom design and fabricate dentures, crowns
and fixed bridges, and other dental prosthetic appliances. Each
dental laboratory operates under its own business name. The
Companys principal executive offices are located at 526
Boston Post Road, Wayland, MA 01778, telephone number
(508) 358-4422. Its corporate web site is located at
www.nationaldentex.com. We make available free of charge
through our website our annual Form 10-K, current reports
on Form 10-Q, current reports on Form 8-K, and
amendments to these reports filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934 as
soon as practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission.

Information as to Industry Segments

The Companys business consists of only one
industry segment, which is the design, fabrication, marketing
and sale of custom dental prosthetic appliances for and to
dentists.

Description of Business

The Companys dental laboratories design and
fabricate custom dental prosthetic appliances such as dentures,
crowns and bridges. These products are produced by trained
technicians working in dental laboratories in accordance with
work orders and cases (consisting of impressions, models and
occlusal registrations of a patients teeth) provided by
the dentist. Dentists are the direct purchasers of the
Companys products.

The Companys products are grouped into the
following three main categories:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restorative Products.Restorative products sold by the
    Companys dental laboratories consist primarily of crowns
    and bridges. A crown replaces the part of a tooth that is
    visible, and is usually made of gold or porcelain. A bridge is a
    restoration of one or more missing teeth that is permanently
    attached to the natural teeth or roots. In addition to the
    traditional crown, the Company also makes porcelain jackets,
    which are crowns constructed entirely of porcelain; onlays,
    which are partial crowns which do not cover all of the visible
    tooth; and precision crowns, which are restorations designed to
    receive and connect a removable partial denture. The Company
    also makes inlays, which are restorations made to fit a prepared
    tooth cavity and then cemented into place.
|
| | Reconstructive Products.Reconstructive products sold by the
    Companys dental laboratories consist primarily of partial
    dentures and full dentures. Partial dentures are removable
    dental prostheses that replace missing teeth and associated
    structures. Full dentures are dental prostheses that substitute
    for the total loss of teeth and associated structures. The
    Company also sells precision attachments, which                                                                                                                                                                                                                                                                                                                                                                                                   

1



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | connect a crown and an artificial prosthesis, and
    implants, which are fixtures anchored securely in the bone of
    the mouth to which a crown, partial or full denture is secured
    by means of screws or clips.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Cosmetic Products.Cosmetic products sold by the
    Companys dental laboratories consist primarily of
    porcelain veneers and ceramic crowns. Porcelain veneers are thin
    coverings of porcelain cemented to the front of a tooth to
    enhance personal appearance. Ceramic crowns are crowns made from
    ceramic materials that most closely replicate natural teeth. The
    Company also sells composite inlays and onlays, which replace
    silver fillings for a more natural appearance, and orthodontic
    appliances, which are products fabricated to move existing teeth
    to enhance function and appearance.

Laboratory and Corporate Operations

The Companys full-service dental
laboratories design and fabricate a full range of custom-made
dental prosthetic appliances. These custom products are
manufactured from raw materials, such as high noble, noble and
predominantly base alloys, dental resins, composites and
porcelain. There are different production processes for the
various types of prosthetic appliances depending upon the
product and the materials used in the type of appliance being
fabricated, each of which requires different skills and levels
of training. The Companys dental laboratories perform
numerous quality control checks throughout the production cycle
to improve the quality of its products and to make certain the
design and appearance satisfy the needs of the dentist and the
patient. The Companys branch dental laboratories are
smaller in size and offer a limited number of products. When a
branch receives an order that it cannot fill, the branch refers
the business to its affiliated full-service dental laboratory.

The Company operates each of its dental
laboratories as a stand-alone facility under the direction of a
local manager responsible for operation of the dental
laboratory, supervision of its technical and sales staff and
delivery of quality products and services. Each of the
Companys dental laboratories markets and sells its
products through its own direct sales force, supported by
regional managers and Company-wide marketing programs. Employees
at each dental laboratory have a direct stake in the financial
success of the dental laboratory through participation in the
Companys cash and stock incentive plans.

The Companys corporate management provides
overall strategy, direction and financial management for the
Company and negotiates all acquisitions. Corporate personnel
also support the operations of its dental laboratories by
performing functions which are not directly related to the
production and sale of dental laboratory products, such as
processing payroll and related benefit programs, obtaining
insurance and procuring financing. The Companys corporate
management provides marketing, financial and administrative
services, negotiates Company-wide purchasing arrangements, and
sets quality and performance standards for the dental
laboratories.

Sales and Marketing

The Companys local dental laboratories
market and sell their products through their own direct sales
force. The sales force interacts with dentists within its market
area, primarily through visits to dentists offices, to
introduce the dental laboratorys services and products
offered, and to promote new products and techniques that can
assist dentists in expanding their practices. The Companys
customer-focused marketing and sales program, entitled the
NDX Reliance ProgramTM, is specifically
designed to make choosing a dental laboratory a risk free
decision for dentists. Its five components  Practice
Support, Laboratory Systems, Quality Assurance, Reliance
Restorations and a Continuing Education Series 
differentiate its qualified laboratories from their many
competitors. The Company believes that this unique approach to
assist the dentist and his or her staff to improve chairtime
efficiencies while providing exceptional service, superior
quality and product delivery every time they deliver a case,
will enhance its ability to expand its base of business by
establishing lasting professional relationships with its
customers. The Company presently has a total of 29 sales
representatives. In addition, the dental laboratories, either
alone or with local dental societies, dental schools or study
clubs, sponsor technical training clinics for dentists on topics
such as advanced clinical techniques. The local dental
laboratories also exhibit at state and local dental conventions.

2



---



##### 



Competition

The dental laboratory industry is highly
competitive and fragmented. A typical dental laboratorys
business originates from dentists located within 50 miles
of the dental laboratory. There are approximately 12,000 dental
laboratories in the United States, ranging in size from one to
approximately 200 technicians. The Company estimates that
presently its sales represent less than 3% of the total sales of
custom-made dental prosthetic appliances in the United States.
Competition is primarily from other dental laboratories in the
respective local market areas. The vast majority of dental
laboratories consist of single units, although the Company
believes there is one national chain, the Sentage Corporation
Dental Services Group, which competes with the Company in two
market areas. There is also limited competition from mail order
dental laboratories.

Most dentists use a limited number of dental
laboratories, relying on those laboratories which produce
quality products delivered on a timely basis and which carry all
of the products which the dentist may need, even if a particular
item is a newer specialty product used only sporadically by the
dentist. While price is one of the competitive factors in the
dental laboratory industry, the Company believes that most
dentists consider product quality, service, and breadth of
product line to be more important. The Company believes that it
competes favorably with respect to these factors. The Company
considers that its ability to produce quality products locally
and to deliver such products on a timely basis, the convenience
for dentists offered by the breadth of its product line, the use
of innovative marketing programs, and its sponsorship of
educational clinics provide a competitive advantage over other
dental laboratories in the local markets in which its dental
laboratories operate. The Companys ability to provide
newer specialty products for implantology, adult orthodontics
and cosmetic dentistry, which require highly skilled
technicians, more extensive inventories, additional working
capital, and investment in both training and capital equipment,
also distinguishes it from many smaller dental laboratories
which do not have comparable resources to provide these
products. While such specialty products presently represent less
than 20% of the Companys business, the Company believes
that the ability to offer these products is essential for dental
laboratories to remain competitive.

Employees

As of December 31, 2002, the Company had
1,528 employees, 1,499 of whom worked at individual
laboratories. Corporate management and administrative staff
totaled 29 people. None of the Companys employees is
covered by a collective bargaining agreement. Management
considers the Companys employee relations to be good.

Intellectual Property

The Companys general technological know-how
and experience are important to the conduct of the
Companys business. The Company has several trademarks and
licenses to use trademarks, but does not deem any of such
trademarks or licenses to be material to the conduct of its
business. Each of its dental laboratories operates under its own
trade name, and the Company considers these trade names to be
important to the goodwill of its dental laboratories.

Backlog

Largely due to the individualized and customized
nature of most dental products, there was no significant backlog
of orders existing at December 31, 2002 and 2001.

Item 2.     Properties

The Company currently leases a total of
approximately 213,000 square feet of space. As of
December 31, 2002, the future aggregate minimum annual rent
payable for all of its leased real properties was approximately
$9,006,000. The Company considers these properties to be modern,
well maintained and suitable for its purposes and believes that
its current facilities are adequate to meet its needs for the
foreseeable future. The Company also believes that suitable
substitute or replacement space is readily available at
reasonable rental rates. The Companys principal executive
and administrative offices occupy approximately 10,200 square
feet

3



---



##### 



of space in Wayland, Massachusetts. Its 30 leased
dental laboratories range in size from 1,000 to 26,000 square
feet and average approximately $60,000 in annual base rent.


The Company owns seven dental laboratory
facilities, which are located in Denver, Colorado; Metairie,
Louisiana; Dallas, Texas; Houston, Texas; Jacksonville, Florida;
Waukesha, Wisconsin and Shreveport, Louisiana. These locations
total approximately 100,000 square feet and range in building
size from 4,000 to 33,000 square feet.

Item 3.     Legal
Proceedings

The Company is involved from time to time in
litigation incidental to its business. Management believes that
the outcome of current litigation will not have a material
adverse effect upon the operations or financial condition of the
Company and will not disrupt the normal operations of the
Company.

Item 4.     Submission
of Matters to a Vote of Security Holders

None.

PART II

Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

Trading Market

The Companys Common Stock, $.01 par value,
is traded on the over-the-counter market, on the Nasdaq National
Market System, under the symbol NADX. The following
table presents low and high bid information for the time periods
specified. The over-the-counter market quotations reflect
inter-dealer prices, without retail markup, markdown or
commission and may not necessarily represent actual
transactions. The over-the-counter market quotations have been
furnished by the Nasdaq Stock Market, Inc. The Companys
Common Stock became publicly-traded on December 21, 1993.

|               |  |         |        |          |  |   |        | 
|-------------- |  | ------- | ------ | -------- |  | - | ------ | 
|               |  |        
|               |  | Price  
|               |  |        
|Quarter Ending |  | Low Bid |        | High Bid
|               |  |         |        |         
|03/31/01       |  | $       | 19.375 |          |  | $ | 22.250 | 
|06/30/01       |  | $       | 17.990 |          |  | $ | 24.300 | 
|09/30/01       |  | $       | 20.010 |          |  | $ | 23.450 | 
|12/31/01       |  | $       | 19.510 |          |  | $ | 24.600 | 
|03/31/02       |  | $       | 23.650 |          |  | $ | 28.970 | 
|06/30/02       |  | $       | 23.600 |          |  | $ | 29.320 | 
|09/30/02       |  | $       | 17.500 |          |  | $ | 23.940 | 
|12/31/02       |  | $       | 17.000 |          |  | $ | 19.890 | 

The Company has paid no cash dividends in the
past and has no plans to pay cash dividends in the foreseeable
future.

On February 18, 2003, there were
approximately 419 registered record holders of the
Companys Common Stock, which the Company believes
represented approximately 1,131 beneficial holders. On
February 18, 2003, the low and high bid prices of the
Common Stock were $17.63 and $18.11, respectively.

Stock Plan Disclosure

The Company maintains two incentive stock option
plans that were approved by the Companys Board of
Directors (the Board). In 1992 the Board and
Stockholders adopted the 1992 Long-Term Incentive Plan
(1992 LTIP). Key employees, officers and directors
were eligible to receive grants under the plan. Effective May
2002, no additional options may be granted under this plan. In
January 2001 the Board adopted the 2001

4



---



##### 



Stock Plan (2001 Plan), which was
approved by Stockholders in April 2001. Key employees, officers
and directors are eligible to receive grants under the plan.
Details of the plan are discussed in Note 9 to the Consolidated
Financial Statements. Finally, the Company maintains an Employee
Stock Purchase Plan (ESPP) that is qualified under
Section 423 of the Internal Revenue Code. Summary plan
information is as follows:


|          |       |                        |         |                        |  |                     |       |       |  |  |        |         | 
|--------- | ----- | ---------------------- | ------- | ---------------------- |  | ------------------- | ----- | ----- |  |  | ------ | ------- | 
|          |       | Number of Shares       |         |                        |  |                    
|          |       | of National Dentex     |         |                        |  | Number of Shares   
|          |       | Corporation            |         |                        |  | of National Dentex 
|          |       | Common Stock           |         |                        |  | Corporation        
|          |       | to be Issued           |         | Weighted Average       |  | Common Stock       
|          |       | Upon Exercise          |         | Exercise Price         |  | Remaining Available
|          |       | of Outstanding Options |         | of Outstanding Options |  | for Future Issuance
|          |       |                        |         |                        |  |                    
|1992 LTIP |       |                        | 355,726 |                        |  | $                   | 17.67 |       |  |  | None   |        
|2001 Plan |       |                        | 222,100 |                        |  | $                   | 22.51 |       |  |  | 77,900 |        
|ESPP      |       |                        |        |                        |  |                     |      |       |  |  | 82,055 |        
|          |       |                        |         |                        |  |                     |       |       |  |  |        |        
|          | Total |                        |         | 577,826                |  |                     | $     | 19.53 |  |  |        | 159,955 | 
|          |       |                        |         |                        |  |                     |       |       |  |  |        |        



|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected financial data for the
five years ended December 31, 2002 are derived from the
audited consolidated financial statements of the Company. The
consolidated financial statements for fiscal years 1998 through
2001 were audited by Arthur Andersen LLP (Andersen)
who has ceased operations. A copy of the report previously
issued by Andersen on our consolidated financial statements as
of December 31, 2001 and 2000 and for each of the years in
the period ended December 31, 2001 is included elsewhere in
this report. Such report has not been reissued by Andersen. The
data should be read in conjunction with the consolidated
financial statements and the related notes included in this
Report and in conjunction with Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations.

|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|------------------------------------------------- |  | ------------------------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                  |  | 1998                                 |        | 1999 |  | 2000 |        | 2001 |  | 2002
|                                                  |  |                                      |        |      |  |      |        |      |  |     
|                                                  |  |                                     
|                                                  |  | (In thousands except per share data)
|Consolidated Statements of Income:                |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Net sales                                         |  | $                                    | 63,817 |      |  | $    | 69,639 |      |  | $    | 75,680 |   |  | $ | 85,725 |   |  | $ | 95,185 |  
|Cost of goods sold                                |  |                                      | 36,697 |      |  |      | 40,396 |      |  |      | 44,203 |   |  |   | 50,278 |   |  |   | 56,196 |  
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Gross profit                                      |  |                                      | 27,120 |      |  |      | 29,243 |      |  |      | 31,477 |   |  |   | 35,447 |   |  |   | 38,989 |  
|Selling, General & Administrative Expenses        |  |                                      | 19,545 |      |  |      | 20,803 |      |  |      | 22,133 |   |  |   | 25,631 |   |  |   | 29,332 |  
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Operating income                                  |  |                                      | 7,575  |      |  |      | 8,440  |      |  |      | 9,344  |   |  |   | 9,816  |   |  |   | 9,657  |  
|Other income (expense)                            |  |                                      | 18     |      |  |      | (57    | )    |  |      | (83    | ) |  |   | (128   | ) |  |   | (211   | )
|Interest income                                   |  |                                      | 187    |      |  |      | 336    |      |  |      | 568    |   |  |   | 229    |   |  |   | 80     |  
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Income before provision for income taxes          |  |                                      | 7,780  |      |  |      | 8,719  |      |  |      | 9,829  |   |  |   | 9,917  |   |  |   | 9,526  |  
|Provision for income taxes                        |  |                                      | 3,097  |      |  |      | 3,457  |      |  |      | 3,868  |   |  |   | 3,939  |   |  |   | 3,644  |  
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Net income                                        |  | $                                    | 4,683  |      |  | $    | 5,262  |      |  | $    | 5,961  |   |  | $ | 5,978  |   |  | $ | 5,882  |  
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Net income per share  basic                      |  | $                                    | 1.34   |      |  | $    | 1.48   |      |  | $    | 1.67   |   |  | $ | 1.72   |   |  | $ | 1.70   |  
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Net income per share  diluted                    |  | $                                    | 1.32   |      |  | $    | 1.48   |      |  | $    | 1.66   |   |  | $ | 1.68   |   |  | $ | 1.66   |  
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Weighted average shares outstanding 
    basic   |  |                                      | 3,486  |      |  |      | 3,544  |      |  |      | 3,569  |   |  |   | 3,479  |   |  |   | 3,458  |  
|Weighted average shares outstanding 
    diluted |  |                                      | 3,560  |      |  |      | 3,566  |      |  |      | 3,601  |   |  |   | 3,562  |   |  |   | 3,553  |  
|                                                 
|Consolidated Balance Sheet Data:                  |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Working capital                                   |  | $                                    | 13,652 |      |  | $    | 16,713 |      |  | $    | 19,455 |   |  | $ | 15,060 |   |  | $ | 15,499 |  
|Total assets                                      |  |                                      | 42,470 |      |  |      | 49,205 |      |  |      | 55,390 |   |  |   | 62,083 |   |  |   | 65,817 |  
|Long-term debt, including current portion         |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |  
|Stockholders equity                              |  | $                                    | 33,877 |      |  | $    | 39,549 |      |  | $    | 45,596 |   |  | $ | 49,027 |   |  | $ | 53,946 |  

5



---



##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Liquidity and Capital Resources

The Companys working capital increased from
$15,060,000 at December 31, 2001 to $15,499,000 at
December 31, 2002. Cash and equivalents decreased $570,000
from $6,378,000 at December 31, 2001 to $5,808,000 at
December 31, 2002. Operating activities provided $7,309,000
in cash flow for the year ended December 31, 2002.

Cash flows from operating activities were more
than sufficient to cover cash used in investing activities. Cash
outflows related to dental laboratory acquisitions totaled
$4,696,000 for the year ended December 31, 2002 compared to
$9,106,000 for the year ended December 31, 2001. The
decrease was primarily attributable to a lower level of
acquisition activity in 2002 compared to 2001. During 2001, the
Company acquired approximately $12,889,000 in assets compared to
$4,039,000 in 2002. Capital expenditures for 2002 were
$2,156,000 compared to $1,641,000 in 2001. The increase was
primarily attributable to the investment in a replacement
facility for the Companys operations in Minneapolis,
Minnesota.

During the year ended December 31, 2002, the
Company repurchased an aggregate of 83,400 shares of common
stock at a total cost of $1,625,000, under its stock repurchase
program. The Company may repurchase stock from time to time in
open-market or privately negotiated transactions. The Company is
authorized to repurchase an additional 137,800 shares as of
December 31, 2002.

The Company maintains a financing agreement (the
Agreement) with Citizens Bank of Massachusetts
(formerly State Street Bank and Trust Company) (the
Bank). The Agreement, as amended and extended on
December 31, 2001, includes revolving lines of credit of
$4,000,000 and $8,000,000. The interest rate on both revolving
lines of credit is the prime rate minus 0.5% or the London
Interbank Offered Rate (LIBOR) rate plus 1.5%, at
the Companys option. Both revolving lines of credit mature
on June 30, 2004.

A commitment fee of one eighth of 1% is payable
on the unused amount of both lines of credit. At
December 31, 2002, the full principal amount was available
to the Company under both revolving lines of credit. The
Agreement requires compliance with certain covenants, including
the maintenance of specified net worth and other financial
ratios. As of December 31, 2002, the Company was in
compliance with these covenants.

Management believes that cash flow from
operations and existing financing will be sufficient to meet
contemplated operating and capital requirements, including costs
associated with anticipated acquisitions, if any, in the
foreseeable future.

Commitments and Contingencies

The following table represents a list of the
Companys contractual obligations and commitments as of
December 31, 2002:

Payments Due By Period

|                                |             |       |           |           |            |             |           |             |           |              |           |           |           |  |   |           |           |  |   |           |           | 
|------------------------------- | ----------- | ----- | --------- | --------- | ---------- | ----------- | --------- | ----------- | --------- | ------------ | --------- | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                |             |       |           | Less Than |            |             |           |             |           | Greater Than
|                                |             | Total |           | 1 Year    |            | 1 - 3 Years |           | 4 - 5 Years |           | 5 Years     
|                                |             |       |           |           |            |             |           |             |           |             
|Operating Leases:               |             |       |           |           |            |             |           |             |           |              |           |           |           |  |   |           |           |  |   |          
|                                | Real Estate |       | $         | 9,005,000 |            |             | $         | 1,798,000   |           |              | $         | 4,180,000 |           |  | $ | 1,370,000 |           |  | $ | 1,657,000 |          
|                                | Vehicles    |       |           | 998,000   |            |             |           | 666,000     |           |              |           | 332,000   |           |  |   |          |           |  |   |          |          
|                                | Equipment   |       |           | 206,000   |            |             |           | 92,000      |           |              |           | 110,000   |           |  |   | 4,000     |           |  |   |          |          
|Laboratory Purchase Obligations |             |       | 3,870,000 |           |            |             | 2,326,000 |             |           |              | 1,544,000 |           |           |  |  |           |           |  |  |          
|                                |             |       |           |           |            |             |           |             |           |              |           |           |           |  |   |           |           |  |   |          
|                                |             | TOTAL |           | $         | 14,079,000 |             |           | $           | 4,882,000 |              |           | $         | 6,166,000 |  |   | $         | 1,374,000 |  |   | $         | 1,657,000 | 
|                                |             |       |           |           |            |             |           |             |           |              |           |           |           |  |   |           |           |  |   |          

6



---



##### 



Laboratory purchase obligations totaling
$3,870,000 classified as deferred acquisition costs are
presented in the liability section of the balance sheet. The
Company is committed under various non-cancelable operating
lease agreements covering its office space and dental laboratory
facilities, vehicles and certain equipment. Certain of these
leases also require the Company to pay maintenance, repairs,
insurance and related taxes.

Results of Operations

The following table sets forth for the periods
indicated the percentage of net sales represented by certain
items in the Companys Consolidated Financial Statements:

|                                         |  |                          |       |      |  |      |       |   |  |  |       |  
|---------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                         |  |                         
|                                         |  | Years Ended December 31,
|                                         |  |                         
|                                         |  | 2000                     |       | 2001 |  | 2002
|                                         |  |                          |       |      |  |     
|Net sales                                |  |                          | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Cost of goods sold                       |  |                          | 58.4  |      |  |      | 58.7  |   |  |  | 59.0  |  
|                                         |  |                          |       |      |  |      |       |   |  |  |       |  
|Gross profit                             |  |                          | 41.6  |      |  |      | 41.3  |   |  |  | 41.0  |  
|Total operating expenses                 |  |                          | 29.3  |      |  |      | 29.9  |   |  |  | 30.9  |  
|                                         |  |                          |       |      |  |      |       |   |  |  |       |  
|Operating income                         |  |                          | 12.3  |      |  |      | 11.4  |   |  |  | 10.1  |  
|Other income (expense)                   |  |                          | (0.1  | )    |  |      | (0.1  | ) |  |  | (0.2  | )
|Interest income                          |  |                          | 0.8   |      |  |      | 0.3   |   |  |  | 0.1   |  
|                                         |  |                          |       |      |  |      |       |   |  |  |       |  
|Income before provision for income taxes |  |                          | 13.0  |      |  |      | 11.6  |   |  |  | 10.0  |  
|Provision for income taxes               |  |                          | 5.1   |      |  |      | 4.6   |   |  |  | 3.8   |  
|                                         |  |                          |       |      |  |      |       |   |  |  |       |  
|Net income                               |  |                          | 7.9   | %    |  |      | 7.0   | % |  |  | 6.2   | %
|                                         |  |                          |       |      |  |      |       |   |  |  |       |  

Year Ended December 31, 2002 Compared
with Year Ended December 31, 2001



| |          
| | ---------
| | Net Sales

For the year ended December 31, 2002, net
sales increased $9,460,000 or 11.0% over the prior year. Net
sales increased by approximately $9,995,000 as a result of
acquisitions, measured by business at dental laboratories owned
less than one year. Net sales declined approximately $535,000 at
dental laboratories owned for both the year ended
December 31, 2002 and the comparable year ended
December 31, 2001.



| |                   
| | ------------------
| | Cost of Goods Sold

The Companys cost of goods sold increased
by $5,917,000 or 11.8% in the fiscal year ended
December 31, 2002 over the prior fiscal year, attributable
primarily to increased unit sales. As a percentage of sales,
cost of goods sold increased from 58.7% to 59.0%. Increases in
labor and related expenses were partially offset by decreases in
materials costs. The increase in labor cost as a percentage of
sales was primarily attributable to increasing health insurance
costs as well as declining internal sales growth that led to an
increase in excess production capacity. The decrease in material
cost as a percentage of sales was primarily attributable to the
stabilization of alloy prices and the implementation of various
pricing strategies.



| |                                                
| | -----------------------------------------------
| | Selling General and Administrative
    Expenses

Operating expenses, which consist of selling,
delivery and administrative expenses both at the laboratory and
corporate level, increased by $3,701,000 or 14.4% in the year
ended December 31, 2002 over 2001. During the same period
operating expenses increased as a percentage of net sales from
29.9% in 2001 to 30.9% in 2002. Selling and corporate overhead
expenses increased as the Company implemented a national
marketing program, the NDX Reliance Program, that
was introduced during October 2001. During 2001 and 2002, the
Company incurred advertising and marketing expenses related to
the NDX Reliance program of approximately $141,000 and $878,000,
respectively.

7



---



##### 



Administrative expense at both the laboratory and
corporate level has increased by approximately $2,700,000. In
addition to the added administrative costs from laboratories
acquired during 2001 and 2002, the Company has sought to
increase both the depth and the breadth of its management team.

Amortization expense declined approximately
$987,000. The decline in amortization expense was attributable
to the implementation of SFAS No. 142.



| |                 
| | ----------------
| | Operating Income

As a result of expenses related to the
development of the NDX Reliance Program, investments in the
strengthening of the Companys management team, and
increases in health and other insurance costs, coupled with the
current economic climate, the Companys operating income
declined by $159,000 to $9,657,000 for the year ended
December 31, 2002 from $9,816,000 for the prior year. As a
percentage of net sales, operating income declined from 11.4% in
2001 to 10.1% for 2002.



| |                
| | ---------------
| | Interest Income

Interest income decreased by $150,000 in the year
ended December 31, 2002 from 2001. The decrease was due to
lower investment principal and lower interest rates.



| |                           
| | --------------------------
| | Provision for Income Taxes

The provision for income taxes decreased to
$3,644,000 in 2002 from $3,939,000 in 2001. This $295,000
decrease was the result of decreased income and a lower
effective tax rate. The 39.7% effective tax rate for fiscal year
2001 decreased to 38.3% for fiscal year 2002. The decrease in
the effective tax rate is due to non-deductible expenses,
primarily goodwill amortization, constituting a smaller portion
of taxable income as a result of the elimination of such
amortization due to the adoption of FAS 142 on January 1,
2002.



| |           
| | ----------
| | Net Income

As a result of all the factors discussed above,
net income decreased to $5,882,000 or $1.66 per share on a
diluted basis in 2002 from $5,978,000 or $1.68 per share on a
diluted basis in 2001.

Year Ended December 31, 2001 Compared
with Year Ended December 31, 2000



| |          
| | ---------
| | Net Sales

For the year ended December 31, 2001, net
sales increased $10,045,000 or 13.3% over the prior year.
Approximately $8,615,000 of this increase was attributable to
business at dental laboratories owned less than one year, with
the remaining increase representing sales growth at dental
laboratories owned both the year ended December 31, 2001
and the comparable year ended December 31, 2000.



| |                   
| | ------------------
| | Cost of Goods Sold

The Companys cost of goods sold increased
by $6,075,000 or 13.7% in the fiscal year ended
December 31, 2001 over the prior fiscal year, attributable
primarily to increased unit sales. As a percentage of sales,
cost of goods sold increased from 58.4% to 58.7%. Increases in
labor and laboratory overhead expenses were partially offset by
decreases in materials costs. Materials costs decreased as the
cost of palladium, a component of dental alloys, declined after
several years of steep increases. Additionally, during 2001 the
Company reduced its reliance on palladium through the
substitution of alternative metals.



| |                         
| | ------------------------
| | Total Operating Expenses

Operating expenses, which consist of selling,
delivery and administrative expenses both at the laboratory and
corporate level, increased by $3,498,000 or 15.8% in the year
ended December 31, 2001 over 2000. During this same period
operating expenses increased as a percentage of net sales from
29.3% in 2000 to 29.9% in 2001. Selling and Corporate Overhead
expenses increased as the Company developed a national marketing

8



---



##### 



program,  The NDX Reliance Program.
During 2001, the Company absorbed staffing and training expenses
necessary for the successful implementation of the program.




| |                 
| | ----------------
| | Operating Income

Due to the increase in net sales, partially
offset by increases in operating expenses as a percent of net
sales, operating income increased $472,000 or 5.1% in fiscal
year 2001 over fiscal year 2000.



| |                
| | ---------------
| | Interest Income

Interest income decreased by $339,000 in the year
ended December 31, 2001 from 2000. The decrease was due to
lower investment principal and falling interest rates.



| |                           
| | --------------------------
| | Provision for Income Taxes

The provision for income taxes increased to
$3,939,000 in 2001 from $3,869,000 in 2000. This $70,000
increase was the result of increased income and a higher
effective tax rate. The 39.4% effective tax rate for fiscal year
2000 increased to 39.7% for fiscal year 2001.



| |           
| | ----------
| | Net Income

As a result of all the factors discussed above,
net income increased to $5,978,000 or $1.68 per share on a
diluted basis in 2001 from $5,961,000 or $1.66 per share on a
diluted basis in 2000.

Critical Accounting Policies

Financial Reporting Release No. 60 as
released by the Securities and Exchange Commission requires all
companies to include a discussion of critical accounting
policies or methods used in the preparation of financial
statements. While the preparation of our consolidated financial
statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the
reported amounts of expenses during the reporting period, we do
not believe the Companys financial statements are
significantly affected by complex accounting policies and
methods. A summary of the Companys significant accounting
policies is presented below.

Summary of Significant Accounting
Policies



| |                    
| | -------------------
| | Revenue Recognition

Revenue is recognized as the dentists
orders are shipped. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements. This bulletin established additional
guidelines for revenue recognition. The Companys revenue
recognition policy complies with this pronouncement. Shipping
and handling fees charged to customers are recognized upon
shipment. Shipping and handling costs totaling approximately
$6,396,000, $7,091,000 and $7,690,000 for the years ended
December 31, 2000, 2001 and 2002, respectively, are
included in selling, general and administrative expense.



| |                                      
| | -------------------------------------
| | Advertising and Promotional
    Costs

Advertising, promotional and marketing costs are
charged to earnings in the period in which they are incurred, in
accordance with AICPA Statement of Position (SOP) 93-7,
Reporting on Advertising Costs. These costs were
approximately $551,000, $748,000 and $1,480,000 for the years
ended December 31, 2000, 2001 and 2002, respectively.

9



---



##### 





| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid
investments purchased with maturities of 90 days or less to
be cash equivalents. The Company has cash investments with
financial institutions in excess of the $100,000 insured limit
of the Federal Deposit Insurance Corporation.



| |            
| | -----------
| | Inventories

Inventories, consisting principally of raw
materials, are stated at the lower of cost (first-in, first-out)
or market.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost,
less accumulated depreciation. Depreciation is calculated using
the straight-line method over the following estimated
depreciable lives:

|                       |  |           
|---------------------- |  | ----------
|Buildings              |  | 25 years  
|Furniture and fixtures |  | 5-10 years
|Laboratory equipment   |  | 5-20 years
|Computer equipment     |  | 3-5 years 

Leasehold improvements and capital leases are
amortized over the lesser of the assets estimated useful
lives or the lease terms.

Gains and losses are recognized upon the disposal
of property and equipment, and the related accumulated
depreciation and amortization are removed from the accounts.
Maintenance, repairs and betterments that do not enhance the
value of or increase the life of the assets are charged to
operations as incurred.

Depreciation expense totaled approximately
$1,095,000, $1,264,000 and $1,436,000 for the years ended
December 31, 2000, 2001 and 2002, respectively.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

At each balance sheet date, management
periodically evaluates the recoverability of the long-lived
assets, including property, plant and equipment and intangible
assets, using certain financial indicators, such as historical
and future ability to generate income from operations. The
Companys policy is to record an impairment loss in the
period when it is determined that the carrying amount of the
asset may not be recoverable. The determination is based on an
evaluation of such factors as the occurrence of a significant
event, a significant change in the environment in which the
business operates or if the expected future undiscounted cash
flows would become less than the carrying amount of the asset.
The Company believes that no impairment of long-lived assets
existed as of December 31, 2001 and 2002.



| |             
| | ------------
| | Other Assets

Included in other assets are the costs of
noncompetition agreements, which are deferred and amortized on a
straight-line basis according to the terms of the agreements
over 5 to 10 years. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 142,
goodwill amortization ceased on December 31, 2001. The
Company continually evaluates whether events and circumstances
have occurred that indicate that the value of goodwill has been
impaired. In accordance with SFAS No. 142, goodwill is
evaluated for possible impairment on an annual basis, based on a
two-step process. The first step is to compare the fair value of
the reporting unit to its carrying amount to determine if there
is potential impairment. If the fair value of the reporting unit
is less than its carrying value, the second step would be to
record an impairment loss of the extent of that difference. As
of December 31, 2002, there has been no impairment of
goodwill.

10



---



##### 





| |             
| | ------------
| | Income Taxes

The Company follows Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under SFAS No. 109, deferred tax assets
and liabilities are recognized for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. The amount of deferred tax asset or
liability is based on the difference between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse.



| |                         
| | ------------------------
| | Stock-Based Compensation

Effective January 1, 1996, the Company
adopted the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. The Company
has elected to continue to account for employee stock options at
intrinsic value, in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees, with disclosure of the effects
of fair value accounting on net income and earnings per share on
a pro forma basis for the years ended December 31, 2000,
2001 and 2002.



| |                         
| | ------------------------
| | Treasury Stock Purchases

The Company has implemented a stock repurchase
program as approved by the Companys Board of Directors.
The program authorizes the purchase of up to 400,000 shares of
common stock in open market or privately negotiated
transactions, subject to market conditions. For the years ended
December 31, 2000, 2001 and 2002, the Company repurchased
17,200 shares, 161,600 shares and 83,400 shares
respectively, which have been classified as treasury stock on
the accompanying consolidated balance sheet.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146), which nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires a liability for a
cost associated with an exit or disposal activity be recognized
and measured initially at its fair value in the period in which
the liability is incurred. If fair value cannot be reasonably
estimated, the liability shall be recognized initially in the
period in which fair value can be reasonably estimated. The
provisions of SFAS 146 will be effective for the Company
prospectively for exit or disposal activities initiated after
December 31, 2002. The Company does not believe that the
adoption of this pronouncement will have a material effect on
the results of the Company.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45).
FIN 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. FIN 45 does
not prescribe a specific approach for subsequently measuring the
guarantors recognized liability over the term of the
related guarantee. This Interpretation also incorporates,
without change, the guidance in FASB Interpretation No. 34,
Disclosure of Indirect Guarantees of Indebtedness of
Others, which is being superseded. The Company has adopted
the disclosure provisions of this pronouncement as of
December 31, 2002. The Company is currently assessing the
financial impact of adopting this pronouncement in fiscal year
2003.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation (SFAS 148), to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure
requirements of SFAS 123 to require prominent disclosure in
both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. The amended disclosure
provisions are effective for fiscal years ending after
December 15, 2002 and the Company has adopted the amended
disclosure provisions as of December 31,

11



---



##### 



2002. The Company has not decided whether or not
it will voluntarily change to the fair value based method of
accounting for stock-based employee compensation at this time.


Forward-Looking Statements and Risk
Factors

This Form 10-K contains 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. The Companys
actual results could differ materially from those set forth in
the forward-looking statements. Certain factors that could
affect capital expenditures, the Companys requirements for
capital, the costs associated with anticipated acquisitions and
the Companys results of operations include general
economic conditions, the availability of laboratories for
purchase by the Company, the ability of the Company to acquire
and successfully operate additional laboratories, governmental
regulation of health care, trends in the dental industry towards
managed care, other factors affecting patient visits to the
Companys clients, increases in labor and materials costs
and other risks indicated from time to time in filings with the
Securities and Exchange Commission.



|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

The Companys market risk exposure includes
potential price volatility of commodities used by the Company in
its manufacturing processes. The Company purchases dental alloys
that contain gold, palladium and other precious metals. The
Company has not participated in hedging transactions. The
Company has relied on pricing practices that attempt to pass
increased costs on to the customer, in conjunction with
materials substitution strategies.



|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Quarterly Results

The following table sets forth certain selected
financial information for the Company for its eight most recent
fiscal quarters. In the opinion of the Company, this unaudited
information has been prepared on the same basis as the audited
financial information and includes all adjustments (consisting
of only normal, recurring adjustments) necessary to present this
information fairly when reviewed in conjunction with the
Companys Consolidated Financial Statements and notes
thereto contained herein. The consolidated financial statements
for fiscal years 1998 through 2001 were audited by Arthur
Andersen LLP (Andersen) who has ceased operations. A
copy of the report previously issued by Andersen on our
consolidated financial statements as of December 31, 2001
and 2000 and for each of the years in the period ended
December 31, 2001 is included elsewhere in this Report.
Such report has not been reissued by Andersen.

|                             |  |                                              |        |          |  |           |        |          |  |           |        |          |  |           |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------- |  | -------------------------------------------- | ------ | -------- |  | --------- | ------ | -------- |  | --------- | ------ | -------- |  | --------- | ------ | -------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                             |  |                                             
|                             |  | Three Months Ended                          
|                             |  |                                             
|                             |  | March 31,                                    |        | June 30, |  | Sept. 30, |        | Dec. 31, |  | March 31, |        | June 30, |  | Sept. 30, |        | Dec. 31,
|                             |  | 2001                                         |        | 2001     |  | 2001      |        | 2001     |  | 2002      |        | 2002     |  | 2002      |        | 2002    
|                             |  |                                              |        |          |  |           |        |          |  |           |        |          |  |           |        |         
|                             |  |                                             
|                             |  | (Dollars in thousands except per share data)
|Net sales                    |  | $                                            | 20,606 |          |  | $         | 21,861 |          |  | $         | 21,007 |          |  | $         | 22,251 |          |  | $ | 23,414 |   |  | $ | 25,197 |   |  | $ | 23,364 |   |  | $ | 23,209 |  
|Gross profit                 |  | $                                            | 8,471  |          |  | $         | 9,301  |          |  | $         | 8,296  |          |  | $         | 9,379  |          |  | $ | 9,784  |   |  | $ | 10,735 |   |  | $ | 9,310  |   |  | $ | 9,160  |  
|Gross margin                 |  |                                              | 41.1   | %        |  |           | 42.5   | %        |  |           | 39.5   | %        |  |           | 42.2   | %        |  |   | 41.8   | % |  |   | 42.6   | % |  |   | 39.8   | % |  |   | 39.5   | %
|Operating income             |  | $                                            | 2,405  |          |  | $         | 2,925  |          |  | $         | 2,098  |          |  | $         | 2,388  |          |  | $ | 2,633  |   |  | $ | 3,198  |   |  | $ | 2,165  |   |  | $ | 1,660  |  
|Operating margin             |  |                                              | 11.7   | %        |  |           | 13.4   | %        |  |           | 10.0   | %        |  |           | 10.7   | %        |  |   | 11.2   | % |  |   | 12.7   | % |  |   | 9.3    | % |  |   | 7.2    | %
|Net income                   |  | $                                            | 1,485  |          |  | $         | 1,783  |          |  | $         | 1,269  |          |  | $         | 1,441  |          |  | $ | 1,569  |   |  | $ | 1,871  |   |  | $ | 1,302  |   |  | $ | 1,139  |  
|Net income per diluted share |  | $                                            | 0.42   |          |  | $         | 0.50   |          |  | $         | 0.36   |          |  | $         | 0.41   |          |  | $ | 0.44   |   |  | $ | 0.52   |   |  | $ | 0.37   |   |  | $ | 0.33   |  

The Companys results of operations have
historically fluctuated on a quarterly basis and are expected to
be subject to quarterly fluctuations in the future. As a result,
the Company believes that the results of operations for the
interim periods are not necessarily indicative of the results to
be expected for any future period or for a full year. Quarterly
results are subject to fluctuations resulting from a number of
factors, including the number of working days in the quarter for
both dentists and Company employees, the number of paid vacation
days and holidays in the period and general economic conditions.
Historically, the second

12



---



##### 



quarter has generated the highest quarterly net
sales for the year and has been the most profitable for the
Company due to the greater number of working days in the quarter
and more patients scheduling visits with their dentists before
departing for summer vacation.


Location of Financial Statements

The consolidated financial statements furnished
in connection with this Report are attached immediately
following Part IV.



|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Effective as of July 31, 2002, the
Companys Board of Directors, upon recommendation of its
Audit Committee, engaged PricewaterhouseCoopers LLP
(PwC) as the Companys auditors, to replace
Arthur Andersen LLP, which was ceasing operations.

During the Companys two most recent fiscal
years and the interim period through July 31, 2002, neither
the Company, nor anyone on its behalf consulted with PwC
regarding any of the matters or reportable events listed in
Items 304(a)(2)(i) and (ii) of Regulation S-K.

PART III



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

(a) Directors.The information with
respect to directors required by this item is incorporated
herein by reference from the Companys Proxy Statement
dated March 10, 2003 for the Special Meeting in Lieu of
Annual Meeting of Shareholders to be held on April 8, 2003
(the 2003 Proxy Statement).

(b) Executive Officers.The
information with respect to executive officers required by this
item is incorporated herein by reference from the 2003 Proxy
Statement.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item is
incorporated herein by reference from the 2003 Proxy Statement.



|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by this item is
incorporated herein by reference from the 2003 Proxy Statement.



|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated herein by reference from the 2003 Proxy Statement.



|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

(a) Explanation of disclosure controls
and procedures.Within the
90 days prior to the filing date of this report, the
Company carried out an evaluation, under the supervision and
with the participation of the Companys management,
including the Companys President and Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure
controls and procedures as defined in Rule 13a-14 of the
Securities Exchange Act of 1934. Based on that evaluation, such
officers concluded that the Companys disclosure controls
and procedures are designed to ensure that information required
to be disclosed by the Company in reports it files or submits
under the Securities and Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods
specified in Securities and Exchange Commission rules and forms
and are operating in an effective manner.

13



---



##### 



(b) Changes in internal
controls.There have been no
significant changes in the Companys internal controls or
in other factors which could significantly affect internal
controls subsequent to the date the Company carried out its
evaluation.

PART IV

Item 15.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a),(d) Financial Statements and
Schedules.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | (1) The financial statements set forth in
    the list below are filed as part of this Report.         
|
| | (2) The financial statement schedules set
    forth in the list below are filed as part of this Report.
|
| | (3) Exhibits filed herewith or incorporated
    herein by reference are set forth in Item 15(c) below. 

List of
Financial Statements and Schedules Referenced in this
Item 15

The consolidated financial statements of National
Dentex Corporation included herein are as listed below:

|                                                                                                        |  |      |     | 
|------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                        |  | Page
|                                                                                                        |  |     
|Report of Independent Accountants 
    PricewaterhouseCoopers LLP, February 12, 2003                   |  |      | F-2 | 
|Report of Independent Public
    Accountants  Arthur Andersen LLP, February 8,
    2002                |  |      | F-3 | 
|Consolidated Balance Sheets as of
    December 31, 2001 and 2002                                        |  |      | F-4 | 
|Consolidated Statements of Income for each of the
    three years ended December 31, 2002               |  |      | F-5 | 
|Consolidated Statements of Stockholders
    Equity for each of the three years ended December 31, 2002 |  |      | F-6 | 
|Consolidated Statements of Cash Flows for each of
    the three years ended December 31, 2002           |  |      | F-7 | 
|Notes to Consolidated Financial Statements                                                              |  |      | F-8 | 

Financial
Statement Schedule included herewith:

Schedule II: Valuation and Qualifying
Accounts

All other schedules are omitted because they are
not applicable or not required, or because the required
information is shown either in the financial statements or in
the notes thereto.

(b) Reports on Form 8-K.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | During the Companys fiscal quarter ended
    December 31, 2002, the Company did not file any Current
    Reports on Form 8-K.

(c) Exhibits.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | (i) The following exhibits, required by
    Item 601 of Regulation S-K, are filed herewith:

|        |      |       |  |                                                                                          
|------- | ---- | ----- |  | -----------------------------------------------------------------------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | 23   |       |  | Consent of PricewaterhouseCoopers LLP.                                                   
|        | 99.1 |       |  | Certification of Chief Executive Officer under
    Section 906 of the Sarbanes-Oxley Act.
|        | 99.2 |       |  | Certification of Chief Financial Officer under
    Section 906 of the Sarbanes-Oxley Act.

14



---



##### 





| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) The following exhibit was filed with
    the Companys Form S-8 Registration Statement (File
    No. 333-66446) and is herein incorporated by reference:

|        |      |       |  |                             
|------- | ---- | ----- |  | ----------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | *10a |       |  | 2001 Stock Plan, as amended.



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) The following exhibit was filed with
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2001 and is herein incorporated by
    reference:

|        |      |       |  |                                                                                           
|------- | ---- | ----- |  | ------------------------------------------------------------------------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | *10b |       |  | 2001 Amended and Restated Loan Agreement with
    Citizens Bank, dated December 31, 2001.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) The following exhibits were filed with
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2000 and are herein incorporated by
    reference:

|        |      |       |  |                                                                                                                                                                                                                    
|------- | ---- | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | *10c |       |  | Change of Control Severance Agreement between the
    Company and David L. Brown, dated January 23, 2001.                                                                                                          
|        | *10d |       |  | Form of Change of Control Severance Agreements
    between the Company and each of Arthur Champagne, James F.
    Dodd III, Richard G. Mariacher, Donald E. Merz and Eloy V.
    Sepulveda, dated January 23, 2001.



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v) The following exhibits were filed with
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 1999 and are herein incorporated by
    reference:

|        |      |       |  |                                                                                         
|------- | ---- | ----- |  | ----------------------------------------------------------------------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | *10e |       |  | Employment Agreement between the Company and
    Donald E. Merz, dated November 1, 1983 
|        | *10f |       |  | Employment Agreement between the Company and Eloy
    V. Sepulveda, dated June 15, 1983.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (vi) The following exhibits were filed with
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 1995 and are herein incorporated by
    reference:

|        |      |       |  |                                                                                                                   
|------- | ---- | ----- |  | ------------------------------------------------------------------------------------------------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | *10g |       |  | Long Term Incentive Plan, as amended.                                                                             
|        | *10h |       |  | Employment Agreement between the Company and
    Richard F. Becker, Jr., dated April 1, 1995.                     
|        | *10i |       |  | Change of Control Severance Agreement between the
    Company and Richard F. Becker, Jr., dated April 1,
    1995.
|        | *10j |       |  | Employment Agreement between the Company and
    David L. Brown, dated April 1, 1995.                             
|        | *10k |       |  | Change of Control Severance Agreement between the
    Company and David L. Brown dated April 1, 1995.             
|        | *10l |       |  | Employment Agreement between the Company and
    William M. Mullahy, dated April 1, 1995.                         

15



---



##### 





| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (vii) The following exhibits were filed as
    part of the Companys Form S-1 Registration Statement
    (File No. 33-70440) declared effective by the Securities
    and Exchange Commission on December 21, 1993 and are herein
    incorporated by reference:

|        |      |       |  |                                                                                                                           
|------- | ---- | ----- |  | --------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | 3a   |       |  | Restated Articles of Organization of the Company,
    filed with Massachusetts Secretary of State on October 14,
    1993.
|        | 3b   |       |  | By-Laws of the Company, as amended on
    December 31, 1982 and May 26, 1992.                                             
|        | *10m |       |  | Salary Continuation Agreement, dated
    April 1, 1985, between the Company and William M. Mullahy.                       
|        | *10n |       |  | Salary Continuation Agreement, dated
    April 1, 1985, between the Company and Donald E. Merz.                           
|        | *10o |       |  | National Dentex Corporation Laboratory Incentive
    Compensation Plan.                                                   
|        | *10p |       |  | National Dentex Corporation Corporate Executives
    Incentive Compensation Plan.                                         
|        | *10q |       |  | National Dentex Corporation Group Managers
    Incentive Compensation Plan.                                               
|        | *10r |       |  | National Dentex Corporation Dollars Plus Plan, as
    amended on January 3, 1986.                                         
|        | *10s |       |  | National Dentex Corporation Employees Stock
    Purchase Plan.                                                           



---



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|* | These exhibits relate to a management contract or
    to a compensatory plan or arrangement.

16



---



##### 



NATIONAL DENTEX CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE

|                      |                                                                                                               |                                                                                                                           |  |             |     | 
|--------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --- | 
|                      |                                                                                                               | Page                                                                                                                     
|                      |                                                                                                               |                                                                                                                          
|Financial Statements: |                                                                                                               |                                                                                                                           |  |            
|                      | The consolidated financial statements of National
    Dentex Corporation included herein are as listed below: |                                                                                                                           |  |             |    
|                      |                                                                                                               | Report of Independent Accountants 
    PricewaterhouseCoopers LLP, February 12, 2003                                     |  |             | F-2 | 
|                      |                                                                                                               | Report of Independent Public
    Accountants  Arthur Andersen LLP, February 8,
    2002                                  |  |             | F-3 | 
|                      |                                                                                                               | Consolidated Balance Sheets as of
    December 31, 2001 and 2002                                                          |  |             | F-4 | 
|                      |                                                                                                               | Consolidated Statements of Income for each of the
    three years in the period ended December 31, 2002                   |  |             | F-5 | 
|                      |                                                                                                               | Consolidated Statements of Stockholders
    Equity for each of the three years in the period ended
    December 31, 2002 |  |             | F-6 | 
|                      |                                                                                                               | Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2002               |  |             | F-7 | 
|                      |                                                                                                               | Notes to Consolidated Financial Statements                                                                                |  |             | F-8 | 
|Schedule:             |                                                                                                               |                                                                                                                           |  |            
|                      | Valuation and Qualifying Accounts                                                                             |                                                                                                                           |  | Schedule II |    

All other schedules for which provision is made
in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are not material and therefore have been omitted.

F-1



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and

Shareholders of National Dentex Corporation:


In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in
all material respects, the financial position of National Dentex
Corporation and its subsidiaries (the Company) at
December 31, 2002, and the results of their operations and
their cash flows for the year ended December 31, 2002 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule for the year ended
December 31, 2002 listed in the accompanying index presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial
statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion. The consolidated financial statements of
the Company as of December 31, 2001 and for each of the two
years in the period ended December 31, 2001 were audited by
other independent accountants who have ceased operations. Those
independent accountants expressed an unqualified opinion on
those consolidated financial statements in their report dated
February 8, 2002. In addition, the financial statement
schedule listed in the accompanying index for each of the two
years in the period ended December 31, 2001 was audited by
other independent accountants who have ceased operations. Those
independent accountants expressed an unqualified opinion on that
financial statement schedule in their report dated
February 8, 2002.

As disclosed in Note 4, the Company changed
the manner in which it accounts for goodwill and other
intangible assets upon adoption of the accounting guidance of
Statement of Financial Accounting Standards No. 142
effective on January 1, 2002.

As discussed above, the consolidated financial
statements of the Company as of December 31, 2001, and for
each of the two years in the period ended December 31,
2001, were audited by other independent accountants who have
ceased operations. As described in Note 4, these financial
statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets, which was adopted by the Company as of
January 1, 2002. We audited the transitional disclosures
for 2001 and 2000 in Note 4. In our opinion, the
transitional disclosures for 2001 and 2000 in Note 4 are
appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2001 or 2000 financial statements of
the Company other than with respect to such disclosures and,
accordingly, we do not express an opinion or any other form of
assurance on the 2001 or 2000 financial statements taken as a
whole.



| |                           
| | --------------------------
| | PricewaterhouseCoopers LLP

Boston, Massachusetts

February 12, 2003, except for


Note 10, for which the date


is February 28, 2003


F-2



---



##### 



The following report is a copy of the report
previously issued by Arthur Andersen LLP

and has not been re-issued by Arthur Andersen
LLP.


REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Shareholders of National Dentex
Corporation:

We have audited the accompanying consolidated
balance sheets of National Dentex Corporation (a Massachusetts
corporation) as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders
equity and cash flows for each of the three years in the period
ended December 31, 2001. These consolidated financial
statements and the schedule referred to below are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of National Dentex Corporation
as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming
an opinion on the basic consolidated financial statements taken
as a whole. The schedule listed in the index to consolidated
financial statements is presented for purposes of complying with
Securities and Exchange Commissions rules and is not a
part of the basic consolidated financial statements. The
schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Boston, Massachusetts

February 8, 2002


F-3



---



##### 



NATIONAL DENTEX CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |            |            | 
|---------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ---------- | ------------ | ---------- |  | ---------- | ---------- | ---------- | 
|                                         |                                                                                                                                                                 | December 31,                                       |            | December 31,
|                                         |                                                                                                                                                                 | 2001                                               |            | 2002        
|                                         |                                                                                                                                                                 |                                                    |            |             
|ASSETS                                  
|CURRENT ASSETS:                          |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         | Cash and cash equivalents                                                                                                                                       |                                                    | $          | 6,378,026    |            |  | $          | 5,808,435  |           
|                                         | Accounts receivable:                                                                                                                                            |                                                    |            |              |            |  |            |            |           
|                                         |                                                                                                                                                                 | Trade, less allowance of $307,000 in 2001 and 2002 |            |              | 9,582,266  |  |            |            | 10,041,989 | 
|                                         |                                                                                                                                                                 | Other                                              |            |              | 491,120    |  |            |            | 442,154    | 
|                                         | Inventories of raw materials                                                                                                                                    |                                                    |            | 5,220,462    |            |  |            | 5,558,316  |           
|                                         | Prepaid expenses                                                                                                                                                |                                                    |            | 1,792,607    |            |  |            | 2,178,002  |           
|                                         | Deferred tax asset, current                                                                                                                                     |                                                    |            | 369,195      |            |  |            | 270,829    |           
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 | Total current assets                               |            |              | 23,833,676 |  |            |            | 24,299,725 | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|PROPERTY, PLANT AND EQUIPMENT:           |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         | Land and buildings                                                                                                                                              |                                                    |            | 4,585,731    |            |  |            | 4,585,731  |           
|                                         | Leasehold and building improvements                                                                                                                             |                                                    |            | 5,191,126    |            |  |            | 5,969,018  |           
|                                         | Laboratory equipment                                                                                                                                            |                                                    |            | 8,880,778    |            |  |            | 10,192,772 |           
|                                         | Furniture and fixtures                                                                                                                                          |                                                    |            | 3,012,380    |            |  |            | 3,392,192  |           
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 |                                                    | 21,670,015 |              |            |  | 24,139,713 |           
|                                         | Less  Accumulated depreciation and
    amortization                                                                                                            |                                                    |            | 11,346,581   |            |  |            | 12,613,976 |           
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         | Net property, plant and equipment                                                                                                                               |                                                    |            | 10,323,434   |            |  |            | 11,525,737 |           
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|OTHER ASSETS, net:                       |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         | Goodwill                                                                                                                                                        |                                                    |            | 21,645,288   |            |  |            | 24,123,203 |           
|                                         | Non-competition agreements                                                                                                                                      |                                                    |            | 3,568,480    |            |  |            | 2,640,657  |           
|                                         | Deferred tax asset, noncurrent                                                                                                                                  |                                                    |            | 362,701      |            |  |            | 186,895    |           
|                                         | Other assets                                                                                                                                                    |                                                    |            | 2,349,685    |            |  |            | 3,040,654  |           
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 | Total other assets                                 |            |              | 27,926,154 |  |            |            | 29,991,409 | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 | Total assets                                       |            | $            | 62,083,264 |  |            | $          | 65,816,871 | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|CURRENT LIABILITIES:                     |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         | Accounts payable                                                                                                                                                |                                                    | $          | 1,889,234    |            |  | $          | 1,961,915  |           
|                                         | Accrued liabilities:                                                                                                                                            |                                                    |            |              |            |  |            |            |           
|                                         |                                                                                                                                                                 | Payroll and employee benefits                      |            |              | 3,540,899  |  |            |            | 4,285,269  | 
|                                         |                                                                                                                                                                 | Current portion of deferred purchase price         |            |              | 2,778,160  |  |            |            | 2,325,932  | 
|                                         |                                                                                                                                                                 | Other accrued expenses                             |            |              | 565,042    |  |            |            | 227,922    | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 | Total current liabilities                          |            |              | 8,773,335  |  |            |            | 8,801,038  | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|LONG-TERM LIABILITIES:                   |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         | Payroll and employee benefits                                                                                                                                   |                                                    |            | 1,224,231    |            |  |            | 1,525,903  |           
|                                         | Deferred purchase price                                                                                                                                         |                                                    |            | 3,058,609    |            |  |            | 1,543,959  |           
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 | Total long-term liabilities                        |            |              | 4,282,840  |  |            |            | 3,069,862  | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|COMMITMENTS AND CONTINGENCIES (Note 8)   |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|STOCKHOLDERS EQUITY:                    |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         | Preferred stock, $.01 par value
    Authorized  500,000 shares
    None issued and outstanding                                                                 |                                                    |            |             |            |  |            |           |           
|                                         | Common stock, $.01 par value
    Authorized  8,000,000 shares
    Issued  3,625,663 shares at December 31, 2001
    and 3,665,209 shares at December 31, 2002 |                                                    |            |              |            |  |            |            |           
|                                         | Outstanding  3,446,863 shares at
    December 31, 2001 and 3,403,009 shares at December 31,
    2002                                                           |                                                    |            | 36,257       |            |  |            | 36,652     |           
|                                         | Paid-in capital                                                                                                                                                 |                                                    |            | 15,982,448   |            |  |            | 16,643,963 |           
|                                         | Retained earnings                                                                                                                                               |                                                    |            | 36,549,253   |            |  |            | 42,430,900 |           
|                                         | Treasury stock at cost  178,800 shares
    at December 31, 2001 and 262,200 shares at
    December 31, 2002                                                    |                                                    |            | (3,540,869   | )          |  |            | (5,165,544 | )         
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 | Total stockholders equity                         |            |              | 49,027,089 |  |            |            | 53,945,971 | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           
|                                         |                                                                                                                                                                 | Total liabilities and stockholders equity         |            | $            | 62,083,264 |  |            | $          | 65,816,871 | 
|                                         |                                                                                                                                                                 |                                                    |            |              |            |  |            |           

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

F-4



---



##### 



NATIONAL DENTEX CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |            | 
|------------------------------------------------- | ---------------------------------------- | ------------ | ---------- | ------------ |  | ------------ | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                  |                                          |             
|                                                  |                                          | Years Ended 
|                                                  |                                          |             
|                                                  |                                          | December 31, |            | December 31, |  | December 31,
|                                                  |                                          | 2000         |            | 2001         |  | 2002        
|                                                  |                                          |              |            |              |  |             
|Net sales                                         |                                          | $            | 75,679,824 |              |  | $            | 85,725,076 |            |  | $ | 95,184,567 |           
|Cost of goods sold                                |                                          |              | 44,203,153 |              |  |              | 50,278,363 |            |  |   | 56,195,536 |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Gross profit                             |              |            | 31,476,671   |  |              |            | 35,446,713 |  |   |            | 38,989,031 | 
|Selling, general and administrative expenses      |                                          |              | 22,132,962 |              |  |              | 25,631,096 |            |  |   | 29,332,366 |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Operating income                         |              |            | 9,343,709    |  |              |            | 9,815,617  |  |   |            | 9,656,665  | 
|Other expense                                     |                                          |              | 82,754     |              |  |              | 128,061    |            |  |   | 210,541    |           
|Interest income                                   |                                          |              | 568,496    |              |  |              | 229,497    |            |  |   | 79,610     |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Income before provision for income taxes |              |            | 9,829,451    |  |              |            | 9,917,053  |  |   |            | 9,525,734  | 
|Provision for income taxes                        |                                          |              | 3,868,781  |              |  |              | 3,939,325  |            |  |   | 3,644,087  |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Net income                               |              | $          | 5,960,670    |  |              | $          | 5,977,728  |  |   | $          | 5,881,647  | 
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Net income per share  basic                      |                                          | $            | 1.67       |              |  | $            | 1.72       |            |  | $ | 1.70       |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Net income per share  diluted                    |                                          | $            | 1.66       |              |  | $            | 1.68       |            |  | $ | 1.66       |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Weighted average shares outstanding 
    basic   |                                          |              | 3,568,528  |              |  |              | 3,479,056  |            |  |   | 3,457,766  |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Weighted average shares outstanding 
    diluted |                                          |              | 3,600,649  |              |  |              | 3,562,413  |            |  |   | 3,552,918  |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           

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

F-5



---



##### 



NATIONAL DENTEX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |       |  |   |            |  |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------------------- |  | ------------ | --------- | -------- |  | ------- | ------ | -------- |  | -------- | ---------- | ----- |  | - | ---------- |  |  | - | ---------- | - |  | - | ---------- | -
|                                                                                        |  |              |           |          |  |         |        |          |  |         
|                                                                                        |  | Common Stock |           |          |  |         |        |          |  |         
|                                                                                        |  |              |           |          |  |         |        |          |  |         
|                                                                                        |  | Number of    |           | $.01 Par |  | Paid-in |        | Retained |  | Treasury |            |      
|                                                                                        |  | Shares       |           | Value    |  | Capital |        | Earnings |  | Stock    |            | Total
|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |      
|BALANCE, December 31, 1999                                                              |  |              | 3,550,083 |          |  | $       | 35,500 |          |  | $        | 14,903,119 |       |  | $ | 24,610,855 |  |  | $ |           |   |  | $ | 39,549,474 |  
|Issuance of 12,450 shares of common stock under
    the stock option plans              |  |              | 12,450    |          |  |         | 125    |          |  |          | 166,887    |       |  |   |           |  |  |   |           |   |  |   | 167,012    |  
|Issuance of 17,528 shares of common stock under
    the employee stock purchase program |  |              | 17,528    |          |  |         | 176    |          |  |          | 215,944    |       |  |   |           |  |  |   |           |   |  |   | 216,120    |  
|Issuance of 813 shares of common stock as
    directors fees                           |  |              | 813       |          |  |         | 8      |          |  |          | 11,984     |       |  |   |           |  |  |   |           |   |  |   | 11,992     |  
|Net income                                                                              |  |              |          |          |  |         |       |          |  |          |           |       |  |   | 5,960,670  |  |  |   |           |   |  |   | 5,960,670  |  
|Repurchase of 17,200 shares of common stock under
    the stock repurchase program      |  |              |          |          |  |         |       |          |  |          |           |       |  |   |           |  |  |   | (308,869   | ) |  |   | (308,869   | )
|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |       |  |   |            |  |  |   |            |   |  |   |            |  
|BALANCE, December 31, 2000                                                              |  |              | 3,580,874 |          |  |         | 35,809 |          |  |          | 15,297,934 |       |  |   | 30,571,525 |  |  |   | (308,869   | ) |  |   | 45,596,399 |  
|Issuance of 25,826 shares of common stock under
    the stock option plans              |  |              | 25,826    |          |  |         | 259    |          |  |          | 419,363    |       |  |   |           |  |  |   |           |   |  |   | 419,622    |  
|Issuance of 15,823 shares of common stock under
    the employee stock purchase program |  |              | 15,823    |          |  |         | 158    |          |  |          | 201,142    |       |  |   |           |  |  |   |           |   |  |   | 201,300    |  
|Issuance of 3,140 shares of common stock as
    directors fees                         |  |              | 3,140     |          |  |         | 31     |          |  |          | 64,009     |       |  |   |           |  |  |   |           |   |  |   | 64,040     |  
|Net income                                                                              |  |              |          |          |  |         |       |          |  |          |           |       |  |   | 5,977,728  |  |  |   |           |   |  |   | 5,977,728  |  
|Repurchase of 161,600 shares of common stock
    under the stock repurchase program     |  |              |          |          |  |         |       |          |  |          |           |       |  |   |           |  |  |   | (3,232,000 | ) |  |   | (3,232,000 | )
|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |       |  |   |            |  |  |   |            |   |  |   |            |  
|BALANCE, December 31, 2001                                                              |  |              | 3,625,663 |          |  |         | 36,257 |          |  |          | 15,982,448 |       |  |   | 36,549,253 |  |  |   | (3,540,869 | ) |  |   | 49,027,089 |  
|Issuance of 24,380 shares of common stock under
    the stock option plans              |  |              | 24,380    |          |  |         | 243    |          |  |          | 357,165    |       |  |   |           |  |  |   |           |   |  |   | 357,408    |  
|Issuance of 12,706 shares of common stock under
    the employee stock purchase program |  |              | 12,706    |          |  |         | 127    |          |  |          | 240,291    |       |  |   |           |  |  |   |           |   |  |   | 240,418    |  
|Issuance of 2,460 shares of common stock as
    directors fees                         |  |              | 2,460     |          |  |         | 25     |          |  |          | 64,059     |       |  |   |           |  |  |   |           |   |  |   | 64,084     |  
|Net income                                                                              |  |              |          |          |  |         |       |          |  |          |           |       |  |   | 5,881,647  |  |  |   |           |   |  |   | 5,881,647  |  
|Repurchase of 83,400 shares of common stock under
    the stock repurchase programs     |  |              |          |          |  |         |       |          |  |          |           |       |  |   |           |  |  |   | (1,624,675 | ) |  |   | (1,624,675 | )
|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |       |  |   |            |  |  |   |            |   |  |   |            |  
|BALANCE, December 31, 2002                                                              |  |              | 3,665,209 |          |  | $       | 36,652 |          |  | $        | 16,643,963 |       |  | $ | 42,430,900 |  |  | $ | (5,165,544 | ) |  | $ | 53,945,971 |  
|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |       |  |   |            |  |  |   |            |   |  |   |            |  

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

F-6



---



##### 



NATIONAL DENTEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |            |            |  
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ---------- | ------------ | ---------- | ------------ | ---------- | ---------- | ----------- | - | --------- | ---------- | ---------- | -
|                                                                          |                                                                                                                       |                                                         
|                                                                          |                                                                                                                       | Years Ended                                             
|                                                                          |                                                                                                                       |                                                         
|                                                                          |                                                                                                                       | December 31,                                             |            | December 31, |            | December 31,
|                                                                          |                                                                                                                       | 2000                                                     |            | 2001         |            | 2002        
|                                                                          |                                                                                                                       |                                                          |            |              |            |             
|Cash flows from operating activities:                                     |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          | Net income                                                                                                            |                                                          | $          | 5,960,670    |            |              | $          | 5,977,728  |             |   | $         | 5,881,647  |           
|                                                                          | Adjustments to reconcile net income to net cash
    provided by operating activities, net of effects of acquisitions: |                                                          |            |              |            |              |            |            |             |   |           |            |           
|                                                                          |                                                                                                                       | Depreciation and amortization                            |            |              | 2,491,349  |              |            |            | 2,922,091   |   |           |            | 2,106,922  |  
|                                                                          |                                                                                                                       | (Benefit) provision for deferred income taxes            |            |              | (53,983    | )            |            |            | 10,175      |   |           |            | 274,172    |  
|                                                                          |                                                                                                                       | Issuance of common stock as directors fees              |            |              | 11,992     |              |            |            | 64,040      |   |           |            | 64,084     |  
|                                                                          |                                                                                                                       | Provision for bad debts                                  |            |              | 59,311     |              |            |            | 72,310      |   |           |            | 46,978     |  
|                                                                          | Changes in operating assets and liabilities, net
    of effects of acquisitions:                                      |                                                          |            |              |            |              |            |            |             |   |           |            |           
|                                                                          |                                                                                                                       | (Increase) decrease in accounts receivable               |            |              | (402,212   | )            |            |            | 28,743      |   |           |            | (5,513     | )
|                                                                          |                                                                                                                       | Increase in inventories                                  |            |              | (615,708   | )            |            |            | (236,418    | ) |           |            | (220,027   | )
|                                                                          |                                                                                                                       | Decrease (increase) in prepaid expenses                  |            |              | 52,307     |              |            |            | (510,672    | ) |           |            | (358,770   | )
|                                                                          |                                                                                                                       | Increase in other assets                                 |            |              | (798,551   | )            |            |            | (677,119    | ) |           |            | (327,895   | )
|                                                                          |                                                                                                                       | Decrease in accounts payable and accrued
    liabilities |            |              | (503,510   | )            |            |            | (215,512    | ) |           |            | (152,421   | )
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          |                                                                                                                       | Net cash provided by operating activities                |            |              | 6,201,665  |              |            |            | 7,435,366   |   |           |            | 7,309,177  |  
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|Cash flows from investing activities:                                     |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          | Payment for acquisitions, net of cash acquired                                                                        |                                                          |            | (967,117     | )          |              |            | (7,532,377 | )           |   |           | (2,836,985 | )         
|                                                                          | Payment of deferred purchase price                                                                                    |                                                          |            | (2,290,879   | )          |              |            | (1,573,660 | )           |   |           | (1,859,249 | )         
|                                                                          | Additions to property, plant and equipment, net                                                                       |                                                          |            | (1,932,505   | )          |              |            | (1,640,831 | )           |   |           | (2,155,685 | )         
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          |                                                                                                                       | Net cash used in investing activities                    |            |              | (5,190,501 | )            |            |            | (10,746,868 | ) |           |            | (6,851,919 | )
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|Cash flows from financing activities:                                     |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          | Net proceeds from issuance of common stock                                                                            |                                                          |            | 383,132      |            |              |            | 620,922    |             |   |           | 597,826    |           
|                                                                          | Payments for repurchases of common stock                                                                              |                                                          |            | (308,869     | )          |              |            | (3,232,000 | )           |   |           | (1,624,675 | )         
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          |                                                                                                                       | Net cash provided by (used in) financing
    activities  |            |              | 74,263     |              |            |            | (2,611,078  | ) |           |            | (1,026,849 | )
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|Net increase (decrease) in cash and
    equivalents                       |                                                                                                                       |                                                          | 1,085,427  |              |            |              | (5,922,580 | )          |             |   | (569,591  | )         
|Cash and cash equivalents at beginning of period                          |                                                                                                                       |                                                          | 11,215,179 |              |            |              | 12,300,606 |            |             |   | 6,378,026 |           
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|Cash and cash equivalents at end of period                                |                                                                                                                       | $                                                        | 12,300,606 |              |            | $            | 6,378,026  |            |             | $ | 5,808,435 |           
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|Supplemental disclosures of cash flow information:                        |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          | Interest paid                                                                                                         |                                                          | $          | 87,422       |            |              | $          | 11,900     |             |   | $         | 11,375     |           
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          | Income taxes paid                                                                                                     |                                                          | $          | 4,184,484    |            |              | $          | 3,848,969  |             |   | $         | 4,172,637  |           
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|Supplemental schedule of non-cash investing and
    financing activities: |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          | The Company purchased the operations of certain
    dental laboratories in 2000, 2001 and 2002.                       |                                                          |            |              |            |              |            |            |             |   |           |            |           
|                                                                          | In connection with these acquisitions,
    liabilities were assumed as follows:                                       |                                                          |            |              |            |              |            |            |             |   |           |            |           
|                                                                          | Fair value of assets acquired                                                                                         |                                                          | $          | 3,560,000    |            |              | $          | 12,889,000 |             |   | $         | 4,039,000  |           
|                                                                          | Cash paid                                                                                                             |                                                          |            | (1,029,000   | )          |              |            | (7,838,000 | )           |   |           | (3,212,000 | )         
|                                                                          | Deferred purchase price at date of acquisition                                                                        |                                                          |            | (2,190,000   | )          |              |            | (4,183,000 | )           |   |           | (245,000   | )         
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           
|                                                                          |                                                                                                                       | Liabilities assumed                                      |            | $            | 341,000    |              |            | $          | 868,000     |   |           | $          | 582,000    |  
|                                                                          |                                                                                                                       |                                                          |            |              |            |              |            |            |             |   |           |           

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

F-7



---



##### 



NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002




|    |             
|--- | ------------
|(1) | Organization

National Dentex Corporation (the
Company) owned and operated 34 full-service dental
laboratories and three branch laboratories in 27 states
throughout the United States as of December 31, 2002.
Working from dentists work orders, the Companys
dental laboratories custom design and fabricate dentures, crowns
and fixed bridges, and other dental prosthetic appliances.



|    |                                               
|--- | ----------------------------------------------
|(2) | Summary of Significant Accounting
    Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include all
operations of the Company. Acquisitions are reflected from the
date acquired by the Company (see Note 3) to
December 31, 2002. All significant intercompany balances
and transactions have been eliminated in consolidation.



| |                    
| | -------------------
| | Revenue Recognition

Revenue is recognized as the dentists
orders are shipped. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements. This bulletin established additional
guidelines for revenue recognition. The Companys revenue
recognition policy complies with this pronouncement. Shipping
and handling fees charged to customers are recognized upon
shipment. Shipping and handling costs totaling approximately
$6,396,000, $7,091,000 and $7,690,000 for the years ended
December 31, 2000, 2001 and 2002, respectively, are
included in selling, general and administrative expense.



| |                                      
| | -------------------------------------
| | Advertising and Promotional
    Costs

Advertising, promotional and marketing costs are
charged to earnings in the period in which they are incurred, in
accordance with AICPA Statement of Position (SOP) 93-7,
Reporting on Advertising Costs. These costs were
approximately $551,000, $748,000 and $1,480,000 for the years
ended December 31, 2000, 2001 and 2002, respectively.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid
investments purchased with maturities of 90 days or less to
be cash equivalents. The Company has cash investments with
financial institutions in excess of the $100,000 insured limit
of the Federal Deposit Insurance Corporation.



| |            
| | -----------
| | Inventories

Inventories, consisting principally of raw
materials, are stated at the lower of cost (first-in, first-out)
or market.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost,
less accumulated depreciation. Depreciation is calculated using
the straight-line method over the following estimated
depreciable lives:

|                       |  |           
|---------------------- |  | ----------
|Buildings              |  | 25 years  
|Furniture and fixtures |  | 5-10 years
|Laboratory equipment   |  | 5-20 years
|Computer equipment     |  | 3-5 years 

F-8



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Leasehold improvements and capital leases are
amortized over the lesser of the assets estimated useful
lives or the lease terms.

Gains and losses are recognized upon the disposal
of property and equipment, and the related accumulated
depreciation and amortization are removed from the accounts.
Maintenance, repairs and betterments that do not enhance the
value of or increase the life of the assets are charged to
operations as incurred.

Depreciation expense totaled approximately
$1,095,000, $1,264,000 and $1,436,000 for the years ended
December 31, 2000, 2001 and 2002, respectively.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

At each balance sheet date, management
periodically evaluates the recoverability of the long-lived
assets, including property, plant and equipment and intangible
assets, using certain financial indicators, such as historical
and future ability to generate income from operations. The
Companys policy is to record an impairment loss in the
period when it is determined that the carrying amount of the
asset may not be recoverable. The determination is based on an
evaluation of such factors as the occurrence of a significant
event, a significant change in the environment in which the
business operates or if the expected future undiscounted cash
flows would become less than the carrying amount of the asset.
The Company believes that no impairment of long-lived assets
existed as of December 31, 2001 and 2002.

Other
Assets

Included in other assets are the costs of
noncompetition agreements, which are deferred and amortized on a
straight-line basis according to the terms of the agreements
over 5 to 10 years. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 142,
goodwill amortization ceased on December 31, 2001. The
Company continually evaluates whether events and circumstances
have occurred that indicate that the value of goodwill has been
impaired. In accordance with SFAS No. 142, goodwill is
evaluated for possible impairment on an annual basis, based on a
two-step process. The first step is to compare the fair value of
the reporting unit to its carrying amount to determine if there
is potential impairment. If the fair value of the reporting unit
is less than its carrying value, the second step would be to
record an impairment loss to the extent of that difference. As
of December 31, 2002, there has been no impairment of
goodwill.

Income
Taxes

The Company follows SFAS No. 109,
Accounting for Income Taxes. Under SFAS
No. 109, deferred tax assets and liabilities are recognized
for the expected future tax consequences of events that have
been included in the financial statements or tax returns. The
amount of deferred tax asset or liability is based on the
difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.

Earnings Per
Share

In accordance with the disclosure requirements of
SFAS No. 128, Earnings per Share, basic
earnings per share is computed by dividing net income by the
weighted average number of shares outstanding and diluted
earnings per share reflects the dilutive effect of stock
options. The weighted average number of shares

F-9



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

outstanding, the dilutive effects of outstanding
stock options and warrants, and the shares under option plans
that were antidilutive for the years ended December 31,
2000, 2001 and 2002 are as follows:

|                                                                                                                |  |                         |           |      |  |      |           |  |  |  |           | 
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                                                                                |  |                        
|                                                                                                                |  | Years Ended December 31
|                                                                                                                |  |                        
|                                                                                                                |  | 2000                    |           | 2001 |  | 2002
|                                                                                                                |  |                         |           |      |  |     
|Weighted average number of shares used in basic
    earnings per share calculation                              |  |                         | 3,568,528 |      |  |      | 3,479,056 |  |  |  | 3,457,766 | 
|Incremental shares under option plans                                                                           |  |                         | 32,121    |      |  |      | 83,357    |  |  |  | 95,152    | 
|                                                                                                                |  |                         |           |      |  |      |           |  |  |  |           | 
|Weighed average number of shares used in diluted
    earnings per share calculation                             |  |                         | 3,600,649 |      |  |      | 3,562,413 |  |  |  | 3,552,918 | 
|                                                                                                                |  |                         |           |      |  |      |           |  |  |  |           | 
|Shares under option plans excluded in computation
    of diluted earnings per share due to antidilutive effects |  |                         | 125,092   |      |  |      | 10,300    |  |  |  | 116,950   | 
|                                                                                                                |  |                         |           |      |  |      |           |  |  |  |           | 

Stock-Based
Compensation

Effective January 1, 1996, the Company
adopted the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. The Company
has elected to continue to account for employee stock options at
intrinsic value, in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees, with disclosure of the effects
of fair value accounting on net income and earnings per share on
a pro forma basis for the years ended December 31 2000,
2001 and 2002. Had compensation costs for the Companys
1992 Long-Term Incentive Plan (the LTIP), 2001 Stock
Plan and 1992 Employees Stock Purchase Plan (The
Stock Purchase Plan) been determined consistent with SFAS
No. 123, the Companys net income and earnings per
share would have been reduced to the following pro forma amounts:

|                                                                                                                                                    |                      |              |           |      |  |      |           |      |  |   |           |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------ | --------- | ---- |  | ---- | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                                                    |                      |             
|                                                                                                                                                    |                      | December 31,
|                                                                                                                                                    |                      |             
|                                                                                                                                                    |                      | 2000         |           | 2001 |  | 2002
|                                                                                                                                                    |                      |              |           |      |  |     
|Stock-based employee compensation expense, as
    reported:                                                                                         |                      | $            |          |      |  | $    |          |      |  | $ |          |     
|                                                                                                                                                    |                      |              |           |      |  |      |           |      |  |   |           |     
|Net income, as reported:                                                                                                                            |                      | $            | 5,960,670 |      |  | $    | 5,977,728 |      |  | $ | 5,881,647 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                      |              | 313,869   |      |  |      | 566,194   |      |  |   | 681,078   |     
|                                                                                                                                                    |                      |              |           |      |  |      |           |      |  |   |           |     
|Pro forma net income                                                                                                                                |                      | $            | 5,646,801 |      |  | $    | 5,411,534 |      |  | $ | 5,200,569 |     
|                                                                                                                                                    |                      |              |           |      |  |      |           |      |  |   |           |     
|Earnings per share:                                                                                                                                 |                      |              |           |      |  |      |           |      |  |   |           |     
|                                                                                                                                                    | As reported, basic   |              | $         | 1.67 |  |      | $         | 1.72 |  |   | $         | 1.70 | 
|                                                                                                                                                    | Pro forma, basic     |              |           | 1.58 |  |      |           | 1.56 |  |   |           | 1.50 | 
|                                                                                                                                                    | As reported, diluted |              |           | 1.66 |  |      |           | 1.68 |  |   |           | 1.66 | 
|                                                                                                                                                    | Pro forma, diluted   |              |           | 1.58 |  |      |           | 1.53 |  |   |           | 1.47 | 

In calculating the pro forma information set
forth above, the fair value of each option grant under the LTIP,
the 2001 Stock Plan and the Stock Purchase Plan is estimated as
of the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for
grants in 2000, 2001 and 2002, respectively.

F-10



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                  |  |               |                |               |  |                     |           |                    |  |  |                  |  |  |  |      | 
|----------------- |  | ------------- | -------------- | ------------- |  | ------------------- | --------- | ------------------ |  |  | ---------------- |  |  |  | ---- | 
|                  |  | Risk-Free     |                |               |  |                     |           |                   
|Year Ended        |  | Interest Rate |                | Expected Life |  | Expected Volatility |           | Expected Dividends
|                  |  |               |                |               |  |                     |           |                   
|December 31, 2002 |  |               | 0.43% to 2.04% |               |  |                     | 1-3 Years |                    |  |  | 28.30% to 28.64% |  |  |  | None | 
|December 31, 2001 |  |               | 0.48% to 3.68% |               |  |                     | 1-3 Years |                    |  |  | 28.61% to 29.65% |  |  |  | None | 
|December 31, 2000 |  |               | 4.56% to 5.49% |               |  |                     | 1-3 Years |                    |  |  | 30.45% to 30.75% |  |  |  | None | 

Treasury
Stock Purchases

The Company has implemented a stock repurchase
program as approved by the Companys Board of Directors.
The program authorizes the purchase of up to 400,000 shares
of common stock in open market or privately negotiated
transactions, subject to market conditions. For the years ended
December 31, 2000, 2001 and 2002, the Company repurchased
17,200 shares, 161,600 shares and 83,400 shares
respectively, which have been classified as treasury stock on
the accompanying consolidated balance sheet.

Use of
Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Disclosures
About the Fair Value of Financial Instruments

The Companys financial instruments mainly
consist of cash and cash equivalents, accounts receivable,
accounts payable, and long-term liabilities. The carrying
amounts of the Companys cash and cash equivalents,
accounts receivable and accounts payable approximate their fair
value due to the short-term nature of these instruments. The
carrying amounts of the long-term liabilities also approximates
their fair value, based on rates available to the Company for
debt with similar terms and remaining maturities.

Comprehensive
Income

SFAS No. 130, Reporting Comprehensive
Income, requires disclosure of all components of
comprehensive income on an annual and interim basis.
Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other
events and circumstances from nonowner sources. The
Companys comprehensive income is equal to its net income
for all periods presented.

Disclosures
about Segments of an Enterprise

SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information,
establishes standards for reporting information regarding
operating segments in annual financial statements and requires
selected information for those segments to be presented in
interim financial reports issued to stockholders. SFAS
No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating
segments are identified as components of an enterprise about
which separate financial information is available for the
evaluation by the chief decision maker, or decision-making
group, in making decisions how to allocate resources and assess
performance. To date, the Company has viewed its operations and
manages its business as one operating segment.

Recent
Accounting Pronouncements

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146), which nullifies
Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability

F-11



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS 146 requires
a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at its fair value
in the period in which the liability is incurred. If fair value
cannot be reasonably estimated, the liability shall be
recognized initially in the period in which fair value can be
reasonably estimated. The provisions of SFAS 146 will be
effective for the Company prospectively for exit or disposal
activities initiated after December 31, 2002. The Company
does not believe that the adoption of this pronouncement will
have a material effect on the results of the Company.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others
(FIN 45). FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 does not
prescribe a specific approach for subsequently measuring the
guarantors recognized liability over the term of the
related guarantee. This Interpretation also incorporates,
without change, the guidance in FASB Interpretation No. 34,
Disclosure of Indirect Guarantees of Indebtedness of
Others,which is being superseded. The Company has
adopted the disclosure provisions of this pronouncement as of
December 31, 2002. The Company is currently assessing the
financial impact of adopting this pronouncement in fiscal year
2003.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation (SFAS 148), to provide
alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure
requirements of SFAS 123 to require prominent disclosure in
both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. The amended disclosure
provisions are effective for fiscal years ending after
December 15, 2002 and the Company has adopted the amended
disclosure provisions as of December 31, 2002. The Company
has not decided whether or not it will voluntarily change to the
fair value based method of accounting for stock-based employee
compensation at this time.

(3) Acquisitions

The Companys acquisition strategy is to
consolidate within the dental laboratory industry and use its
financial and operational synergies to create a competitive
advantage. Certain factors, such as the laboratorys
technical skills, reputation in the local marketplace and value
as a going concern result in the recognition of goodwill.

During 2001, the Company acquired the following
dental laboratory operations:

|                             |  |              
|---------------------------- |  | -------------
|Creative Dental Ceramics     |  | March 2001   
|Bauer Dental Laboratory      |  | May 2001     
|Aronovitch Dental Laboratory |  | July 2001    
|New Mexico Dental Laboratory |  | August 2001  
|Crown Dental Laboratory      |  | November 2001
|The Freeman Center           |  | November 2001

During 2002, the Company acquired the following
dental laboratory operations:

|                      |  |            
|--------------------- |  | -----------
|Fox Dental Company    |  | April 2002 
|Valencia Dental       |  | July 2002  
|E&S Dental Laboratory |  | August 2002

F-12



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Acquisitions completed prior to July 1, 2001
have been reflected in the accompanying consolidated financial
statements from the dates of acquisition, and have been
accounted for as purchases in accordance with APB Opinion
No. 16, Accounting for Business Combinations.
Acquisitions completed after June 30, 2001 have been
reflected in the accompanying consolidated financial statements
from the dates of acquisition, and have been accounted for as
purchases in accordance with SFAS No. 141, Business
Combinations.

The total purchase price has been allocated to
the acquired assets and liabilities based on preliminary
estimates of their related fair values, which are subject to
revision. The total purchase price was allocated as follows as
of December 31, 2001 and 2002:

|                                                                |                               |      |            |           |   |   |           |          |  
|--------------------------------------------------------------- | ----------------------------- | ---- | ---------- | --------- | - | - | --------- | -------- | -
|                                                                |                               | 2001 |            | 2002     
|                                                                |                               |      |            |          
|Total Purchase Price                                            |                               | $    | 12,021,000 |           |   | $ | 3,457,000 |         
|Less Fair Market Values Assigned to Assets and
    Liabilities: |                               |      |            |           |   |   |           |         
|                                                                | Cash                          |      |            | 305,000   |   |   |           | 375,000  |  
|                                                                | Accounts receivable           |      |            | 1,204,000 |   |   |           | 452,000  |  
|                                                                | Inventories                   |      |            | 407,000   |   |   |           | 118,000  |  
|                                                                | Property, plant and equipment |      |            | 577,000   |   |   |           | 483,000  |  
|                                                                | Non-compete agreements        |      |            | 720,000   |   |   |           | 310,000  |  
|                                                                | Other assets                  |      |            | 12,000    |   |   |           | 27,000   |  
|                                                                | Accounts payable              |      |            | (477,000  | ) |   |           | (257,000 | )
|                                                                | Accrued liabilities and other |      |            | (391,000  | ) |   |           | (325,000 | )
|                                                                |                               |      |            |           |   |   |           |         
|Goodwill                                                        |                               | $    | 9,664,000  |           |   | $ | 2,274,000 |         
|                                                                |                               |      |            |           |   |   |           |         

Acquired goodwill of approximately $3,688,000 and
$836,000 for acquisitions completed in 2001 and 2002,
respectively, are tax deductible over a fifteen-year period, as
allowed under Internal Revenue Service Code Section 197.

In connection with these acquisitions, the
Company has incurred certain deferred purchase costs relating to
noncompete agreements with certain individuals, ranging over
periods of 5 to 10 years, and other contingent payments
provided for in the purchase agreements.

The following unaudited pro forma operating
results of the Company assume the acquisitions had been made as
of January 1, 2001. Such information includes adjustments
to reflect additional depreciation, non-compete amortization,
amortization of goodwill and interest expense, and is not
necessarily indicative of what the results of operations would
actually have been, or of the results of operations in future
periods.

|                      |         |              |            |              |  |   |            |      | 
|--------------------- | ------- | ------------ | ---------- | ------------ |  | - | ---------- | ---- | 
|                      |         |             
|                      |         | Years Ended 
|                      |         |             
|                      |         | December 31, |            | December 31,
|                      |         | 2001         |            | 2002        
|                      |         |              |            |             
|Net sales             |         | $            | 97,033,000 |              |  | $ | 96,577,000 |     
|Net income            |         |              | 6,349,000  |              |  |   | 5,829,000  |     
|Net income per share: |         |              |            |              |  |   |            |     
|                      | Basic   |              | $          | 1.82         |  |   | $          | 1.69 | 
|                      | Diluted |              | $          | 1.78         |  |   | $          | 1.64 | 

For all acquisitions completed prior to
July 1, 2001, the pro forma results presented above were
calculated assuming that amortization expense related to
goodwill was incurred throughout fiscal year 2001. For
acquisitions completed after June 30, 2001, the pro forma
results from operations presented above were calculated assuming
that no amortization expense related to goodwill was incurred
for fiscal years 2001, in accordance with SFAS No. 141,
which was effective on July 1, 2001.

F-13



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|(4) | Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141,
Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets.
SFAS No. 141 addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in
a business combination. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets
acquired outside of a business combination, whether acquired
individually or with a group of other assets, and the accounting
and reporting for goodwill and other intangibles subsequent to
their acquisition. These standards require that the purchase
method of accounting be used for business combinations and
eliminate the use of the pooling-of-interest method.
Additionally, they require that goodwill and intangible assets
with indefinite lives no longer be amortized. The Company was
required to adopt SFAS No. 141 and
SFAS No. 142 on a prospective basis as of July 1,
2001 and January 1, 2002, respectively. In accordance with
the provisions of SFAS No. 142, the Company no longer
amortizes goodwill. In order to permit the comparison of net
income and earnings per share in 2002 with that of prior years,
the following table presents the impact of goodwill amortization
on earnings and earnings per share:

|                                           |                                   |              |           |              |  |              |           |      |  |   |           |      | 
|------------------------------------------ | --------------------------------- | ------------ | --------- | ------------ |  | ------------ | --------- | ---- |  | - | --------- | ---- | 
|                                           |                                   | Year Ended   |           | Year Ended   |  | Year Ended  
|                                           |                                   | December 31, |           | December 31, |  | December 31,
|                                           |                                   | 2000         |           | 2001         |  | 2002        
|                                           |                                   |              |           |              |  |             
|Net income applicable to common stock      |                                   | $            | 5,960,670 |              |  | $            | 5,977,728 |      |  | $ | 5,881,647 |     
|Add back: Goodwill amortization            |                                   |              | 699,466   |              |  |              | 910,641   |      |  |   |          |     
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Adjusted net income                        |                                   | $            | 6,660,136 |              |  | $            | 6,888,369 |      |  | $ | 5,881,647 |     
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Computation of Basic Earnings per Share:   |                                   |              |           |              |  |              |           |      |  |   |           |     
|                                           | Reported basic earnings per share |              | $         | 1.67         |  |              | $         | 1.72 |  |   | $         | 1.70 | 
|                                           | Add back: Goodwill amortization   |              |           | .20          |  |              |           | .26  |  |   |           |     | 
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Adjusted basic earnings per share          |                                   | $            | 1.87      |              |  | $            | 1.98      |      |  | $ | 1.70      |     
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Computation of Diluted Earnings per Share: |                                   |              |           |              |  |              |           |      |  |   |           |     
|                                           | Reported earnings per share       |              | $         | 1.66         |  |              | $         | 1.68 |  |   | $         | 1.66 | 
|                                           | Add back: Goodwill amortization   |              |           | .19          |  |              |           | .26  |  |   |           |     | 
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Adjusted diluted earnings per share        |                                   | $            | 1.85      |              |  | $            | 1.94      |      |  | $ | 1.66      |     
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     

SFAS No. 142 further requires that
goodwill be subject to impairment tests at least annually. A
two-step process is required to complete such testing with the
first step being to identify any potential impairment. The
Company was required to perform this first step effective for
the quarter ended June 30, 2002. The second step of the
goodwill impairment test measures the amount of the impairment
loss, if any. This measurement had to be as of the beginning of
the year of adoption. The Company has completed both steps of
the impairment testing and has determined that no impairment
exists at this time.

The changes in the carrying amount of goodwill
for the years ended December 31, 2001 and 2002 are as
follows:

|                                                                              |  |              |            |      |  |   |            | 
|----------------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                                                                              |  |             
|                                                                              |  | December 31,
|                                                                              |  |             
|                                                                              |  | 2001         |            | 2002
|                                                                              |  |              |            |     
|Balance as of January 1                                                       |  | $            | 12,848,000 |      |  | $ | 21,645,000 | 
|Goodwill acquired during the year                                             |  |              | 9,664,000  |      |  |   | 2,274,000  | 
|Amortization expense                                                          |  |              | (911,000   | )    |  |   |           | 
|Adjustments related to contingent consideration                               |  |              |           |      |  |   | 140,000    | 
|Adjustments related to the finalization of
    preliminary purchase estimates |  |              | 44,000     |      |  |   | 64,000     | 
|                                                                              |  |              |            |      |  |   |            | 
|Balance as of December 31                                                     |  | $            | 21,645,000 |      |  | $ | 24,123,000 | 
|                                                                              |  |              |            |      |  |   |            | 

F-14



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company also enters into certain
non-competition agreements, primarily related to the acquisition
of dental laboratories. The amounts assigned to non-competition
agreements are amortized on a straight-line basis over the term
of the agreement.

|                                |  |              |            |      |  |   |            |  
|------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                                |  |             
|                                |  | December 31,
|                                |  |             
|                                |  | 2001         |            | 2002
|                                |  |              |            |     
|Non-competition agreements      |  | $            | 7,661,000  |      |  | $ | 7,389,000  |  
|Less: Accumulated amortization  |  |              | (4,093,000 | )    |  |   | (4,748,000 | )
|                                |  |              |            |      |  |   |            |  
|Non-competition agreements, net |  | $            | 3,568,000  |      |  | $ | 2,641,000  |  
|                                |  |              |            |      |  |   |            |  

Amortization expense associated with
non-competition agreements totaled approximately $696,000,
$747,000,and $656,000 for the years ended December 31,
2000, 2001 and 2002, respectively.

Future amortization expense of non-competition
agreements will be approximately:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2003       |  | $ | 703,000   | 
|2004       |  |   | 601,000   | 
|2005       |  |   | 479,000   | 
|2006       |  |   | 332,000   | 
|2007       |  |   | 177,000   | 
|Thereafter |  |   | 349,000   | 
|           |  |   |           | 
|           |  | $ | 2,641,000 | 
|           |  |   |           | 



|    |             
|--- | ------------
|(5) | Income Taxes

The following is a summary of the provision for
income taxes:

|          |          |              |           |              |   |              |           |           |  |   |           |           | 
|--------- | -------- | ------------ | --------- | ------------ | - | ------------ | --------- | --------- |  | - | --------- | --------- | 
|          |          |             
|          |          | Years Ended 
|          |          |             
|          |          | December 31, |           | December 31, |   | December 31,
|          |          | 2000         |           | 2001         |   | 2002        
|          |          |              |           |              |   |             
|Federal  |          |              |           |              |   |              |           |           |  |   |           |          
|          | Current  |              | $         | 3,234,702    |   |              | $         | 3,192,325 |  |   | $         | 2,703,114 | 
|          | Deferred |              |           | (45,886      | ) |              |           | 8,649     |  |   |           | 233,046   | 
|          |          |              |           |              |   |              |           |           |  |   |           |          
|          |          |              | 3,188,816 |              |   |              | 3,200,974 |           |  |   | 2,936,160 |          
|          |          |              |           |              |   |              |           |           |  |   |           |          
|State    |          |              |           |              |   |              |           |           |  |   |           |          
|          | Current  |              |           | 688,062      |   |              |           | 736,825   |  |   |           | 666,801   | 
|          | Deferred |              |           | (8,097       | ) |              |           | 1,526     |  |   |           | 41,126    | 
|          |          |              |           |              |   |              |           |           |  |   |           |          
|          |          |              | 679,965   |              |   |              | 738,351   |           |  |   | 707,927   |          
|          |          |              |           |              |   |              |           |           |  |   |           |          
|          |          | $            | 3,868,781 |              |   | $            | 3,939,325 |           |  | $ | 3,644,087 |          
|          |          |              |           |              |   |              |           |           |  |   |           |          

F-15



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Deferred income taxes are comprised of the
following at December 31, 2001 and 2002:

|                          |                               |                                |         |          |           |   |         |          |           |  
|------------------------- | ----------------------------- | ------------------------------ | ------- | -------- | --------- | - | ------- | -------- | --------- | -
|                          |                               | 2001                           |         | 2002    
|                          |                               |                                |         |         
|Deferred Tax Assets:      |                               |                                |         |          |           |   |         |         
|                          | Non-compete agreements        |                                | $       | 538,214  |           |   | $       | 619,489  |          
|                          | Other liabilities             |                                |         | 275,779  |           |   |         | 227,418  |          
|                          | Vacation benefits             |                                |         | 201,600  |           |   |         | 137,898  |          
|                          | Inventory basis differences   |                                |         | 30,551   |           |   |         | 29,377   |          
|                          | Receivables basis differences |                                |         | 58,022   |           |   |         | 65,299   |          
|                          | Other reserves                |                                |         | 79,021   |           |   |         | 38,255   |          
|                          |                               |                                |         |          |           |   |         |         
|                          |                               | Total deferred tax assets      |         |          | 1,183,187 |   |         |          | 1,117,736 |  
|                          |                               |                                |         |          |           |   |         |         
|Deferred Tax Liabilities: |                               |                                |         |          |           |   |         |         
|                          | Property basis differences    |                                |         | (451,291 | )         |   |         | (660,012 | )        
|                          |                               |                                |         |          |           |   |         |         
|                          |                               | Total deferred tax liabilities |         |          | (451,291  | ) |         |          | (660,012  | )
|                          |                               |                                |         |          |           |   |         |         
|Net deferred tax asset    |                               | $                              | 731,896 |          |           | $ | 457,724 |         
|                          |                               |                                |         |          |           |   |         |         

A reconciliation between the provision for income
taxes computed at statutory rates and the amount reflected in
the accompanying statements of income is as follows:

|                                                        |  |              |      |              |  |              |      |   |  |  |      |  
|------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------ | ---- | - |  |  | ---- | -
|                                                        |  |             
|                                                        |  | Years Ended 
|                                                        |  |             
|                                                        |  | December 31, |      | December 31, |  | December 31,
|                                                        |  | 2000         |      | 2001         |  | 2002        
|                                                        |  |              |      |              |  |             
|Statutory federal income tax rate                       |  |              | 34.0 | %            |  |              | 34.0 | % |  |  | 34.0 | %
|State income tax, net of federal income tax
    benefit |  |              | 4.6  |              |  |              | 4.9  |   |  |  | 4.6  | %
|Other                                                   |  |              | 0.8  |              |  |              | 0.8  |   |  |  | (0.3 | )
|                                                        |  |              |      |              |  |              |      |   |  |  |      |  
|Effective income tax rate                               |  |              | 39.4 | %            |  |              | 39.7 | % |  |  | 38.3 | %
|                                                        |  |              |      |              |  |              |      |   |  |  |      |  



|    |                
|--- | ---------------
|(6) | Lines of Credit

The Company maintains a financing agreement (the
Agreement) with Citizens Bank of Massachusetts
(formerly State Street Bank and Trust Company) (the
Bank). The Agreement, as amended on
December 31, 2001, includes revolving lines of credit of
$4,000,000 and $8,000,000. The interest rate on both revolving
lines of credit is the prime rate minus 0.5% or the London
Interbank Offered Rate (LIBOR) rate plus 1.5%, at
the Companys option. Both revolving lines of credit mature
on June 30, 2004. The full amounts under the lines of
credit were available for use at December 31, 2001 and 2002.

A commitment fee of one-eighth of 1% is payable
on the unused amount of both revolving lines of credit. As of
December 31, 2002, the full principal amount was available
to the Company under both revolving lines of credit. The
Agreement requires compliance with certain covenants, including
the maintenance of net worth and other financial ratios. As of
December 31, 2002, the Company was in compliance with these
covenants.



|    |              
|--- | -------------
|(7) | Benefit Plans

The Company has an employee savings plan (the
Plan) under Internal Revenue Service (IRS) Code
Section 401(k). The Plan allows contributions of up to 10%
of a participants salary, a portion of which is matched in
cash by the Company. The Company contributes this amount once a
year, within 120 days after December 31, the
Plans year-end. All employees are eligible to participate
in the Plan after completing one year of service with the
Company and the attainment of age 21. Participants become
fully vested after six

F-16



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

years of service or upon attaining age 65.
The Company has incurred charges to operations of approximately
$412,000, $398,000 and $573,000 to match contributions for the
years ended December 31, 2000, 2001 and 2002, respectively.

The Company has an incentive plan, the Laboratory
Plan, for dental laboratory management and other designated key
employees who could directly influence the financial performance
of an individual dental laboratory. Eligibility is determined
annually for each laboratory. Each participant is eligible to
receive an amount based on the achievement of certain earnings
levels of the participants laboratory, as defined. The
Company has incurred charges to operations of approximately
$2,472,000, $2,725,000 and $3,022,000 for the years ended
December 31, 2000, 2001 and 2002, respectively, under the
Laboratory Plan.

The Company has an executive bonus plan (the
Executive Plan) for key executives and management of
the Company, and a management bonus plan (the Managers
Plan) for laboratory group managers. Eligibility to
participate in each plan is determined annually. Participants
are eligible to receive a bonus, based on a percentage of
salary, dependent upon the achievement of earnings targets, as
defined. The bonus is distributed within 90 days after
year-end. The Company has incurred aggregate charges to
operations of approximately $465,000, $216,000 and $317,000, for
the years ended December 31, 2000, 2001 and 2002,
respectively, with respect to these plans.

The Company established a Supplemental Executive
Retirement Plan (SERP) for certain key employees
providing for annual benefits payable over a period of
10 years beginning at age 65 or date of retirement.
Benefits will be funded by life insurance contracts purchased by
the Company. The cost of these benefits is being charged to
expense and accrued using a present value method over the
expected terms of employment. These benefits vest to the
participating employees over periods of up to ten years. The
charges to expense for the years ended December 31, 2000,
2001 and 2002, were approximately $197,000, $284,000 and
$389,000, respectively.



|    |                              
|--- | -----------------------------
|(8) | Commitments and Contingencies



| |                 
| | ----------------
| | Operating Leases

The Company is committed under various
non-cancelable operating lease agreements covering its office
space and dental laboratory facilities and certain equipment.
Certain of these leases also require the Company to pay
maintenance, repairs, insurance and related taxes. The total
rental expense for the years ended December 31, 2000, 2001
and 2002 was approximately $2,068,000, $2,278,000 and
$2,699,000, respectively. The approximate aggregate minimum
lease commitments under these leases as of December 31,
2001 are as follows:

|           |  |        |            | 
|---------- |  | ------ | ---------- | 
|Year       |  | Amount
|           |  |       
|2003       |  | $      | 2,556,000  | 
|2004       |  |        | 2,018,000  | 
|2005       |  |        | 1,510,000  | 
|2006       |  |        | 1,094,000  | 
|2007       |  |        | 808,000    | 
|Thereafter |  |        | 2,223,000  | 
|           |  |        |            | 
|           |  | $      | 10,209,000 | 
|           |  |        |            | 

Employment
Contracts and Change-in-Control Arrangements

In April 1995 and January 2001, the Company
entered into employment contracts and change-in-control
arrangements with certain key executives. The initial term of
these employment contracts expired in April

F-17



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

1998, and the contracts by their terms renew
automatically thereafter until termination by the Company or the
executive. The change-in-control arrangements provide certain
severance benefits in the event that the executive is terminated
by the Company without cause or the executive terminates his
employment contract for certain specified reasons.

(9) Stock Options, Warrants and Employee
Stock Purchase Plan



| |                   
| | ------------------
| | Stock Option Plans

In May 1992, the Companys Board of
Directors (the Board) adopted the 1992 Long-Term
Incentive Plan (the LTIP). Under the LTIP, the Board
may grant stock options, stock appreciation rights, restricted
stock, deferred stock, stock purchase rights and other
stock-based compensation to key employees, officers and
directors of the Company. In August 1995, the Board amended the
LTIP to increase the number of shares of common stock reserved
for issuance under the plan from 150,000 to 235,000, in April
1997 to 335,000 and in April 1998 to 485,000. As of May 2002, no
additional options may be granted under this plan. These options
vest over three years from date of grant with a maximum term of
ten years.

The following summarizes the transactions of the
Companys LTIP for the years ended December 31, 2000,
2001 and 2002:

|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                  |   |   |       |       |  |   |         |         |   |   |       |       | 
|---------------------------------------------- | --------- | ------ | ------- | ---------------- | - | ------ | ----- | ---------------- |  | ------ | ------- | ---------------- | - | - | ----- | ----- |  | - | ------- | ------- | - | - | ----- | ----- | 
|                                               |           |        |         |                  |   |       
|                                               |           | 2000   |         | 2001             |   | 2002  
|                                               |           |        |         |                  |   |       
|                                               |           |        |         | Weighted Average |   |        |       | Weighted Average |  |        |         | Weighted Average
|                                               |           | Shares |         | Exercise Price   |   | Shares |       | Exercise Price   |  | Shares |         | Exercise Price  
|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                 
|Outstanding at beginning of year               |           |        | 325,624 |                  |   | $      | 17.51 |                  |  |        | 315,751 |                  |   | $ | 16.33 |       |  |   | 388,743 |         |   | $ | 17.39 |      
|                                               | Granted   |        |         | 74,650           |   |        |       | 13.09            |  |        |         | 104,500          |   |   |       | 20.25 |  |   |         | 9,100   |   |   |       | 24.73 | 
|                                               | Exercised |        |         | (12,450          | ) |        |       | 13.41            |  |        |         | (25,826          | ) |   |       | 16.25 |  |   |         | (24,380 | ) |   |       | 14.66 | 
|                                               | Canceled  |        |         | (72,073          | ) |        |       | 18.83            |  |        |         | (5,682           | ) |   |       | 16.46 |  |   |         | (17,737 | ) |   |       | 19.36 | 
|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                  |   |   |       |       |  |   |         |         |   |   |       |      
|Outstanding at end of year                     |           |        | 315,751 |                  |   | $      | 16.33 |                  |  |        | 388,743 |                  |   | $ | 17.39 |       |  |   | 355,726 |         |   | $ | 17.67 |      
|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                  |   |   |       |       |  |   |         |         |   |   |       |      
|Exercisable at end of year                     |           |        | 216,762 |                  |   | $      | 17.53 |                  |  |        | 235,692 |                  |   | $ | 16.99 |       |  |   | 254,976 |         |   | $ | 17.12 |      
|Weighted average fair value of options granted |           | $      | 2.72    |                  |   |        |       |                  |  | $      | 3.69    |                  |   |   |       |       |  | $ | 4.15    |         |   |   |       |      

|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|-------------------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | --- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                           |  |                     |         |                    
|                           |  | Options Outstanding |         | Options Exercisable
|                           |  |                     |         |                    
|                           |  | Number              |         | Weighted Average    |  | Weighted Average |     | Number      |  | Weighted Average
|                           |  | Outstanding         |         | Remaining           |  | Exercise Price   |     | Exercisable |  | Exercise Price  
|Exercise Price Range       |  | at 12/31/02         |         | Contractual Life    |  | Per Share        |     | at 12/31/02 |  | Per Share       
|                           |  |                     |         |                     |  |                  |     |             |  |                 
|$12.25 to $15.00 Per Share |  |                     | 89,372  |                     |  |                  | 5.7 |             |  | $                | 12.77 |  |  |  | 67,240  |  |  | $ | 12.70 | 
|$15.25 to $20.13 Per Share |  |                     | 94,354  |                     |  |                  | 5.1 |             |  | $                | 17.02 |  |  |  | 94,354  |  |  | $ | 17.02 | 
|$20.25 to $24.88 Per Share |  |                     | 172,000 |                     |  |                  | 7.0 |             |  | $                | 20.57 |  |  |  | 93,382  |  |  | $ | 20.41 | 
|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|                           |  |                     | 355,726 |                     |  |                  | 6.2 |             |  | $                | 17.67 |  |  |  | 254,976 |  |  | $ | 17.12 | 
|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 

In January 2001, the Companys Board of
Directors adopted the 2001 Stock Plan. Under this plan, the
Board may grant stock options, stock appreciation rights,
restricted stock, deferred stock, stock purchase rights and
other stock-based compensation to key employees, officers and
directors of the Company. The Board reserved 300,000 shares of
common stock for issuance under the Plan. These options vest
over three years from date of grant with a maximum term of ten
years.

F-18



---



##### 



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following summarizes the transactions of the
Companys 2001 Stock Plan for the years ended
December 31, 2001 and 2002:

|                                               |           |        |         |                  |  |        |       |                  |  |   |         |         |   |   |       |       | 
|---------------------------------------------- | --------- | ------ | ------- | ---------------- |  | ------ | ----- | ---------------- |  | - | ------- | ------- | - | - | ----- | ----- | 
|                                               |           |        |         |                 
|                                               |           | 2001   |         | 2002            
|                                               |           |        |         |                 
|                                               |           |        |         | Weighted Average |  |        |       | Weighted Average
|                                               |           | Shares |         | Exercise Price   |  | Shares |       | Exercise Price  
|                                               |           |        |         |                  |  |        |       |                 
|Outstanding at beginning of year               |           |        |        |                  |  | $      |      |                  |  |   | 116,750 |         |   | $ | 20.47 |      
|                                               | Granted   |        |         | 116,750          |  |        |       | 20.47            |  |   |         | 108,500 |   |   |       | 24.66 | 
|                                               | Exercised |        |         |                 |  |        |       |                 |  |   |         |        |   |   |       |      | 
|                                               | Canceled  |        |         |                 |  |        |       |                 |  |   |         | (3,150  | ) |   |       | 20.94 | 
|                                               |           |        |         |                  |  |        |       |                  |  |   |         |         |   |   |       |      
|Outstanding at end of year                     |           |        | 116,750 |                  |  | $      | 20.47 |                  |  |   | 222,100 |         |   | $ | 22.51 |      
|                                               |           |        |         |                  |  |        |       |                  |  |   |         |         |   |   |       |      
|Exercisable at end of year                     |           |        |        |                  |  | $      | 0.00  |                  |  |   | 37,853  |         |   | $ | 20.46 |      
|Weighted average fair value of options granted |           | $      | 3.76    |                  |  |        |       |                  |  | $ | 4.13    |         |   |   |       |      

|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |        |  |  |   |       | 
|-------------------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | --- | ----------- |  | ---------------- | ----- |  |  |  | ------ |  |  | - | ----- | 
|                           |  |                     |         |                    
|                           |  | Options Outstanding |         | Options Exercisable
|                           |  |                     |         |                    
|                           |  | Number              |         | Weighted Average    |  | Weighted Average |     | Number      |  | Weighted Average
|                           |  | Outstanding         |         | Remaining           |  | Exercise Price   |     | Exercisable |  | Exercise Price  
|Exercise Price Range       |  | at 12/31/02         |         | Contractual Life    |  | Per Share        |     | at 12/31/02 |  | Per Share       
|                           |  |                     |         |                     |  |                  |     |             |  |                 
|$19.52 to $24.68 Per Share |  |                     | 222,100 |                     |  |                  | 8.7 |             |  | $                | 22.51 |  |  |  | 37,853 |  |  | $ | 20.46 | 

Also, the Company has the 1992 Employees
Stock Purchase Plan (the Stock Purchase Plan), as
amended in April 2000, under which an aggregate of 200,000
shares of the Companys common stock may be purchased,
through a payroll deduction program, primarily at a price equal
to 85% of the fair market value of the common stock on either
April 1, 2002 or March 31, 2003, whichever is lower.
The number of shares of common stock purchased through the Stock
Purchase Plan for 2000, 2001 and 2002 were 17,528 15,823 and
12,706, respectively.

(10) Subsequent Event

Effective February 28th, 2003, the Company
completed a transaction to acquire all of the assets of Nobilium
of Texas Dental Laboratory (Nobilium) of Houston,
Texas from Sentage Corporation. Nobilium had sales of
approximately $1,000,000 in its last fiscal year ended
December 31, 2002.

F-19



---



##### 



SCHEDULE II

NATIONAL DENTEX CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

|                                 |                   |            |   |            |  |            |   |           |  |            |   |        |  |  |  |   |  |  |   |         | 
|-------------------------------- | ----------------- | ---------- | - | ---------- |  | ---------- | - | --------- |  | ---------- | - | ------ |  |  |  | - |  |  | - | ------- | 
|                                 |                   | Balance at |   | Charged to |  |            |   |           |  | Balance at
|                                 |                   | Beginning  |   | Costs and  |  |            |   |           |  | End of    
|                                 |                   | of Period  |   | Expenses   |  | Write-offs |   | Deduction |  | Period    
|                                 |                   |            |   |            |  |            |   |           |  |           
|Allowance for Doubtful Accounts: |                   |            |   |            |  |            |   |           |  |            |   |        |  |  |  |   |  |  |   |        
|                                 | December 31, 2000 |            | $ | 195,758    |  |            | $ | 137,567   |  |            | $ | 59,311 |  |  |  |  |  |  | $ | 274,014 | 
|                                 | December 31, 2001 |            |   | 274,014    |  |            |   | 105,763   |  |            |   | 72,310 |  |  |  |  |  |  |   | 307,467 | 
|                                 | December 31, 2002 |            |   | 307,467    |  |            |   | 46,477    |  |            |   | 46,978 |  |  |  |  |  |  |   | 306,966 | 



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                            
| | ---------------------------
| | NATIONAL DENTEX CORPORATION



| |     |                   
| | --- | ------------------
| | By: | /s/ DAVID L. BROWN

| |                
| | ---------------
| |                
| | David L. Brown,
| | President & CEO

March 10, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.



| |                                            
| | -------------------------------------------
| | /s/ DAVID V. HARKINS                       
| |                                            
| | David V. Harkins,                          
| | Chairman of the Board And Director         
| | March 10, 2003                             
|
| | /s/ JACK R. CROSBY                         
| |                                            
| | Jack R. Crosby,                            
| | Director                                   
| | March 10, 2003                             
|
| | /s/ DANIEL A. GRADY                        
| |                                            
| | Daniel A. Grady,                           
| | Director                                   
| | March 10, 2003                             
|
| | /s/ NORMAN F. STRATE                       
| |                                            
| | Norman F. Strate,                          
| | Director                                   
| | March 10, 2003                             
|
| | /s/ DAVID L. BROWN                         
| |                                            
| | David L. Brown,                            
| | President, CEO, Treasurer, And
    Director
| | (Principal Executive Officer)              
| | March 10, 2003                             
|
| | /s/ RICHARD F. BECKER, JR.                 
| |                                            
| | Richard F. Becker, Jr,                     
| | Vice President, Treasurer and              
| | Chief Financial Officer                    
| | (Principal Financial Officer)              
| | March 10, 2003                             



---



##### 



CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT
TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002


I, David L. Brown, President, Chief Executive
Officer and Director, certify that:

1.     I have reviewed
this annual report on Form 10-K of National Dentex
Corporation;

2.     Based on my
knowledge, this annual 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 annual
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries (if any), is
    made known to us by others within those entities, particularly
    during the period in which this annual report is being prepared;
|
| | b) Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                               
|
| | c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                         

5.     The
registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officer and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.



| |                                   
| | ----------------------------------
| | By: /s/ DAVID L. BROWN            
| |                                   
| | David L. Brown                    
| | President, Chief Executive Officer
| | and Director                      

Date: March 10, 2003



---



##### 



CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT
TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002


I, Richard F. Becker, Jr., Chief Financial
Officer, Vice President of Finance and Treasurer, certify that:

1.     I have reviewed
this annual report on Form 10-K of National Dentex
Corporation;

2.     Based on my
knowledge, this annual 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 annual
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries (if any), is
    made known to us by others within those entities, particularly
    during the period in which this annual report is being prepared;
|
| | b) Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                               
|
| | c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                         

5.     The
registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officer and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.



| |                                        
| | ---------------------------------------
| | By: /s/ RICHARD F. BECKER, JR.         
| |                                        
| | Richard F. Becker, Jr.                 
| | Chief Financial Officer, Vice President
| | of Finance and Treasurer               

Date: March 10, 2003